CalPERS Cuts Costs and Saves Pension Fund $922.5 Million Over a Five-Year Span

The California Public Employees’ Retirement System (CalPERS) Board of Administration (Board) released the Annual Cost Efficiency and Effectiveness Report (PDF), detailing several initiatives that resulted in cost savings for the Pension Fund of $922.5 million over the past five years.

"We will continue to look at means to control and reduce costs while focusing on innovative measures that streamline our operations," said Richard Costigan, chair of the Finance and Administration Committee. "This savings is a reflection of CalPERS’ efforts to cut costs and leverage the savings that improve our health and retirement programs for our members and employer partners."

Between Fiscal Years 2011-16, CalPERS achieved savings in its investment, health care, and information technology programs through the following initiatives:
 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

 Health Care Program - $565.4 million in savings

• Developed innovative methods to achieve pharmaceutical cost containment
• Achieved savings through the removal of ineligible dependents from individual employee health plans
• Reduced administrative fees with the implementation of new flex funded health plans
• Reduced costs for hip and knee replacement by standardizing pricing among providers
• Required members to pay the cost difference between brand name and equivalent generic drugs
• Consolidated multiple Medicare payers to a single Medicare payer

 Information Technology - $32.1 million in savings

• Transferred consultant work and knowledge to state staff

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.

"The savings and cost avoidance of nearly $290 million in a one-year period is an accomplishment that speaks to our operational effectiveness," said Cheryl Eason, CalPERS chief financial officer. "Our priorities are to balance our operational requirements, while demonstrating fiscal responsibility."

Other key operational improvements included:

• The development of the Funding Risk Mitigation Policy
• A new option for members to receive their health statement online
• Reduced water consumption that recaptured 1.7 million gallons of water