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SACRAMENTO, Calif. November 16, 2016 – 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.