$800 Million Settlement Reached for Retirees in CalPERS Long-Term Care Pension Plan Blunder

Poorly misjudged inflation rates led people invested in the CalPERS long-term care insurance to pay extremely high rate hikes. The group took the pension plan company to court.
By: | May 30, 2023

CalPERS, the largest public pension fund in the 1990s and early 2000s, started offering long-term care insurance to future pensioners during an era when pension funds were flush and the company felt confident it could earn 8% returns on investments. 

To incentivize future retirees, CalPERS marketed its long-term care plans with inflation protection. 

Members bought into the program, believing this protection would shield them from dramatic spikes in premiums. 

However, as time demonstrated, CalPERS sorely misjudged inflation rates. 

In 2012, CalPERS issued its first large long-term care insurance rate hike at 85%. It continued to raise fees each year, which placed increasing pressure on retirees with fixed incomes. 

The pressure became so great that members of the 105,000 active profiles in the CalPERS long-term fund account filed a class action lawsuit against the company. 

At the time, the fund controlled around $4.9 billion in assets. 

In an initial agreement, CalPERS was on the hook for $2.7 billion.  

Per this court-approved settlement, retirees would also be required to drop their long-term care plans in exchange for a one-time payment of up to $50,000 each. 

This was not ideal for retirees who were expecting — and had paid into — a fund meant to protect them through long-term care needs. They sought a different solution that would provide them security over retribution. 

Back in court, a second settlement was reached. CalPERS agreed to pay $800 million to retirees in its plan. Those who plan to remain on the insurance will receive an additional $1,000 and a commitment from CalPPERS “that their rates will not increase until November 2024,” per one report 

Those who plan to cancel their plans are set to receive 80% of the premiums they paid into, amounting to tens of thousands of dollars for some. The settlement does not cap the amount a policyholder may receive. 

About 79,000 households will benefit from the settlement, including the families of deceased policyholders. 

Scorecard: CalPERS is currently on the hook for the $800 million settlement. If the case proceeds to trial, estimates show it could take more than two years to determine the final outcome. 

Takeaway: Insurance companies of all stripes need to not only make good on their promises, but they must also be wise in their long-term projections, so that they don’t default on existing agreements. &

Autumn Demberger is a freelance writer and can be reached at [email protected].

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