Loyalton, a small California city of 700 people, has been declared in default by the $299.5 billion California Public Employees’ Retirement System in what could be an unprecedented action.
“It may be the first time, but we don’t know,” said CalPERS spokesman Wayne Davis in an e-mail. “It’s obviously very rare.”
The action by the Sacramento-based retirement system affects four retired employees and one worker still on the city payroll whose retirement benefits will be cut by 60%.
Around a million employees in more than 1,000 government units, towns, school districts and municipal authorities are all covered by CalPERS and contribute to the pension fund.
CalPERS said in a news release that Loyalton voluntarily terminated its contract with the retirement system effective March 2013 and has refused to pay its termination liability of $1.6 million despite 50 phone calls by pension fund officials and 10 collection notices.
Loyalton Mayor Mark Marin said in an interview that the city’s bookkeeper told him: “We are an inch from closing the door,” regarding the city’s ability to continue functioning.
Mr. Marin blamed the community’s fiscal problems on mismanagement by the prior City Council. He said the new City Council has scheduled a meeting Nov. 22 to discuss making up the lost pension benefits for the four retirees and one current employee, but doesn’t know how the community could afford it.
He could not provide any information on the city’s financial status, saying the bookkeeper was still going through records and sorting things out.