State Sen. De Leon urges probe of former Vernon official’s pension

The highest-paid pensioner in California’s largest retirement system continues to receive more than $500,000 annually, even though officials promised almost two years ago his retirement pay would be dramatically cut.

After an angry state senator confronted them Thursday, pension officials said they would cut the payments to former Vernon administrator Bruce Malkenhorst to almost $116,000 a year starting in April.

“I told them very directly that I’m livid beyond belief,” said state Sen. Kevin de Leon (D-Los Angeles).

Later Thursday, De Leon, who led efforts to reform the industrial city, faxed a letter to Anne Stausboll, chief executive of the California Public Employees’ Retirement System, asking that she submit information the agency had gathered in its audit of Malkenhorst’s salary and pension to the Los Angeles County district attorney and the U.S. attorney.

In the letter, he wrote, “it is clear a criminal investigation is warranted [because] of the unprecedented effort by Mr. Malkenhorst to defraud the public pension system and unjustly collect benefits he did not earn.”

Malkenhorst, who retired in 2005 after nearly 30 years in Vernon, was paid $911,000 a year for running a city of fewer than 100 people.

In 2011, he was convicted of misappropriating public funds to pay for golf, massages, meals and political contributions. He was sentenced to three years probation and ordered to pay $95,000 in penalties and restitution.

In May 2012, CalPERS issued a news release with the headline: “CalPERS Slashes Pension of Former City of Vernon Official.” The release said an audit had determined that much of Malkenhorst’s salary was illegal and that his pension was being reduced.

Despite the announcement, Malkenhorst continued to receive his outsized pension, which now stands at $551,688 a year, including cost-of-living increases.

“When the release was sent out, everyone was under the assumption that from that point forward he was being paid his adjusted amount,” De Leon said.

In fact, the state senator didn’t believe it at first when a Times reporter told him that Malkenhorst’s pension was never cut. When the senator’s staff called CalPERS, De Leon said, agency officials told them a judge had issued an injunction prohibiting the reduction of Malkenhorst’s pension until all legal issues were resolved.

Danny Brown, who handles legislative affairs for CalPERS, said that was not true and that there had been a misunderstanding.

Malkenhorst’s attorney, John M. Jensen, did not return phone calls nor an email asking for comment.

Robert Glazier, CalPERS’ deputy executive officer, said Thursday that a decision had been made to cut Malkenhorst’s pension before the meeting with De Leon. He said a state appeals court opinion last week in a case involving the Oakland police retirement fund gave CalPERS the ability to make the decision.

Glazier said CalPERS had been following its usual policies with Malkenhorst, which meant it would not reduce his pension until all his appeals had been exhausted. Malkenhorst has filed lawsuits against CalPERS and Vernon to recoup his pension.

His suit against Vernon argues the city should make up the difference in his pension after the cuts by CalPERS.

Malkenhorst’s case against Vernon prodded the Legislature to pass a bill to prevent convicted administrators from suing cities over pensions.

That hasn’t slowed Malkenhorst, though, and last week he filed a federal lawsuit against the state, asking the court to declare the law unconstitutional “because it seeks to interfere with the vested property rights of a United States citizen.”

De Leon is pressing CalPERS to cut Malkenhorst’s retirement paychecks back to zero, and use the payments he would have received to cover the millions of dollars in potential overpayments from his outsized pension.

“CalPERS will look at all opportunities to recoup what is overpaid to Mr. Malkenhorst,” Glazier said. “Let him be aware we will aggressively seek repayment. We have nothing to announce other than we will pursue it.”

Fred MacFarlane, a spokesman for Vernon, said officials there knew Malkenhorst’s pension had never been reduced and were mystified by the reasoning.

“Vernon city officials figured when CalPERS made a ruling that adjusted Mr. Malkenhorst’s pension that they would follow through and actually adjust it,” he said.

jeff.gottlieb@latimes.com