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Ripple effect of pension padding


The city of Vernon, Calif., has a big problem, brought on by the California Public Employees’ Retirement System. And depending on how a lawsuit against that city goes, the tiny ripple on the map that represents Vernon could become a nationwide public pension tidal wave.

Bruce Malkenhorst was city manager and also held a host of other titles — some simultaneously — according to an Orange County Register report in June of 2012. The Los Angeles Times, in an article last week, said Mr. Malkenhorst spent 29 years with the city, and his salary capped out at a whopping $911,000 annually — for a “city” with a population of only about 100. The 5.2-square-mile municipality, located just a few miles south of downtown L.A., is flooded with approximately 1,800 businesses. There’s not a single park, and the city touts the motto, “Vernon Means Business.”

Apparently, part of that business was massively inflating the salaries of its public employees. When Mr. Malkenhorst retired in 2005, he began collecting the largest pension in the state, eventually more than $500,000 annually. In a rare show of government fiscal responsibility, CalPERS last year concluded that Mr. Malkenhorst improperly bolstered some (some?) of his salary in order to boost his retirement benefits. CalPERS then cut his pension to $115,000. Mr. Malkenhorst, 78, is aiming to make up the difference by pursuing a lawsuit against the city of Vernon — from which he consistently collected hundreds of thousands of dollars annually through what the Los Angeles Times described as a compliant city council. Said Steve Freed, president of the Vernon Property Association: “He set his own salary, he set his own benefits package, then swept it through the city council.”

Mr. Malkenhorst’s attorney, the Times reported, has presented plenty of documentation showing the city’s vows to fund the pension, and said the city even sided with Mr. Malkenhorst when CalPERS first questioned his monster retirement compensation eight years ago.

If Mr. Malkenhorst does indeed win this case, the city of Vernon will take a huge hit. But the effects of such a victory could hit across the country, as it would indicate that for public employees, there’s a reward for gaming the system to pad their pension — at the expense of taxpayers. Mr. Malkenhorst made millions in nearly three decades of work and several years of the oversized pension, before CalPERS got wise. This lawsuit should be rejected. Failure to deny Mr. Malkenhorst’s claim will set a precedent that could cost state and local governments dearly for years to come.

A version of this editorial appeared July 28 in the Las Vegas Review-Journal