Top public pension earner sues Vernon after CalPERS cuts his benefit

The man who was granted California’s biggest public pension isn’t giving it up without a fight.

Bruce Malkenhorst took home more than $911,000 a year as city manager of the tiny city of Vernon. His reign ended shortly before he was convicted of misappropriating public funds, and he walked away with an annual pension that eventually topped $500,000, the largest in the California Public Employees’ Retirement System.

But CalPERS last year decided to cut his pension to $115,000, concluding he’d derived some of his hefty salary improperly.

So now the 78-year-old Malkenhorst is suing Vernon to make up the difference. His lawyers are making a novel if improbable argument: Because it paid him a high salary, the city is responsible for keeping his retirement benefits at the higher level even though CalPERS balked.

Vernon now faces a potentially costly legal battle as attorneys face off with the city’s onetime power broker, who for years was thought to be the highest paid public official in the country.

It could turn into a test case for other city leaders who have seen their hefty pensions cut by CalPERS.

Bell’s former city administrator, Robert Rizzo, was poised to receive a pension of about $650,000. But CalPERS cut it to $50,000 after Rizzo and seven other city officials were accused of corruption. His assistant, Angela Spaccia, had her projected pension cut from $250,000 to $43,000.

Last year CalPERS found that Vernon improperly boosted the retirement benefits of nearly two dozen top employees, resulting in the largest public pension reduction in state history. Malkenhorst’s successor, Eric T. Fresch, who made as much as $1.6 million in 2008, had his pension stripped completely. Fresch died last year.

Malkenhorst’s attorney has already presented hundreds of pages of exhibits as evidence of what he says are the city’s vows to fund his rich pension. In the suit, Malkenhorst describes his pension as a promise from the city based on his “highest earnings at Vernon.” He notes that eight years ago, when CalPERS first raised issues about his pension, the city supported Malkenhorst. That changed last year, he said, when CalPERS reduced his pension.

Vernon officials argue that Malkenhorst had been paid more than enough.

“The exhibits well document that Mr. Malkenhorst made a pile of money working for Vernon when he ran the show and was lord of the manor,” said City Atty. Nicholas Rodriguez. “We intend to litigate it and believe that he is entitled to nothing further from Vernon.”

CalPERS alleges that Vernon improperly boosted Malkenhorst’s retirement benefits, arguing that his pension was “illegally based on unpublished pay rates, overtime and an inflated longevity allowance.” Although Malkenhorst held as many as 10 positions during his 29-year tenure in the city’s government, CalPERS determined that only his pay as city clerk was properly reported for purposes of his pension. Malkenhorst filed two lawsuits to prevent his pension from being reduced. He lost both but is appealing.

Malkenhorst was squired around in limousines, and it often seemed that he oversaw the City Council, not the other way around. Those who know Malkenhorst said they are not surprised he is fighting back.

“Bruce Malkenhorst can’t be called shy,” said Steve Freed, president of the Vernon Property Assn., a business advocacy group. “He’s an aggressive guy with an aggressive personality. If he thinks he truly earned this money, then he absolutely will make every effort to attain that money.”

Freed said he has little sympathy for Malkenhorst.

“He set his own salary, he set his own benefits package, then swept it through the City Council,” he said. “He was coming close to $1 million a year, which is just irresponsible for a city to be paying one person.”

John Kruissink, a former Vernon historian, said Malkenhorst never tried to hide that he was getting paid a huge salary, which a compliant City Council readily awarded him.

“Bruce believes in himself and that he didn’t do anything wrong…. He’s going to go down swinging,” Kruissink said.

Malkenhorst did not return a call seeking comment, nor did his attorney.

Malkenhorst retired in 2005. The next year, Los Angeles County prosecutors filed public corruption charges against him, accusing him of spending $60,000 in city money for personal use, including massages, golf outings, meals and political contributions. He pleaded guilty in 2011. He was sentenced to three years’ probation and ordered to pay $35,000 in fines and penalties, as well as $60,000 in restitution to Vernon.

Malkenhorst was already the highest-paid public official in California by the late 1980s. In an interview with The Times in 1989, he declared his salary of $162,000 at the time to be a bargain for Vernon.

“I always thought if I made this much money I’d be rich,” he quipped.

ruben.vives@latimes.com

hector.becerra@latimes.com