calpers

By Ed Mendel
October 20, 2014

A new comparison with four other large public pension funds found that CalPERS, while scoring average on service, had high pension administration costs — $213 per member a year, nearly twice the average of $108 per member.

In the year compared, fiscal 2012-13, a new CalPERS computer system and pension reform were taking unusual amounts of money and staff time. Scores are already improving as those jobs are completed, but CalPERS has a built-in disadvantage.

An official of Cost Effective Measurement (CEM) Benchmarking said CalPERS has the most “complexity” of 75 pension systems measured by the Canadian firm worldwide, including systems in Britain, Australia, Scandinavia and the Netherlands.

“You are the most complex system,” Tom Scheibelhut, CEM managing principal, told the CalPERS board last week while presenting the new comparison, “and that’s unfortunate because complexity impacts costs and it impacts services.”

Not directly adding to the complexity referred to by CEM, because it’s excluded from the pension survey, is a large part of the CalPERS operation: the administration of health care plans for active and retired state workers and many local governments.

The CEM service, whose slogan is “What gets measured gets managed,” has been used in the past by the California Public Employees Retirement System for investments. The new survey is the first annual pension administration report.

The California State Teachers Retirement System has used the CEM pension administration service for several years. The CalSTRS cost for fiscal 2012-13 was $198 per member.

As if to demonstrate a long-term commitment to having an outside firm monitor their performance, CalPERS and CalSTRS plan to host the annual CEM pension administration conference in Sacramento next May.

A comparison with 75 pension systems around the globe is said to be valuable for identifying “best practices” and “new ideas.” The CEM pension administration comparison for CalPERS was with similar large U.S. systems that use CEM monitoring.

According to CEM, CalPERS has 1.3 million active workers and pensioners, Teacher Retirement System of Texas 1.2 million, Florida Retirement System 1 million, New York State and Local Employees Retirement System 942,000, and CalSTRS 684,000.

“What’s really unique about CalPERS is that you have a lot more customization,” Scheibelhut told the board, while describing the system’s complexity and the rules covering operations.

For example, he said, CalPERS has five cost-of-living adjustment options, some capped at 2 and 3 percent and others uncapped. Payment options distinguish between “beneficiaries” and “survivors” and include “pop-ups” and “reversions.”

When a new employer joins CalPERS, Scheibelhut said, they can choose on average “91 different things.” He said a new employer joining one of the four other systems in the comparison can on average “choose four.” But it doesn’t stop there.

“From time to time an employer can come back and say, ‘Wait, my contributions are too high. I want to change the rules. I want to change the COLA.’ So they can change the rule set again and grandfather the old one,” Scheibelhut said. “In effect, you can have an infinite number of possible plans, and that is where your real complexity comes in.”

To read entire column, click here.