Lawsuit Says CalPERS Misled Long-Term Care Policyholders

On Tuesday, three law firms filed a lawsuit against CalPERS on behalf of more than 125,000 long-term care policyholders alleging that the pension fund misled beneficiaries by saying premium rates for such plans would be stable, the Sacramento Bee reports (Kasler/Ortiz, Sacramento Bee, 8/7).

Background

In October 2012, CalPERS' Board of Administration unanimously approved a plan to raise long-term care insurance premiums by 85% for hundreds of thousands of state workers and retirees.

CalPERS officials cited cost concerns when justifying the premium hike. They said the long-term care program has enough money for now but will face shortfalls in decades to come.

Unlike its pension benefits program, CalPERS' long-term care program is not funded by taxpayers, and the state pension fund must pay its own claims.

In February, CalPERS began sending notices to more than 110,000 beneficiaries with long-term care insurance about the increase, scheduled to begin in 2015.

Policyholders criticized the plan to hike premiums, saying that CalPERS guaranteed that rates would not increase when it sold them the long-term care plans in the 1990s (California Healthline, 2/28).

Details of the Lawsuit

The suit was filed in Los Angeles Superior Court by:

• Kershaw, Cutter & Rattinoff;
• Shernoff Bidart Echeverria Bentley; and
• Kreindler & Kreindler.

According to the lawsuit, CalPERS:

• Failed to warn policyholders about the program's financial problems; and
• Admitted to taking part in an inappropriate investment strategy (CBS Los Angeles, 8/6).

The lawsuit argues that CalPERS should return all premiums paid for long-term care plans.

The firms are seeking class-action status for the suit.

CalPERS' Response

In a statement following the filing, CalPERS said that it "took great care in coming to the decision to restructure the program so that participants could access services when they need them."

The pension fund added, "We consulted with member and policyholder groups and completed rigorous analyses of options before making the very tough decision that rate increases were necessary" (Sacramento Bee, 8/7).