The California Public Employees’ Retirement System (CalPERS) saved its Pension Fund $922.5 million in the last five years, according to the Annual Cost Efficiency and Effectiveness Report, released by the CalPERS board of directors.
The report highlights initiatives that led to savings in the investment, health care, and information technology programs between fiscal years 2011 and 2016.
In its investment office, $325 million in savings was achieved by reducing reliance on external consultants, internalizing functions previously outsourced at a higher cost, and re-negotiating existing investment contracts with external managers for more favorable cost terms and improved economics
The health care program achieved $565.4 million in savings by:
- Developing innovative methods to achieve pharmaceutical cost containment;
- The removal of ineligible dependents from individual employee health plans;
- Reducing administrative fees with the implementation of new flex-funded health plans;
- Reducing costs for hip and knee replacement by standardizing pricing among providers;
- Requiring members to pay the cost difference between brand name and equivalent generic drugs; and
- Consolidating multiple Medicare payers to a single Medicare payer
A total of $32.1 million in savings for investment technology was achieved by transferring consultant work and knowledge to state staff.
“We will continue to look at means to control and reduce costs while focusing on innovative measures that streamline our operations,” says 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.”
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,” says Cheryl Eason, CalPERS chief financial officer. “Our priorities are to balance our operational requirements, while demonstrating fiscal responsibility.”
CalPERS also credits savings on other key operational improvements including the development of the Funding Risk Mitigation Policy and a new option for members to receive their health statement online.