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.
CEM chart shows above-average CalPERS and CalSTRS costs
“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.”
He said another “immensely” complex system, New York State and Local, has about 98 different plan rule sets, but they are “kind of frozen in stone.” CalPERS has 3,067 employers (half school districts and the rest local governments and the state).
So CalPERS starts with more complexity, Scheibelhut said, which can multiply if employers change their plans, giving new hires different benefits than previously hired employees who are “grandfathered” in the old plan.
As an example of how complexity increases cost, he said each of the many CalPERS rules has a number of lines of computer code that in effect say, “If this, then that.”
A lengthier code may take longer to write, be more error prone and must be checked for each employer to ensure accuracy. “You have more ‘ifs’ than anybody else out there,” Scheibelhut said.
In addition, he said, CalPERS has 44 actuaries, needed to do annual valuations of each employer’s funding and set contribution rates. Among the other four systems the next largest number of actuaries is 11, and some contract with outside actuarial firms.
The complex CalPERS system also requires, among other things, more legal staff, more internal auditors, more accounting staff, and the added complexity of dealing with retiree health care can’t be completely removed from the pension administration cost.
The service score for CalPERS, 63, was near the average, 66, for the five big systems. The CalSTRS service score, 73, was near the average, 78, for a different comparison group of 15 smaller systems.
“Service as we define it takes some members’ perspective, without regard to cost,” Scheibelhut said. “You don’t want to be 100 out of 100, because it would not be cost effective.”
He said members want services such as faster turnarounds on transactions, more channels where they can get information, counseling, a website, and “quality which we reflect indirectly through our satisfaction surveying measures.”
Among 20 different measures of member contacts, he said, are the number of calls that don’t get through because they “fall off the end of the phone tree” or the member gets bored and hangs up.
The survey found that 27 percent of the calls to CalPERS in fiscal 2012-13 did not get through, slightly less than the peer average of 28 percent. Since then the number is said to have dropped to 1 to 2 percent.
“So you have improved dramatically,” Scheibelhut said. Similarly, the average CalPERS call waiting time, 577 seconds, was above the average, 481 seconds, but since then is said to have dropped to about 90 seconds.
On member outreach, the survey found 10.3 percent of active CalPERS members attended one-on-one counseling sessions, compared to the peer average of 5.4 percent, and 6 percent attended a presentation, compared to the peer average of 2.9 percent.
“You have 12 things you can do on your website versus a peer average of eight,” Scheibelhut said.
In the future, CalPERS expects costs to drop, mainly because of the completion of the computer system, and service scores to improve, in part because of full operation of the new computer system and the CEM reports.
“We are looking forward to actively utilizing the information and not making it a report that sits on a shelf,” Donna Lum, CalPERS deputy executive officer, told the board.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 20 Oct 14
Calpensions 
October 21, 2014 at 2:55 am
Let’s see, 1) pick most negative year to choose “calls not answered” FY 12/13 even though 13/14 finished this past July and those numbers are readily available. 2) Talk about complexity of systems but don’t draw any conclusion about how that accounts for the cost difference. Obviously, complexity would increase cost. 3) Anytime you have State Legislature and local governments writing laws and making new contract provisions just about every year, you have complexity added.
Remember that GAS proposal called the Alternate Retirement Program? Designed to save no money and add millions in cost and complexity, but he could boast about how he cut pensions for state workers? Talk about adding complexity and cost just so you don’t realize he knocked up his maid in the home he shared with Maria and the kids. Oh, and that program has to be wound down now that it is defunct under the pension reform, adding complexity and costs. Oh, but politics is so much fun~!
October 21, 2014 at 3:22 am
“CEM, an independent provider of benchmarking information, found that the cost to manage the CalPERS portfolio was $136 million lower than its peers. CEM cited internal management of public assets, passive management of equities and lesser use of fund-of-funds as contributors to the cost savings.
The survey analyzed cost data at 14 large U.S. and global pension funds to create a benchmark cost figure. The benchmark figure is constructed to reflect what costs peers would incur if they had the same asset allocation mix as CalPERS. The pension fund was deemed cost-advantaged when comparing CalPERS actual cost data against the benchmark.”
October 21, 2014 at 3:31 am
It will be more interesting to look at this in 5-10 years when the costs of the computer system and changes in law are in the past. That is when the reality of the efforts and expense will be shown or not.
October 23, 2014 at 6:37 am
“How CalPERS ranks: average service, high costs”
– CalPERS, while scoring average on service, had high pension administration costs — $213 per member a year, nearly twice the average of $108 per member. Huh.
