Loyalton, California's pension default is a wake up call

Sick … a punch in the stomach.That’s how public retirees in Loyalton, California, are taking news that their town defaulted on its pension payments, resulting in the possibility of their retirement benefits being cut by as much as 60 percent, the majority of their hard-earned livelihood.

Pension debt is not a new story — in fact, most of the country’s public pensions are significantly underfunded (state and local pensions across the U.S. have an estimated $5 trillion less than needed to cover promised benefits). But this time the largest pension plan in the nation, the California Public Employees’ Retirement System (CalPERS), has thrown public employees overboard. And that has government workers and retirees across the country asking, could this happen to me? The answer is yes! If your city runs out of money and your pension plan is not fully funded, you will lose. The only question is how much.

Loyalton withdrew from CalPERS in 2013, upon the retirement of its last guaranteed pensioner. For council members, it just made sense — after all, the town had been fully paying its required annual contributions all along.

But what it didn’t count on was the $1.6 million termination fee demanded by CalPERS to cover unfunded liabilities which CalPERS has allowed to grow for the last 17 years. The fee amounts to a whopping $320,000 per each of Loyalton’s five retirees, an amount that is impossible for the town to pay. And now CalPERS has put the retirees on notice that their monthly checks will be cut.

[link to www.sandiegouniontribune.com]