Public Pensions

CalPERS Gives Blueprint to Cost Savings for Pension System Funds

Categories: Public Pensions

CalPERS Gives Blueprint to Cost Savings for Pension System Funds ( )

California Public Employees’ Retirement System (CalPERS) Realizes Nearly $1 Billion in Savings Since 2011

The California Public Employees’ Retirement System (CalPERS) released the Annual Cost Efficiency and Effectiveness Report detailing several initiatives that resulted in cost savings for the Pension Fund of $922.5 million over the past five years. CalPERS still has massive unfunded liabilities, which continue to grow due to poor investment returns and inaction on needed reforms. MuniNet offers our Public Pension page with valuable instructive materials on pensions and pension reform, including articles from our publishers Richard Ciccarone and James Spiotto. We also provide an information portal with links to state retirement systems, and other coverage and analysis of public pension systems. However, every dollar counts, and it is worth giving credit for cost savings that are found, as well as giving a spotlight to the potential for new best practices in efficient governance.

From FY 2011 to FY 2016, CalPERS looked at investment, health care, and information technology programs for savings:

Investment Office – $325 million in savings
  • Reduced reliance on external consultants
  • Internalized functions previously outsourced at a higher cost
  • Re-negotiated existing investment contracts with external managers for more favorable cost terms and improved economics

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Health Care Program – $565.4 million in savings
  • Developed innovative methods to achieve pharmaceutical cost containment – $122.7M
  • Achieved savings through the removal of ineligible dependents from individual employee health plans – $311.8M
  • Reduced administrative fees with the implementation of new flex funded health plans – $64.6M
  • Reduced costs for hip and knee replacement by standardizing pricing among providers – $31.8M
  • Required members to pay the cost difference between brand name and equivalent generic drugs – $22.5M
  • Consolidated multiple Medicare payers to a single Medicare payer – $12.0M

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Information Technology – $32.1 million in savings
  • Transferred consultant work and knowledge to state staff – $30.7M
  • Cost avoidance by replacing a more expensive commercial-off-the-shelf (COTS) product with a custom in-house solution to handle business rules – $1.0M
  • Decommission of 47 desktop printers resulting in cost avoidance from upkeep, maintenance, and toner – $20K
  • Technology ($235K), Education Forum ($154K) and Consultant Travel Savings ($37K) – $426K

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In Fiscal Year 2015-16, CalPERS costs savings and reductions resulted in another $289.3 million from the previous fiscal year of $633.2 million to a new grand total of $922.5 million.

Other key operational improvements included:

  • The development of the Funding Risk Mitigation Policy aimed to reduce risk and volatility in the system
  • A new option for members to receive their health statement online via self-service
  • Reduced water consumption that recaptured 1.7 million gallons of water

Read the agenda item (PDF) for more information.

by Jeffrey L Garceau

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