Ex-Vernon official may be on the hook for $3.4 million in pension overpayments

Nov. 21, 2015 2 AM PT

For several years, longtime Vernon city administrator Bruce Malkenhorst Sr. was the state’s highest-paid pensioner, with benefits topping out at more than $550,000 a year.

That didn’t sit well with some, especially after his felony conviction in 2011 for misappropriating public funds to pay for golf, massages, meals and political contributions.

This week, the California Public Employees’ Retirement System moved to take back $3.4 million in pension payments to Malkenhorst that officials say he was not entitled to receive.

Malkenhorst, who retired in 2005 after nearly 30 years, was paid as much as $911,563 a year to run the industrial city, which has some 1,800 businesses but only about 100 residents, mostly municipal employees and their relatives.

The charges against him were but the latest in a series of public-corruption allegations in Vernon, a city that had long been known for its insularity and was controlled for decades by generations of its founding Malburg family.

A CalPERS audit after Malkenhorst’s conviction found that he and other Vernon officials had concealed his full pay from the public. In addition to his administrator’s pay, Malkenhorst also received compensation as Vernon’s treasurer, chief executive of the municipal power plant and several other positions that were not listed on city pay schedules, CalPERS officials said.

“CalPERS will not tolerate these kinds of abuse,” Matthew Jacobs, the retirement system’s general counsel, said in a statement. “We remain on the lookout for all forms of pension spiking and encourage the public to help us root it out.”

The retirement system whacked Malkenhorst’s pension to about $115,000, triggering a protracted legal battle. Earlier this year, a judge hearing Malkenhorst’s appeal agreed with the CalPERS board’s decision to cut his pension but criticized its calculations as arbitrary.

The board this week adopted the judge’s proposed decision, in part, and voted to move to recover the overpayments.

Amy Morgan, a CalPERS spokeswoman, said Friday that, once a formal resolution is approved at the board’s December meeting, it will send a letter to Malkenhorst “that will provide options on how to repay CalPERS.”

Malkenhorst, whose administrative remedies are now exhausted, did not respond to a phone message left at his Huntington Beach home. His attorney, John Jensen, was traveling and could not be reached, his office said. He did not respond to an email.

In papers filed in the case, Jensen argued, among other things, that CalPERS’ actions were an offshoot of a salary scandal in neighboring Bell. Until then, Jensen wrote, CalPERS had consistently paid his client’s benefits, without reservations.

“CalPERS’ public relations assault began after the public fury at the city of Bell scandal,” he wrote. “Now, under political pressure, CalPERS is discriminating against Malkenhorst and trying to re-litigate a ‘second process’ on these same issues.”

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After a series of investigative reports by the Los Angeles Times in 2010, the state Legislature launched an unsuccessful attempt to disincorporate Vernon. New leaders and reform efforts have since emerged, including cutting City Council salaries and increasing private housing to boost the population.

The city also has spent $150,000 in legal fees to fight lawsuits by Malkenhorst, who wants Vernon to compensate him for his diminished pension benefits. His legal action prompted legislation in 2013 to bar lawsuits against cities by local government officials convicted of committing felonies while in office.

Vernon officials and the bill’s author, state Senate leader Kevin de León (D-Los Angeles), said Friday that they welcomed the CalPERS action.

“Mr. Malkenhorst spent decades shamelessly scamming the taxpayers with his illegal pension scheme,” De León said. “I applaud CalPERS for ordering him to repay $3.4 million in overpayments, and I hope CalPERS will withhold any scheduled pension payments until Mr. Malkenhorst makes full restitution for ripping off California’s taxpayers.”

Fred MacFarlane, a Vernon spokesman, also hailed the CalPERS move, noting that the city will continue to “vigorously defend itself” against Malkenhorst’s pending litigation.

“The City of Vernon believes that this was a just decision and the right one in his case,” MacFarlane said.

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