“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…. Tom Scheibelhut, CEM managing principal, told the CalPERS board last week … that’s unfortunate because complexity impacts costs and it impacts services.”
– Hmmm. So, CalPERS has been outed by this review as providing poor service while charging twice the amount of their peer group for the same/less amount of customer satisfaction. That sounds about right.
“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.”
– In other words, CalPERS has been charging (Taxpayers) twice the amount of their peer groups and that doesn’t even include/account for the administration of medical benefits – or the extra dollars to manage the out-of-control-lifetime medical-costs for public employee union members. And those dollars aren’t included in this survey. But, if they were, the CalPERS rating would look even worse – much worse.
CalPERS had high pension administration costs — $213 per member a year, nearly twice the average of $108 per member, and those numbers are understated.
CalPERS is over charging their customers by OVER 100%
October 23, 2014 at 7:24 am
In the very competitive private sector, companies pay very close attention to Cost Per Employee numbers, Revenue Per Employee Numbers, Service Quality numbers, etc… Apparently CalPERS has no such metrics.
In the CRAZY CalPERS WORLD it’s all about charging the customer as much as possible – because the CALIFORNIA RULE says they can do whatever they want (OOPS, not so fast).
Speaking of Customer – CalPERS doesn’t know who/whom the term customer refers to. The concept of taxpayers being a customer is a foreign concept, or might as well be a foreign language.
Almost four months into the current fiscal year, CalPERS is BLEEDING money. CalPERS is a MESS!
October 24, 2014 at 6:00 pm
My CalPERS pension check has been in my bank account, without fail, on the first day of every month for the past seven years. I have a personal interest in the operation of CalPERS, for the reason that I am a member of the Plan.
What is your personal interest in CalPERS, Captain, other than the fact that you are a taxpayer? I am a taxpayer too, just like you, and whatever affect CalPERS taxes have on you will also affect me. I feel nothing. So tell me, Captain, what is CalPERS doing to you?
October 24, 2014 at 8:56 pm
“SeeSaw Says: My CalPERS pension check has been in my bank account, without fail, on the first day of every month for the past seven years. I have a personal interest in the operation of CalPERS, for the reason that I am a member of the Plan.”
The fact you receive a monthly check has nothing to do with CalPERS being corrupt. Watch an episode of American Greed, seesaw. The biggest frauds perpetrated on the american public usually involves the fraudsters paying monthly checks – until they can’t. CalPERS fraudulent behavior may last longer than Bernie Madoff’s, but that’s only because CalPERS can DEMAND money from taxpayers. Bernie couldn’t demand money from his clients, municipalities, or taxpayers.
CalPErs thinks they can do whatever the hell they want, at least as long as they control the CalPERS Board of Administration, and the CalPERS CEO.
October 24, 2014 at 9:17 pm
“CalPErs thinks they can do whatever the hell they want, at least as long as they control the CalPERS Board of Administration, and the CalPERS CEO.”
– That should read: CalPERS thinks they can do whatever they want, at least as long the Public Employee Unions control the CalPERS Board of Administration, the CalPERS CEO, and the majority of our state legislatures.
CalPERS is twisted.
October 25, 2014 at 1:15 am
Your thinking seems pretty twisted, Captain. I would recommend that you talk to a Counselor about this. There is no correlation between Madoff and CalPERS. CalPERS is an agency set up by the State of CA which does set the laws for its operation. Madoff just used the his investors’ money the way he wanted, to enrich himself. CalPERS invests the contributions that come from the employers and the employees–it is paying those investment earnings out to the members. It is a figment of your imagination that public employee unions are in control of CalPERS. I repeat–see a Counselor.
October 25, 2014 at 3:43 am
CalPERS has just completely ignored the governors 2013 pension reform – the Public Employee Pension Reform Act. The CORRUPT CalPERS Board of Administration has used 99 different ways to GUT the governors plan, while also ignoring his plea’s not to do so. CalPERS is a ROGUE organization and their under qualified, UNION Controlled Board of Administration, is doing more than I ever could to drive public perception.
And you are helping, seesaw.
“How CalPERS ranks: average service, high costs”
– CalPERS, while scoring average on service, had high pension administration costs — $213 per member a year, nearly twice the average of $108 per member. Huh.
October 25, 2014 at 5:18 am
Noboby “gutted” the plan. It’s still on course to save over $50 billion in the next 30 years.
Brown objected to only ONE of the extra pay items, he argued that:
“a “temporary upgrade” to a higher-paying job should not yield a higher pension because the reform bill, AB 340, prohibits higher pensions for “ad hoc” short-term positions for a specific purpose.”
