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CalPERS terminates contracts, cuts benefits for defunct public agency

CalPERS voted Wednesday to terminate its contract with the East San Gabriel Valley Human Services Consortium after the consortium failed to make its full required contributions to the retirement system.

The consortium, which provided job training services to local residents and inmates incarcerated by the Los Angeles County Sheriff's Department, closed in 2014. Since August 2015, the agency has failed to pay its unfunded actuarial liability, currently $406,345, according to a CalPERS news release.

If the consortium does not pay its termination liability of roughly $19.3 million, CalPERS law requires that pension benefits be reduced by roughly 63% for 191 of the consortium's employees on July 1 and by 24% for six employees who were hired after 2013 when pension reform went into effect, according to the release. The $19.3 million would fully cover the workers' current and future pension benefits.

"The (CalPERS) board was forced to make this painful decision after East San Gabriel Valley failed to stand by its contractual obligations despite repeated and numerous attempts by CalPERS to avoid this terrible situation," said Rob Feckner, president of the CalPERS board of administration, in the release. "Cutting benefits to retirees is truly the last step we want to take, but our employers must uphold their obligations and keep the promises that they made to their employees. We have a fiduciary responsibility to protect the long-term future of all beneficiaries and the fund."

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.

If the cities do end up taking over the entity's debt within 60 days, the retirees would avoid the reduction, according to CalPERS' action Wednesday.

That's what retirees will ask representatives of those communities on the agency's board, which was set to meet later Wednesday, said Sandra Meza, who stands to lose much of her $3,300 monthly pension. They will appeal to the cities to at least pay the current bill to give them more time to come up with a plan, she said.

"We only had two months notice," Ms. Meza said. "We need to regroup and consider which path to take."

Around a million employees in more than 1,000 government units, towns, school districts and municipal authorities are all covered by the $311 billion California Public Employees' Retirement System, and contribute to the pension fund.

In November, Sacramento-based CalPERS reduced pension benefits for five Loyalton city workers after the city failed to pay the full cost of covering the workers' pensions.

Bloomberg contributed to this story.