| LOS ANGELES
LOS ANGELES Aug 27 Officials in Villa Park are
considering pulling the tiny California city from Calpers,
saying the monthly costs of the state's giant public pension
system are crippling the municipal budget.
But Villa Park fears that pulling out of its contract with
the California Public Employees' Retirement System could be
prohibitively expensive because of a termination fee that could
exceed the city's annual budget.
Calpers, America's biggest public pension fund with assets
of $300 billion, last provided the city with a hypothetical
termination fee of nearly $3.6 million as of June 2012. The
city's annual budget is $3.5 million.
"Getting out of Calpers is like getting out of jail," said
Rick Barnett, mayor of Villa Park, population 5,800. The City
Council will vote next month on a resolution to begin the
process of quitting Calpers.
Many California cities are chafing at the rising
contributions demanded by Calpers, which administers benefits
for more than 3,000 city, state and local agencies, or nearly 3
Calpers recently voted to raise rates roughly 50 percent
over the next seven years, citing its responsibility to maintain
the fiscal soundness of the fund.
Two other California cities, Pacific Grove and Canyon Lake,
tried to quit Calpers last year, but both balked when they
learned the termination fee.
Michael Sweet, a bankruptcy attorney with Fox Rothschild in
San Francisco, called the termination fee "the Calpers
handcuffs". For Villa Park and other cities, Sweet added, "the
hit that they will take...will be extraordinary."
If a city quits, Calpers continues to administer pension
payments for the current and retired workers already on the
books at the time of termination.
To do that, Calpers generally asks for an up-front sum to
pay for potential future pension costs for all current and
retired workers on city rolls.
Canyon Lake, with an annual budget of $3.6 million, was
handed a termination bill last year of $1.3 million.
Keith Breskin, Canyon Lake's city manager, said: "It would
have been a serious depletion on our reserves, so the city
decided not to proceed."
If a city quits, Calpers also places that city's funds in a
more conservative risk pool, which lowers the potential return
rate on its investments and in turn boosts the termination fee.
In making its calculation for Villa Park, Calpers lowered
the long-term projected return rate on the city's investments
from 4.82 percent to 2.98 percent.
Calpers says the city contacted officials at the fund in
June to review the termination process.
According to city documents, payments to Calpers have risen
from 13.8 percent of payroll in 2005 to a projected 30.6 percent
this fiscal year.
"We are looking to a get a number from Calpers, and then to
get out," Barnett added: "If they give us a huge and horrendous
termination number, then we probably can't get out. But at least
we then have a true number for our liability."
(Reporting by Tim Reid; Editing by David Gregorio)