For years, we’ve been warning this day was coming: California pensioners in the small town of Loyalton have just been told that their benefits will be cut in 2017. Fox Business reports (h/t Pension Tsunami):
For the first time in its 85-year history, the California Public Employees Retirement System, CalPERS, is drastically cutting benefits for public retirees. Starting January 1st, four retired City of Loyalton public employees will have their pensions cut 60 percent. For 71-year-old Patsy Jardin, that means her pension will drop from about $49,000 a year to a little more than $19,000.
In an interview with the FOX Business Network, Patsy asked, “How am I going to make it now? What am I going to do?”
Fellow Loyalton retiree John Cussins is asking the same question since his pension will also drop 60 percent, to $1,523 a month.
Three years ago, Loyalton pulled out of CalPERS for current employees after being told that its accounts were only 40 percent funded even though the city had reliably paid its dues to the system. Now, CalPERS openly admits it’s punishing current Loyalton retirees for that decision.
This is just the beginning. CalPERS is only 65 percent funded overall, after failing to realize its expected 7.5 percent return. Fox explains what’s likely to happen next:
CalPERS is actually considering cutting its “discount rate” to just 6.4% to reflect what it expects to be smaller returns in the future. That will require cities, towns and other municipal entities in the CalPERS system to pay more money to cover their employees. Some may have to raise taxes to do it. Others may opt to leave CalPERS just as Loyalton did.
CalPERS appears to be using Loyalton to send a signal to others considering pulling out of the fund. But neither staying nor leaving is a good option here. Either benefits will be drastically cut or taxes will go up to fund them. The only alternative would be a federal bailout, and with a GOP-controlled Congress and White House, there’s a fat chance of California getting that.