The small city of Canyon Lake in California, has sent a notice to Calpers, the largest pension fund in the U.S. saying that it will quit the plan. The small city’s plan to quit the California Public Employees’ Retirement System (Calpers) could be just the beginning of problems for the pension fund, according to Reuters.
The pension fund is battling with bondholders on Wall Street in connection with the bankruptcy filings of two California cities: Stockton and San Bernardino.
Calpers told Reuters that it had received the termination letter from Canyon Lake and also said that other cities and counties have also terminated their contracts with it in the past. However, Reuters said that no other county or city in the state is known to have completely quit the plan.
Canyon Lake said it will pay a fee for termination, and it sent a letter to the fund earlier this month saying that it wants to end the relationship. The city said one of the main factors in the decision to cut ties with Calpers was the fund’s decision to increase the rate of employer contribution by 50 percent over the next few years.
Calpers has $256 billion in assets under management, and the main problem the fund faces is uncertainty as it deals with the bankruptcy filings. Some groups claim that the cities filing bankruptcy are doing so because they’re trying to reduce debt payments while also avoiding its payments to Calpers.
Stockton, for example, is expected to pay hundreds of millions of dollars to the pension fund over the next 10 years. However, some say if a judge rules against the pension fund in the case, other cities may follow suit and file for bankruptcy to get out of their obligations to the fund.