Calpers Board to Vote on Slashing Pension Benefits by 63%

(Bloomberg) -- The California Public Employees' Retirement System is set to vote next week on cutting benefits for a small group of retirees in what would be the second such move in the last four months.

The reduced benefits, which must be approved by a committee Tuesday and the full board Wednesday, was triggered by the failure of a defunct public agency, the East San Gabriel Valley Human Services Consortium, to pay Calpers the entire cost of covering the pensions of its former employees.

Most of the 191 workers of the job-training service -- of which 62 are currently receiving pensions -- would see their benefits reduced by 63 percent, the rate by which the agency fell short, according to meeting documents.

Calpers had asked the cities that formed the agency known locally as LA Works -- Azusa, Covina, Glendora, and West Covina -- to pay the debt to the retirement plan, but they declined, pointing to the lack of a legal obligation. The consortium went out of business in 2014 after Los Angeles County severed its relationship, citing overbilling.

In January, Calpers notified the employees of the possibility of reduced benefits as a result of the unpaid bill. They are in "a panic," said Sandra Meza, who has been trying to organize fellow retirees. She had planned to publicize their plight at a meeting of the board of her former employer on March 15 -- which would occur after the Calpers vote.

"It's very disappointing that we have so little time to react," said Meza, 62, of Chino. "I don't understand the logic in pursuing a closed agency for payment."

Calpers says it's following its fiduciary responsibility. It doesn't set benefits but manages them on behalf of local governments, most of which are fulfilling their obligations. Permitting monthly checks to flow to retirees whose former employers haven't paid their bills undermines a system that has just two-thirds of what it needs to cover liabilities due in the years ahead.

“These are not easy decisions, and it pains us to have to make such recommendations," Calpers Chief Executive Officer Marcie Frost said in an emailed statement. "Prior to making this recommendation to the board, we made many attempts to collect funds from the employer as well its sponsoring cities, on behalf of the members. Unfortunately those efforts did not result in payment, leaving us no other option but to recommend termination."

The board in November approved reducing retiree benefits for former workers in the tiny city of Loyalton.

To contact the reporter on this story: Romy Varghese in San Francisco at rvarghese8@bloomberg.net.

To contact the editors responsible for this story: Christopher Maloney at cmaloney16@bloomberg.net, Michael B. Marois, C. Thompson