EMPLOYMENT AGREEMENT

Exhibit 10.6

EMPLOYMENT AGREEMENT

          This Agreement (“Agreement”) is made effective as of the _______ day of _______________, 2007, by and among KAISER FEDERAL BANK (the “Bank”), a federally chartered stock savings bank, with its principal administrative office at 1359 N. Grand Ave., Covina, California 91724 and DUSTIN LUTON (“Executive”).  Any reference to the “Company” herein shall mean KAISER FEDERAL FINANCIAL GROUP, INC., the holding company of the Bank.  The Company is a party to this Agreement for the sole purpose of guaranteeing the payments required hereunder, except as otherwise provided herein.

           WHEREAS , Executive is currently employed as the Chief Financial Officer of the Bank; and

           WHEREAS , the Bank desires to assure itself of the continued services of Executive pursuant to the terms of this Agreement.

           NOW, THEREFORE , in consideration of the mutual covenants herein contained, and upon the other terms and conditions hereinafter provided, the parties hereby agree as follows:

1.       POSITION AND RESPONSIBILITIES

          During the period of his/her employment hereunder, Executive agrees to serve as Chief Financial Officer of the Bank.  During said period, Executive also agrees to serve, if elected, as an officer and director of any subsidiary or affiliate of the Bank or the Company.

2.       TERMS AND DUTIES

          (a) The term of this Agreement and the period of Executive’s employment hereunder shall begin as of the date first above written and shall continue for twenty-four (24) full calendar months thereafter.  Commencing July 1, 2008 and continuing on the first day of July of each year thereafter (the “Anniversary Date”), this Agreement shall renew for an additional year such that the remaining term shall be twenty-four (24) months, unless written notice of non-renewal (“Non-Renewal Notice”) is provided to Executive at least thirty (30) days and not more than sixty (60) days prior to any such Anniversary Date that this Agreement shall terminate at the end of twenty-four (24) months following such Anniversary Date.  Prior to each notice period for non-renewal, the disinterested members of the Board of Directors of the Bank (the “Board”) will conduct a comprehensive performance evaluation and review of Executive for purposes of determining whether to extend the Agreement, and the results thereof shall be included in the minutes of the Board’s meeting. 

          (b) During the period of his/her employment hereunder, except for periods of absence occasioned by illness, reasonable vacation periods, and reasonable leaves of absence, Executive shall faithfully perform his/her duties hereunder including activities and services related to the organization, operation and management of the Bank.

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3.       COMPENSATION AND REIMBURSEMENT

          (a) The compensation specified under this Agreement shall constitute the salary and benefits paid for the duties described in Section 2(b).  The Bank shall pay Executive as compensation a salary of not less than $226,600 per year (“Base Salary”).  Such Base Salary shall be payable  in accordance with the customary payroll practices of the Bank.  During the period of this Agreement, Executive’s Base Salary shall be reviewed at least annually; the first such review will be made no later than July 1 of each year during the term of this Agreement and shall be effective from that date through the end of the next succeeding June.  Such review shall be conducted by the President and Chief Executive Officer, and he/she may increase, but not decrease, Executive’s Base Salary (any increase in Base Salary shall become the “Base Salary” for purposes of this Agreement).  In addition to the Base Salary provided in this Section 3(a), the Bank shall provide Executive at no cost to Executive with all such other benefits as are provided uniformly to permanent full-time employees of the Bank.

          (b) The Bank will provide Executive with employee benefit plans, arrangements and perquisites substantially equivalent to those in which Executive was participating or otherwise deriving benefit from immediately prior to the beginning of the term of this Agreement, and the Bank will not, without Executive’s prior written consent, make any changes in such plans, arrangements or perquisites which would adversely affect Executive’s rights or benefits thereunder, except for amendments that are generally applicable to all employees.  Without limiting the generality of the foregoing provisions of this Section 3(b), Executive will be entitled to participate in or receive benefits under any employee benefit plans including but not limited to, retirement plans, supplemental retirement plans, pension plans, profit-sharing plans, health-and-accident plans, medical coverage or any other employee benefit plan or arrangement made available by the Bank in the future to its senior executives and key management employees, subject to and on a basis consistent with the terms, conditions and overall administration of such plans and arrangements.  Executive will be entitled to incentive compensation and bonuses as provided in any plan of the Bank in which Executive is eligible to participate (and he/she shall be entitled to a pro rata distribution under any incentive compensation or bonus plan as to any year in which a termination of employment occurs, other than Termination for Cause).  Nothing paid to Executive under any such plan or arrangement will be deemed to be in lieu of other compensation to which Executive is entitled under this Agreement.

          (c) In addition to the Base Salary provided for by Section 3(a), the Bank shall pay or reimburse Executive for all reasonable travel and other reasonable expenses incurred by Executive in performing his/her obligations under this Agreement and may provide such additional compensation in such form and such amounts as may from time to time be determine.

