CalPERS finds Vernon wrongly raised officials’ pay

State pension officials have concluded that the city of Vernon improperly boosted the benefits of nearly two dozen employees, including some attorneys who were erroneously granted generous “public safety” retirement packages usually reserved for police officers and firefighters.

The findings are likely to result in pension cuts for some city officials and cap what CalPERS described as one of the farthest-reaching investigations in the system’s history. It comes as Gov. Jerry Brown and the state Legislature debate significant changes in public pensions to ease the state’s fiscal crisis.

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 — more than $500,000 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 received the “public safety” classification 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 incorrectly reporting compensation of City Council members and failing to provide sufficient documentation on 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 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 benefit an employee receives upon retirement.

It also criticized the city for not reporting Fresch’s full compensation, which reached as high as $1.65 million in 2008. Fresch, who succeeded Malkenhorst as Vernon’s top administrator, has remained a special consultant to Vernon over the last year at a rate of $525 an hour, although city officials said his agreement would end Tuesday. Fresch has not yet begun collecting his pension.

Separately, CalPERS auditors argued that Vernon had failed to provided sufficient documentation during their inquiry. A spokesman for Vernon said the city cooperated fully with CalPERS and added that the city remains committed to “achieving and preserving the highest levels of good governance.”

State Sen. Kevin De Leon (D-Los Angeles), who has helped lead a reform effort in Vernon, said he was pleased with the audit’s findings, calling the inquiry “an important step forward to fix a culture that has been historically corrupt.”

But De Leon also said there were grounds to dock Malkenhorst’s pension immediately and implored CalPERS to take action.

“Folks are hurting all over the state, and [Malkenhorst] is laughing all the way to the bank. He is laughing at taxpayers,” De Leon said.

sam.allen@latimes.com