State pension agency slashes benefits for former Vernon officials

Two former administrators in the city of Vernon who received lavish compensation will have their retirement benefits slashed in what state pension officials described as the largest public pension reduction in state history.

Bruce Malkenhorst, who receives the biggest public pension in California, $545,000 a year, will see his yearly benefit drop to about $115,000. His successor, Eric T. Fresch, will have his pension stripped completely. Fresch, who made as much as $1.6 million in 2008, has yet to formally retire. But one expert estimated his pension’s value at about $300,000 a year.

The actions come after a lengthy audit by the California Public Employees Retirement System, which found Vernon improperly boosted the retirement benefits of nearly two dozen top employees. The agency also ruled that Vernon had erroneously awarded “public safety” pensions to Fresch and other staff attorneys. The Times first reported on the pensions in 2010.

“It is an affront to the hundreds of thousands of public employees who rely on a modest CalPERS pension for a secure retirement. We fully intend to pursue recovery of all overpayments where we can,” CalPERS Chief Executive Anne Stausboll said in a statement.

State Sen. Kevin De Leon (D-Los Angeles), who has been leading a reform effort in the industrial city, said the CalPERS decision to cut Fresch and Malkenhorst’s pensions was a victory for taxpayers.

“For decades, these grifters scammed the system, and today the system finally struck back,” he said.

It is unclear whether Fresch or Malkenhorst will challenge the decisions, or if Vernon will do so on their behalf. In its initial response to the CalPERS audit, the city argued that the retirement fund “owes its primary fiduciary duty to its members and must construe the evidence in their favor whenever possible.”

A Vernon spokesman said Thursday that the city was still reviewing CalPERS determinations and declined to comment on the possibility of an appeal. Fresch and Malkenhorst could not be reached for comment.

In Malkenhorst’s case, CalPERS concluded that Vernon had failed to substantiate the total pay rate he received. Malkenhorst held as many as 10 positions during his 29-year tenure in the city government, including city administrator, clerk, finance director and executive director of the Vernon Historic Preservation Society. Through those positions, he was able to earn as much as $911,000 in total salary.

CalPERS, however, determined that only Malkenhorst’s pay as city clerk was properly reported for purposes of his pension.

Fresch, on the other hand, will lose his entire pension because CalPERS concluded he was not an actual employee but an independent contractor. Fresch never took an oath of office for his positions as city administrator, city attorney or assistant city attorney, CalPERS said in a formal letter obtained by The Times. And several of his employment agreements referred to him as a legal consultant or advisor.

Three other former Vernon officials will lose pension benefits due to similar issues, including Malkenhorst’s son, Bruce Malkenhorst Jr. CalPERS also found problems in the pensions of two of the city’s current leaders: city administrator Mark Whitworth and finance director Riordan Burnett.

De Leon said he planned to formally request a criminal investigation from the state attorney general’s office.

“It isn’t enough that they forfeit their gains,” he said. “They must be punished to deter other scam artists from ripping off taxpayers in the future.”

He was joined by state Assembly Speaker John Pérez, a Los Angeles Democrat who last year led an effort to disincorporate Vernon. “The people of California deserve answers on how this situation was allowed to fester for so long” Perez said in a statement.

sam.allen@latimes.com