CalPERS Finds the City of Loyalton in Default for Non-Payment of Pension Obligation
Posted On: Nov 16, 2016
SACRAMENTO, CA – The Board of Administration for the California Public Employees' Retirement System (CalPERS) today declared the city of Loyalton in default of its obligations to CalPERS after failing to pay what it owes to fund its pension plan. The decision means that Loyalton's retirees will see their benefits reduced in accordance with California Public Employees' Retirement Law.
"This is a decision we take very seriously and one we very much regret had to be made," said Rob Feckner, president of the CalPERS Board. "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."
The city of Loyalton voluntarily terminated its contract effective March 2013. In June 2014, CalPERS provided city officials with an invoice for the termination liability in the amount of $1,661,897. CalPERS has had multiple discussions with the city on several important topics, including:
How the termination process works
Loyalton's final valuation and the cost to terminate its contract with CalPERS
Loyalton's subsequent request to rescind termination and its desire to establish a new contract with CalPERS to administer its pension plan
Once it was determined that Loyalton could not legally rescind its voluntary termination, a final collections letter was sent on December 15, 2015. After receiving no payment, a final demand letter was sent in August 2016 requiring Loyalton to bring its account current within 30 days or be declared in default.
Subsequent meetings with Loyalton officials failed to lead to a resolution. To date, Loyalton has not made any payments toward its voluntary termination costs. In total, CalPERS has had over 50 telephone calls with Loyalton officials and sent 10 collection notices.
In addition, a certified letter explaining CalPERS’ proposed action to reduce benefits was sent to the four affected retirees and one individual who no longer works for the city but does not yet collect retirement benefits. Under Government Code 20577, the Board can reduce member retirement benefits from the date of contract termination in proportion to the amount of the employer's deficiency in paying its required contributions. In Loyalton's case, the reduction could amount to a 60 percent reduction in benefit payments.
Loyalton originally contracted with CalPERS for pension benefits in January 1986. In September 2004, the city amended its contract to provide its employees a retirement benefit formula of 2.7 percent at age 55.
Other Public Agencies Working Out Solutions
Two other agencies, the California Fairs Financing Authority (CFFA) and the Niland Sanitary District (Niland), have taken actions to avoid involuntary termination proceedings under Government Code 20572 due to non-payment. CFFA has made a significant payment on its delinquent balance, ensuring the remaining delinquent amounts, plus interest, will be fully current by June 30, 2017.
Niland recently informed CalPERS staff that it completed the voluntarily termination process and provided its termination documents to CalPERS on November 1, 2016. As part of the voluntary termination process, next steps include a final audit of Niland and a final valuation to determine Niland's termination liability.
"Our employers are now far more proactive with their pension payments and understand the obligation they have to pay the benefits they promised to their employees and retirees," said Cheryl Eason, CalPERS chief financial officer. "We're grateful for their efforts and their partnership, and look forward to working with them to ensure that the CalPERS Fund is sustainable for decades to come."
For more information, see the Board of Administration's agenda item (PDF) outlining this issue.
For more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Our pension fund serves more than 1.8 million members in the CalPERS retirement system and administers benefits for more than 1.4 million members and their families in our health program, making us the largest defined-benefit public pension in the U.S. CalPERS' total fund market value currently stands at approximately $299 billion. For more information, visit www.calpers.ca.gov.