March 24, 2017

CalPERS Declares Consortium in Default of Pension Obligations

BY: Nate Kowalski, Jorge Luna, Joshua Morrison

On March 15th, the CalPERS Board of Administration declared the East San Gabriel Valley Human Services consortium in default for failing to pay over $400,000 to fund its pension plan.  According to CalPERS, the consortium’s contract will terminate in 60 days. At that time, the consortium will be liable for approximately $19.3 million, the amount needed to fully fund current and future payments of retirement benefits to its members.

If the consortium fails to pay this “termination liability,” CalPERS will notify the consortium’s current and former employees of its decision to reduce retirement benefits beginning on July 1, 2017. Members will suffer reductions of approximately 63 percent; six members hired after pension reform went into effect in 2013 will experience reductions of 24 percent. These numbers are based on how much money the consortium already paid into the pension system.

Background

The East San Gabriel Valley Human Services consortium was formed in 1979 as a Joint Powers Authority by the cities of West Covina, Covina, Azusa, and Glendora. Its primary purpose was to provide employment and training services to local residents and incarcerated inmates. The consortium closed its headquarters in 2014 after losing a major contract with Los Angeles County. It has not paid its Unfunded Accrued Liability since August 2015.

Only once before has CalPERS reduced retirees’ benefits because of a municipality’s failure to pay its pension bills. In November 2016, CalPERS declared the tiny Northern California city of Loyalton in default of its pension fund obligations and reduced benefits for four Loyalton retirees. In that case, the City Council made up the difference in the retirees’ benefits.

Analysis

This case is much bigger and more complex, as it involves several hundred employees, a Joint Powers Authority, and four cities. CalPERS has asked the cities to pay the consortium’s pension obligations. California Government Code Section 6508.1 provides that parties to a joint powers agency are liable for the debts, liabilities, and obligations of the agency unless the agreement specifies otherwise. This situation could engender lawsuits involving CalPERS, the consortium, the four cities, and the impacted retirees.

This case also highlights the problem of asking entities to pay the full amount of their termination liability all at once. In this case, the consortium, which shut down its headquarters over two years ago and owes approximately $400,000 to CalPERS, has been given several months to produce the relatively enormous sum of $19.3 million.

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Attorney Bio(s)

nkowalski

Nate Kowalski

Partner

562-653-3200

nkowalski@aalrr.com

Nate Kowalski is a Partner in the Cerritos office and Chair of the firm’s Public Entity Labor and Employment Practice Group. He is an accomplished litigator who represents employers in both the private and public sectors. Mr. Kowalski has litigated hundreds of sensitive and complex labor and employment cases in state and federal courts and has achieved remarkable results for his clients in hearings, arbitrations, trials and appeals.

full bio

jluna

Jorge Luna

Partner

562-653-3200

jluna@aalrr.com

Jorge Luna is a partner in the Cerritos office of Atkinson, Andelson, Loya, Ruud & Romo. Mr. Luna has been practicing law since 1996 in a variety of areas, including employment, construction, business litigation, intellectual property and entertainment. For the past 12 years, Mr. Luna has focused his practice exclusively on employment matters, with an emphasis on litigation.

full bio

Joshua Morrison

Joshua Morrison

Senior Counsel

(562) 653-3200

jmorrison@aalrr.com

Joshua Morrison is a senior counsel in the Cerritos office of Atkinson, Andelson, Loya, Ruud & Romo. Mr. Morrison represents California public school districts in all aspects of general education law. His areas of specialty practice include public employee discipline/dismissal, administrative hearings, matters before the Public Employment Relations Board, petitions for writ of mandate, retirement health benefits, PERS/STRS, and school district audit appeals.

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