The State Worker

CalPERS disaster shapes bill sent to Gov. Jerry Brown

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.

Gov. Jerry Brown is considering a bill shaped by the worst example of a California public agency defaulting on the pension promises it made to its employees and allowing CalPERS to slash the incomes of its retirees.

The bill by Assemblyman Freddie Rodriguez, D-Pomona, would forbid local government agencies from dissolving so-called joint powers authorities unless the agencies commit to funding their pension obligations.

It’s intended to prevent a recurrence of a 2017 insolvency that left nearly 200 former employees of the East San Gabriel Valley Human Services Consortium, a job-training organization, with reduced retirement incomes.

Their organization was backed by four cities in Los Angeles County when it was created. When it lost a key contract and dissolved, none of the four cities would accept responsibility for the consortium’s workers’ pensions and CalPERS slashed their value by up to 63 percent.

The consortium’s contract with CalPERS did not hold its member cities explicitly responsible for employee pensions, and the cities were able to walk away from East San Gabriel Valley employees.

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Local governments can protect employee pensions and separate from CalPERS by sending a large payment to the fund. CalPERS invests the money in a low-risk fund and continues paying pensions to retirees at full rates. CalPERS can reduce pensions for workers from a member agency if the organization quits paying its bill and does not make that hefty separation payment.

That decision startled California public employees and retirees who had never seen so many workers lose such a large portion of their retirement incomes. The surprise was reflected in CalPERS member surveys that year showing a drop in confidence in the $360 billion fund among local government executives and public employees.

Rodriguez’s bill aims to close the gap that the consortium’s employees slipped through when their employer folded.

It says that agencies that form joint powers authorities — organizations where multiple government agencies combine resources to deliver a service — must take responsibility for pension commitments when they dissolve.

If they don’t, the bill lets CalPERS charge the cities or counties behind the joint powers authorities.

“Assembly Bill 1912 is an important shift in the way employees and retirees of Joint Power Authorities are protected. My goal was simple in authoring this legislation, to make sure that what happened to 200 employees of the East San Gabriel Valley Human Services Consortium does not happen again to any other civil servant across California,” Rodriguez said.

The bill overcame mostly Republican opposition and passed in its final version by 59-13 on Aug. 30. A number of cities and counties opposed it because an early version would have compelled them to account for the liability of joint powers authority pension obligations today. A compromise lets them avoid putting that debt on their books until they move to dissolve a joint powers authority.

Service Employees International Union, the labor organization that represents hundreds of thousands of state and local government workers, lobbied for the bill. Los Angeles, Riverside and Santa Clara counties opposed the bill to the end.