Sacramento — Observers have wondered in recent months why the California Public Employees’ Retirement System, the nation’s largest state pension fund and one of Wall Street’s most muscular financial players, has taken such a hamfisted approach toward one of California’s tiniest and least-powerful cities. There’s a rational, albeit troubling, reason for its approach. After the...

Sacramento The tiny Sierra Nevada mountain town of Loyalton, Calif.—population: 862—has become the poster child for cities that want to check out of the California Public Employee’s Retirement System, but can’t swallow the insurmountable cost of leaving. Loyalton’s oft-repeated tale appeared again this week, on Sunday in the Los Angeles Times. All the familiar characters are there,...