For the second time in four months, CalPERS on Wednesday voted to cut pensions for a group of public workers whose former employer quit contributing to the retirement fund without making arrangements to protect their benefits.
The unanimous vote will lead to a reduction in benefits by up to 63 percent for about 200 former employees of the East San Gabriel Valley Human Services Consortium, a job-training program that was also known as LA Works.
The vote to cut pensions became inevitable last month when the four cities that created LA Works in 1979 wrote letters to the California Public Employees’ Retirement System refusing to catch up on delinquent payments. They argued that LA Works was a joint powers agency that was not under their direct control, and the cities – Azusa, Covina, Gardena and West Covina – did not have an obligation to make good on benefits for its former workers.
“This is not an acceptable situation by any means. It’s not acceptable by the employees or retirees who’ve come to rely on a pension benefit that was promised to them,” said CalPERS Chief Executive Marcie Frost.
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The vote followed a November decision by the CalPERS Board of Administration to trim benefits for a handful of retirees from the city of Loyalton in Sierra County. In each case, a local government fell far behind on CalPERS payments and declined to pay hefty termination fees that would have protected the pensions of their former employees.
In Loyalton, the city is paying its former workers to make up the difference between the pensions its retirees were promised and what they are receiving from CalPERS.
It’s unclear what options the LA Works retirees have, although some reportedly are preparing to lobby elected leaders from the communities that had backed the job-training program.
A dozen of them wrote letters to the board asking for a reprieve.
“This is just an unbelievable situation and there are no words to describe how devastating this is,” wrote Shelly Laddusaw, 60, who worked at LA Works for 25 years. “I will have to work for many more years to come and those earnings won’t even come close to what I will lose in retirement benefits.”
CalPERS board members stressed that they voted to cut benefits for LA Works employees with reluctance.
They directed CalPERS staff to review other governments within the fund that may have questionable funding, such as joint powers agencies or districts that do not have reliable tax revenue. LA Works, for instance, was funded by contracts with other governments. It lost its main revenue source when Los Angeles County chose to break with it over a billing dispute.
“We would know if we looked at the organization’s structure that they had no tax base; they had no revenue source,” said CalPERS Board of Administration member Bill Slaton. “By definition they were a higher risk organization than the normal organizations that we do business with.”
CalPERS administrators also asked CalPERS staff to communicate with public workers earlier if their employers fall behind on payments. LA Works employees did not hear directly from CalPERS until January even though LA Works had stopped contributing to the fund 18 months earlier.
“The employees weren’t advised of this impending disaster for their pensions,” said Al Darby, vice president of the Retired Public Employees’ Association of California.
In the future, CalPERS staff members said employees and retirees from delinquent agencies should hear from the pension fund within 60 days of their employer missing payments.