The California Public Employees’ Retirement System (CalPERS) is slashing pensions for retirees of government entities that elect to leave CalPERS without paying the hefty termination toll or “exit fee.”
For John Cussin, the Los Angeles Times reports, a 21-year city employee of the tiny Sierra Nevada town of Loyalton, the cut was 60%, as his pension fell from $2,500 to a mere $1,000 per month.
The reason? Loyalton, a town of under 800 people, teetering on the brink of insolvency, could not afford to keep paying the mandatory monthly contribution to CalPERS nor could it afford the termination or “exit fee” that CalPERS demanded.
Loyalton thought it had figured out a way to cut costs without hurting its retirees.
Then CalPERS informed the city council it would have to pay a $1.66-million exit fee, which came to one-and-a-half times their annual budget.
The city didn’t pay up, so Loyalton retirees saw their monthly pension checks slashed last year.
Loyalton may be the canary in the coal mine.
CalPERS’ Board voted in March to cut the pensions of almost 200 retirees from a now-defunct Southern California job training program known as the East San Gabriel Valley Human Services Consortium.
Starting July 1, CalPERS cut the consortium’s pensioners checks by 63%.
When Stockton was facing bankruptcy, the judge handling the case determined that pension obligations “can be cut in bankruptcy ‘like any other garden variety’ unsecured debt,” even going as far as calling the termination fee a “golden handcuff” and anti-competitive “poison pill” preventing local governments from leaving CalPERS.
At $1.6 billion, the exit fee for Stockton was impossibly high — and, naturally the bankrupt city couldn’t pony up that kind of money, forcing it to cut back on police protection and other city services for a time while it continued paying into CalPERS coffers.
Despite projecting a rate of return of 7%, CalPERS earned barely 1% for the past 12 months ending June 2017.
The lower the real return CalPERS earns, the more money California taxpayers will have to cough up to backfill the funding gap.
And the irony? With only 65 cents on hand for every dollar CalPERS owes in pensions, Democrats will either have to raise taxes again or cut benefits — neither of which will be popular with voters.