The State Worker

CalPERS says town defaulted on pension debt. What’s next for tiny Loyalton?

CalPERS retiree testifies about losing his CalPERS pension

John Cussins, a Loyalton city councilman and pensioner, addresses a CalPERS panel Sept. 20, 2016. Video courtesy of CalPERS.
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John Cussins, a Loyalton city councilman and pensioner, addresses a CalPERS panel Sept. 20, 2016. Video courtesy of CalPERS.

CalPERS on Wednesday declared that the Sierra County town of Loyalton has defaulted on its debt to the giant pension fund, a move that means the state is poised to scale back retirees’ pension benefits.

The CalPERS board said Loyalton has failed to make the nearly $1.7 million “termination liability” it owes to the pension fund – the result of a City Council decision in March 2013 to pull out of the California Public Employees’ Retirement System.

The default means the CalPERS board can move to reduce retirees’ benefits in Loyalton by about 60 percent, according to a formula that takes into account the dollars the city has already paid into the pension system. That would mark the first time in state history that CalPERS has reduced retirees’ benefits because of a municipality’s failure to pay its pension bills.

The impact on the retirees could be blunted, however. CalPERS spokeswoman Amy Morgan said the pension fund was told the City Council voted this week to make up the difference in the retirees’ benefits.

Councilwoman Patricia Whitley confirmed the vote, which was taken in closed session. But she said the decision isn’t final until the council talks to the retirees and figures out how much it will cost.

Although it has only a handful of retirees from city government, Loyalton’s problems are being closely watched in the pension industry. It is one of three government agencies that have lagged in their payments to CalPERS, along with the California Fair Financing Authority and the Niland Sanitary District in Imperial County.

“This is a decision we take very seriously and one we very much regret had to be made,” said CalPERS board president Rob Feckner in a prepared statement. “As a board, we have a fiduciary responsibility to keep the CalPERS fund on secure footing, and as part of this duty we must ensure that employers adhere to the contracts they agreed to. When they don’t, the law requires us to act.

“The people who suffer for this are Loyalton’s public servants who had every right to expect that the city would pay its bill and fulfill the benefit promises it made to them,” Feckner added.

The CalPERS debt amounts to about $2,100 for each of Loyalton’s 750 residents. City officials have said Loyalton doesn’t have enough money to pay the debt.


CalPERS said it first billed the town for the termination liability in June 2014, a year after the council’s vote. The pension fund said it had “multiple discussions” with Loyalton officials about the debt, and sent a “final collections letter” last December. When no payment was made, CalPERS said it followed up with a “final demand letter” in August, giving Loyalton 30 days to pay up.

The other two agencies that owe CalPERS money are “working out solutions,” the pension fund said. CalPERS said the California Fair Financing Authority recently made a significant payment on its debt and is on schedule to be current by next June. The Niland district is working with CalPERS to figure out its termination liability.

A couple of municipal bankruptcies, in Stockton and San Bernardino, raised the possibility of a major city defaulting on its CalPERS obligations. San Bernardino skipped its CalPERS payments for several months. But both cities ended up resolving their CalPERS debts.

Dale Kasler: 916-321-1066, @dakasler