CalPERS faces lawsuit, new board leadership

The California Public Employees’ Retirement System will face a June lawsuit over rate hikes on its long-term care insurance plan, under a new board president.

According to a report in the Sacramento Bee, the class-action lawsuit could end up costing CalPERS as much as a billion dollars, over whether the pension fund carried out a contract-breaking rate hike on their long-term health care plans five years ago.

Because there are so many people involved—some 122,000 retirees who bought into the insurance plan in question—damages could run as high as $1 billion, the report says.

CalPERS has asked a state appeals court to decertify the class of plaintiffs in the lawsuit; that could cut down substantially on CalPERS’ exposure.

In its petition to the 2nd District Court of Appeal, CalPERS said that winning the case “would actually harm people who bought the plan because the pension fund would be compelled to more than double the rates it charges for long-term care insurance,” the report says.

Beginning in 2013, CalPERS adopted a series of rate hikes for its long-term care policy that hit their pinnacle with an 85-percent increase that hit in 2015. In the appeal, CalPERS says that it would have to boost those premiums 124 percent if it loses the suit.

“There is no source of funds to pay a judgment other than the long-term care fund itself. Should the fund come up short because of a judgment, we would have to raise rates significantly,” CalPERS spokesman Wayne Davis is quoted saying in the report.

However the appeal goes, CalPERS will face it under new Board of Administration leadership, after a vote by government workers turfed out Priya Mathur, the sitting board president, and voted in Jason Perez, a police-union official.

The Wall Street Journal reports that Mathur was focused on environmental, social and governance investing, and Perez challenged her with a call to emphasize the agency’s fiduciary duty to maximize investor returns.

Perez criticized a move to divest from gun retailers earlier in the year as “nothing more than a political ploy.”

And while moves are afoot to demand better disclosures from companies on ESG information, CalPERS beneficiaries were apparently swayed away from social activism at least in part by the findings of a consultant in 2016 who said that the fund’s beneficiaries missed up to $3 billion in investment gains from 2001–14 in the wake of divestiture from tobacco holdings.