CalPERS Sues City of Compton Over Unpaid Contributions

California's state employee pension fund has taken action against one of the financially-floundering municipalities that owes the fund money.

(November 7, 2012) – The City of Compton is nearly out of money, and the California Employees’ Retirement System (CalPERS) is totally out of patience. 

The $242.5 billion pension fund has filed a lawsuit against the municipality in the Sacramento Superior Court, citing $2.7 million in unpaid contributions. 

Compton is not the only California city in arrears on its pension payments, but is the first to be sued over it. As of October, San Bernardino was $5.3 million in debt to CalPERS, which is the largest public pension system in the United States. The municipality, with a population of about 210,000 became one of the largest cities ever to seek protection under Chapter 9 when it filed for bankruptcy this summer, owing creditors over $1 billion. 

“There are different scenarios that happen when a city or county starts getting into financial trouble, but missed payments are not a common occurrence,” Amy Norris, a CalPERS spokesperson, recently told aiCIO

 CalPERS is also entangled with the insolvent books of another California city. Stockton is the largest American municipality ever to seek bankruptcy protection, but intends to maintain its pension contributions. However, Stockon plans to stop servicing its debt to insurer Assured Guaranty, which backed a $125 million pension-obligation bond issuance for the city. The firm now holds $161 million in exposure to the Stockton paper, and is pushing for precedence over CalPERS in repayment. CalPERS, in turn, suggested it would defend its priority position in court. 

“The obligations owed to the public workers of the City have priority over those of general unsecured creditors including bondholders,” said pension system’s General Counsel Peter Mixon in a statement. “Unlike insurance companies, policemen, firefighters and other public employees are not in a position to evaluate credit risk of their employers. Assured Guaranty is in the business of evaluating these risks. CalPERS is committed to working within the legal system to reach resolution of these difficult issues.” 

Compton officials explored the prospect of seeking bankruptcy protection around the same time as San Bernardino, but chose to try and claw its way back to solvency. 

City Manager G. Harold Duffey told the Sacramento Bee that Compton fell behind because of a short-term cash flow problem and he expects to have the matter cleared up by the end of the year. “I want employees and retirees of the city of Compton to know that their retirement is not in jeopardy,” he said. 

Duffey also told the newspaper that he had hand-delivered a check to CalPERS for nearly $1.4 million on November 2. 

However, that still leaves the struggling city roughly $600,000 behind on their payments. 

The lawsuit is ongoing, despite the recent payment.