BUT:
” The Brown administration did not object to the nearly 100 extra pay items that are pensionable compensation and a “normal monthly rate of pay” under the new regulations, similar to the benefits received by workers hired before the reform took effect last year.”
Captain is twisted.
October 25, 2014 at 5:55 am
SDouglas47 Says: ” The Brown administration did not object to the nearly 100 extra pay items that are pensionable compensation and a “normal monthly rate of pay” under the new regulations, similar to the benefits received by workers hired before the reform took effect last year.”
Bull – Mr. Douglas. CalPERS can’t afford to pay the pensions they’ve promised without charging taxpayers 4X the original – and praying it doesn’t get worse. Reducing/Eliminating all the NONSENSICAL extra pay categories public employee unions were using to pad/SPIKE their pensions was the cornerstone of the governors pension reform, even if it didn‘t address the all the retroactive pension benefits that have been, essentially, gifted to employees. CalPERS has now shredded what little reform actually existed in order to appease their public employee union members.
The whole CalPERS/Public Employee Union SCAM is just one twisted, CORRUPT, SICK JOKE being perpetrated against taxpayers.
CalPERS needs an organizational enema.
October 25, 2014 at 5:57 am
SDouglas47 Says: “Noboby “gutted” the plan. It’s still on course to save over $50 billion in the next 30 years.”
I bet you can’t provide an intelligent argument that supports your claim.
October 25, 2014 at 12:04 pm
Can we stop the personal attacks? Why doesn’t t the moderator delete posts that do this?
October 25, 2014 at 12:20 pm
The reduced formulas are still in place…not gutted.
The increased employee contributions still in place…not gutted.
Caps on pensionable income still in place…not gutted.
Three year averaging…not gutted.
Last year overtime, excess vacation, bonuses no longer used for calculation.
Not gutted.
“99” salary enhancements (normal recurring pay, NOT ad hoc or one time payments)…..”MAY”…..be pensionable….. IF…..approved by the local jurisdiction. Subject to collective bargaining.
Captain needs an organizational enema.
We’re all entitled to our opinions.
October 25, 2014 at 4:42 pm
Captain, a public employee union provides representation for the organized group at its yearly negotiating sessions, to set up the conditions between the entity and the workers, for salaries and benefits. The union has no participation or input into whatever goes on with CalPERS’s following the statutes that have been passed by the state legislature. Wipe the idea that public employee unions control CalPERS off of your mind, and perhaps you can be restored to sanity and be able to get a life for yourself.
October 27, 2014 at 4:03 am
Mike
I agree
I have no idea why the moderator tolerates the childish personal attacks usually from t love and captain ?
Mainly why I never post here
Very childish blog when that is the level of discourse
October 28, 2014 at 6:51 am
“Mike Says: Can we stop the personal attacks? Why doesn’t t the moderator delete posts that do this?”
Mike, I here you. I don’t take the things others say about me personally. I get that they are protecting their own gravy-train, have a financial interest in keeping that train moving forward, and are willing to attack anyone that challenges their financial stake in the status-quo. There are people posting on these boards with a very strong financial interst in that narrative, but I’m not one of them.
I’m not one of those people that can support the status-quo when I know it’s detrimental to the health of my own city – even if there’s a personal financial gain/benefit (Can’t do it). And I’m not willing to allow people to defend CalPERS & CalSTRS – unchecked, when I know both these organizations are about to bust the school district budgets of every city/district in the state because both CalPERS & CalSTRS are about to charge (DEMAND MONEY FROM) every school district.
I believe there are cetian programs in every school that should be funded from the districts own budget; programs I participated in several years ago. Unfortunately many of those programs will soon disappear because the dollars that have traditionally funded those programs will no longer exist. Those dollars that went to fund Athletics, Music, and Sports will instead go toward funding Pensions, Retiree Healthcare, and even Employee Raises.
I find it difficult to NOT CHALLENGE the comments coming from the people I consider crooked/crooks, and both CalPERS & CalSTRS are a HUGE part of that conversation.
October 29, 2014 at 5:09 pm
You are not willing to, “allow”, people to defend CalPERS and CalSTRS, without you checking them? And who are you? I think you are confused as to which country you reside in. This is America–as a beneficiary, I will defend CalPERS, and I will do so as loudly as you ramble on with your hateful propaganda! You have never brought forth one ounce of proof to show that CalPERS and CalSTRS are corrupt!
October 29, 2014 at 6:35 pm
Captain
Seesaw and mike are correct
Posting in such a reactive
Polarized and padantic way
Only makes most of us ignore your posts
Please sir or madam
Increase the level of your discourse