4.       OUTSIDE ACTIVITIES

          Executive may serve as a member of the board of directors of business, community and charitable organizations subject to the approval of the President and Chief Executive Officer, provided that in each case such service shall not materially interfere with the performance of his/her duties under this Agreement or present any conflict of interest.  Such service to and participation in outside organizations shall be presumed for these purposes to be for the benefit

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of the Bank, and the Bank shall reimburse Executive his/her reasonable expenses associated therewith.

5.       WORKING FACILITIES AND EXPENSES

          Executive’s principal place of employment shall be at the Bank’s principal executive offices.  The Bank shall provide Executive, at his/her principal place of employment, with a private office, stenographic services and other support services and facilities suitable to his/her position with the Bank and necessary or appropriate in connection with the performance of his/her duties under this Agreement.  The Bank shall reimburse Executive for his/her ordinary and necessary business expenses incurred in connection with the performance of his/her duties under this Agreement, including, without limitation, fees for memberships in such clubs and organizations that Executive and the President and Chief Executive Officer mutually agree are necessary and appropriate to further the business of the Bank, and travel and reasonable entertainment expenses.  Reimbursement of such expenses shall be made upon presentation to the Bank of an itemized account of the expenses in such form as the Bank may reasonably require.

6.       PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION

          (a) The provisions of this Section 6 shall apply upon the occurrence of an Event of Termination (as herein defined) during Executive’s term of employment under this Agreement.  As used in this Agreement, an “Event of Termination” shall mean and include any one or more of the following:

          (i)          the involuntary termination by the Bank of Executive’s full-time employment hereunder for any reason other than (A) Retirement, Death or Disability, as defined in Section 7 below, or (B) Termination for Cause as defined in Section 8 hereof; or

          (ii)          Executive’s voluntary resignation from the Bank’s employ, upon

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Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to elect to terminate his/her employment under this Agreement by resignation upon sixty (60) days prior written notice given within a reasonable period of time not to exceed ninety (90) days after the initial event giving rise to said right to elect; provided, however that the Bank shall have at least thirty (30) days to cure such condition and provided that Executive actually terminates employment within two years after the initial occurrence of such event.  Notwithstanding the preceding sentence, in the event of a continuing breach of this Agreement by the Bank, Executive, after giving due notice within the prescribed time frame of an initial event specified above, shall not waive any of his/her rights solely under this Agreement and this Section 6 by virtue of the fact that Executive has submitted his/her resignation but has remained in the employment of the Bank and is engaged in good faith discussions to resolve any occurrence of an event described in clauses (A), (B), (C), (D), (E) or (F) above.

          (iii)          (A) Executive’s involuntary termination by the Bank (other than Termination for Cause) on the effective date of, or at any time following, a Change in Control, or (B) Executive’s resignation from employment with the Bank or the Company (or any successor thereto) following a Change in Control as a result of any event described in Section 6(a)(ii)(A), (B), (C), (D), (E) or (F) above.  For these purposes, a Change in Control of the Bank or the Company shall mean a change in control of a nature that: (i) would be required to be reported in response to Item 5.01 of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”); or (ii) results in a Change in Control of the Bank or the Company within the meaning of the Home Owners’ Loan Act, as amended, and applicable rules and regulations promulgated thereunder (collectively, the “HOLA”) as in effect at the time of the Change in Control; or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any “person” (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company’s outstanding securities, except for any securities purchased by the Bank’s employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company’s stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he or she were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Bank or the Company or similar transaction in which the Bank or Company is not the surviving institution occurs or is effected; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current management of the Company is distributed, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the class of securities then subject to the plan are exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have

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tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror.

          (b) Upon the occurrence of an Event of Termination within thirty (30) days after the Date of Termination, as defined in Section 9(b), the Bank shall pay Executive, or, in the event of his/her subsequent death, his/her beneficiary or beneficiaries, or his/her estate, as the case may be, as severance pay or liquidated damages, or both, a sum equal to (i) the Executive’s earned but unpaid Base Salary and benefits, plus (ii) two (2) times the sum of (A) Base Salary and (B) the highest rate of bonus awarded to Executive during the prior two (2) years; provided, however, that such Event of Termination must qualify as a “Separation from Service” as defined in Internal Revenue Code (“Code”) Section 409A and the regulations thereunder. Notwithstanding the foregoing, to the extent Executive is a “Specified Employee” as defined in Code Section 409A, and such earlier payment would trigger penalties under Code Section 409A, then such payment shall be made on the first day of the seventh month following Executive’s Separation from Service.  Such payment shall not be reduced in the event Executive obtains other employment following Separation from Service.

          (c) Upon the occurrence of an Event of Termination, the Bank will cause to be continued, at the Bank’s expense, l