Promise catches up to CalPERS

The honchos at the California Public Employees' Retirement System are in hot water again. Higher-than-expected claims and lower-than-expected returns on investments have forced the CalPERS board to raise premiums for its long-term care insurance by 85 percent.

Policyholders are upset. Back in the '90s, when CalPERS was hawking what was then the relatively novel insurance product that provides nursing home and assisted living care, it led customers to believe that premiums would never rise.

CalPERS actuaries were as wrong about long-term care as they were when they told the Legislature the next year that substantially increasing public employee pension benefits wouldn't raise costs to state and local governments.

Unlike public pensions, long- term care insurance policies aren't guaranteed by taxpayers. So when claims soared and investment returns plummeted, policyholders were on the hook.

Now the retirement system is offering cheaper three-, six- or 10- year options instead of the lifetime benefit most policyholders bought back in the '90s and early 2000s.

Still, early buyers of CalPERS' more expansive long-term care policies feel burned, and with good reason. While there was no guarantee, CalPERS created an expectation that the cost of this extraordinary benefit would remain flat. It was a reckless promise, indicative of reckless management that previously ruled CalPERS. The adjustment under way was long overdue.