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California's biggest pension -- $540,000 -- likely to be cut

May 1, 2012 | 11:30 am

Bruce Malkenhorst

State pension officials said they will probably move to cut California's biggest public pension -- and others -- after finding that the city of Vernon improperly boosted the benefits of nearly two dozen employees.

The CalPERS audit will be released Tuesday, nearly two years after The Times reported on the lucrative pensions awarded to top officials in Vernon, including some who had been charged with public corruption. The state's highest public pension -- roughly $540,000 a year -- is now received by a former Vernon city administrator, Bruce Malkenhorst, who pleaded guilty to misappropriation of public funds last year.

California Public Employees' Retirement System auditors found problems with Malkenhorst's pension as well as with those of former City Administrator Eric T. Fresch and former Mayor Leonis Malburg. The retirement fund alleged that Vernon failed to notify it after Malburg was convicted of perjury in 2009, something that could reduce his total benefits.

Retirement officials are still working to calculate by how much the officials' benefits should be slashed.

Fresch and other staff attorneys in Vernon were classified as qualifying for "public safety" retirement benefits in 2004, with city officials telling CalPERS that the lawyers were "primarily engaged in the active enforcement of criminal laws."

But The Times could find no evidence that the staff attorneys ever prosecuted criminal cases. In fact, former Vernon Police Chief Sol Benudiz said he could not recall a single instance when Vernon's city attorneys appeared in criminal court. He said those cases were always handled by the Los Angeles County district attorney's office.

CalPERS initially approved the special pensions even though such benefits are typically reserved for those whose jobs put their lives in danger. Not even district attorneys are granted the benefits, which could have boosted Vernon's attorneys' pensions about 10%, experts said. After The Times reported on the safety pensions, CalPERS said it would review the matter.

"This audit raises serious concerns about Vernon's reporting to CalPERS and its decisions about pension benefits for its employees," CalPERS Chief Executive Anne Stausboll said in a statement. The system also said it would reclassify the attorneys to a lower benefit formula.

In its formal response to the audit, Vernon objected to some of the findings but acknowledged "a number of issues that need correction."

The full CalPERS report lists 10 key findings, including incorrect reporting of the compensation of City Council members and failure to provide sufficient documentation of pay increases. Most of the problems pertain to top officials in the industrial city, which is just south of downtown Los Angeles.

The audit said Vernon failed to substantiate the number of hours worked by Malkenhorst, who at one point held 10 different positions in city government and earned as much as $911,000 in 2006.

It also questioned the city's decision to sharply increase Malkenhorst's pay up until 2002, three years before he retired. By leveling off his pay, the city may have shielded Malkenhorst from a government code section prohibiting steep salary increases before retirement, officials said.

Brad Pacheco, a spokesman for CalPERS, said the fund was not sure yet by  how much Malkenhorst's pension would be reduced. He also noted that if a reduction is made, Malkenhorst has the right to appeal.

The audit also concluded that Vernon awarded 16 years of service credit to Fresch for time when he was an outside contractor and not an eligible employee. Those credits can be extremely valuable because they are used to calculate the total benefits an employee receives upon retirement.


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Photo: Former Vernon official Bruce Malkenhorst, who pleaded guilty to misappropriation of public funds last year, receives a pension of roughly $540,000 a year. Credit: City of Vernon