CalPERS Annual Performance Report (2017-18)

Strengthen the long-term sustainability of the pension fund

Keeping our promise of a secure pension is the cornerstone of our mission. It has been the reason for our existence since 1932. Long-term sustainability of the pension fund and availability of the funds for our members when they retire are the embodiment of that promise we made 86 years ago. To fulfill this promise, we strive to deliver targeted, risk-adjusted investment returns and to keep our stakeholders engaged and educated about how we balance risks and mitigations to achieve this goal.

Highlights:

• Increased the funded status of the Public Employees Retirement Fund (PERF) from 68 percent for FY 2016-17 to 71 percent for FY 2017-18.
• Lowered the discount rate from 7.5 percent to 7.0 percent to reduce long-term risk to the portfolio when the marketplace underperforms.
• Shortened amortization periods from 30 years to 20 years thereby escalating the rate at which employers pay their contributions into the PERF.
• Implemented the Risk Mitigation Policy & Employer Education Outreach Plan.
• Encouraged state and public agencies to make additional payments. This year the state is contributing $6 billion above the required contribution, which will lower the unfunded liability.
• Integrated environmental, social, and governance (ESG) considerations into investment decision-making to support long-term sustainability of the companies we invest in.

Read the Fund Sustainability (PDF, 1.70 MB) section of the report.

Transform health care purchasing and delivery to achieve affordability

We aspire to transform health care purchasing and delivery, to make it affordable while providing the best value in health care to our members. We seek to understand rising health care costs and the impact of wellness on those costs.

Highlights:

• Held the annual overall percent increase in health care premiums for 2018 below our target of 5.51 percent. The percent increase in health care premiums for 2018 is 2.33 percent.
• Looked at opioid use: We will measure the duration of opioid use, using national comparative data, to establish a target and thresholds, which will be available in FY 2019-20.
• Measured the percent of in-network hospitals providing obstetric services to CalPERS members that have a cesarean section rate of 23.9 percent or less. Our target is to have 45 percent of these hospitals reduce their C-section overuse rate.

Read the Health Care Affordability (PDF, 1.70 MB) section of the report.

Reduce complexity across the enterprise

CalPERS is a large organization, but large doesn't have to mean complicated. We'll focus on streamlining our operations, processes, and procedures over the next five years. We believe this will benefit us by gains in efficiency and improved productivity among our employees. By simplifying our benefit programs, we believe we can improve service delivery, decrease costs, and reduce risk.

Highlights:

• Participated in an annual benchmarking survey called Cost Effectiveness Measurement (CEM) to help evaluate our services, complexity, and costs compared to other public pension systems across the world. Based on the results of the 2017 CEM Pension Administration Benchmarking System Report, CalPERS reduced its overall complexity score by 3 percent, achieving our target, while continuing to improve service and reduce costs.
• Measured benefit payment timeliness as one of our commitments to ensure that customers receive benefit payments on time. We delivered 95 percent of identified benefit payments within our established service levels, reflecting our absolute dedication to issuing timely payments to our customers.
• Reduced the number of external investment managers retained to manage assets on our behalf to decrease investment management fees.
• Continued to be low cost compared to our national peers and global custom peer group and focused on delivering more value for cost through effective management of portfolios, resources, and technology.

Read the Reduce Complexity (PDF, 1.70 MB) section of the report.

Cultivate a risk-intelligent organization

We continue our efforts to be a risk-intelligent organization. This means protecting the data of our members and employers is paramount to us. We are keenly aware of the potential risks we face, and have risk mitigation methods in place for use daily. We also work to make our compliance and audit processes more strategic based on risk and trend analysis.

Highlights:

• Surveyed team members on incorporating risk and compliance functions into their daily work. 78 percent are aware of CalPERS risk program and incorporate risk functions into their daily work and 87 percent are aware of CalPERS' compliance program and incorporate compliance functions into their daily work.
• Established a five-year goal of 5 percent increase from baseline of overall stakeholder perception of our success in implementing functions and programs that support compliance and risk. This target will be met through continued stakeholder engagement and the consistent demonstration of our commitment to a culture of compliance and risk as an organization.

Read the Risk Management (PDF, 1.70 MB) section of the report.

Promote a high-performing and diverse workforce

We strive to maintain a high-performing and diverse workforce. We foster a culture of inclusion that welcomes diversity of thought, experience, and background. We've learned that diversity within an inclusive working environment enhances the relevance of our work, increases productivity, and improves the value of services we provide. We want to ensure that our employees have the resources they need to provide outstanding service to our members, business partners, stakeholders, and staff. We will continue to step up our efforts to recruit and empower a broad range of talented employees to meet our organizational priorities.

Highlights:

• Conducted the CalPERS Annual Employee Engagement Survey in support of our efforts to foster a culture of engagement. The questions in the survey corresponded to engagement and retention drivers, such as manager relationships, learning and development, culture, and organization potential. The survey achieved a 70 percent response rate, showing that more than half of our team members were fully engaged.
• We increased the number of recruitment channels from seven to nine and added new recruitment activities within existing channels. These two new recruitment channels were established to attract the most diverse and qualified applicant pool to CalPERS and engage prospective applicants in innovative ways.
• Hiring from within: The rate for filling senior and executive recruitments with internal candidates is 67 percent.
• Measuring proficiency in CalPERS Leadership: Performance data from an online competency-based assessment will be available by FY 2018-19.

Read the Talent Management (PDF, 1.70 MB) section of the report.

• Ensuring responsible investment and daily management of CalPERS assets
• Effectively developing, implementing, and monitoring the asset allocation decisions of the board
• Safeguarding the solvency of the funds through sound actuarial practices

Highlights:

• CalPERS sets strategic asset allocation ranges every four years to realign levels of investment risk and financial liquidity. The current asset allocation ranges remain within approved targets.
• Treasury management reserves ensure the payment of member benefits without interruption. All reserves and targets were met.
• Each year the Actuarial Office produces a report to explain and generate current and future employer pension contribution costs. The reports are on schedule to be released in August of FY 2018-19.  

Read the Reliable Stewards of Funds (PDF, 1.70 MB) section of the report.

• Understand the needs and expectations of our customers
• Continuous improvement and innovation for the benefit of our customers

Highlights:

• Customer satisfaction surveys scored 90 percent, demonstrating flexibility and responsiveness.
• CalPERS demonstrated a high level of accuracy of benefit payments, scoring 98 percent during the benefit payment process.
• CalPERS measures benefit payment timeliness, one of our most critical priorities. A total of 95 percent of payments were made within our targets.

Read the Customer Satisfaction Driven Organization (PDF, 1.70 MB) section of the report.

• Hiring and empowering a talented executive team
• Striving for excellence and setting a clear vision for the future together
• Creating and maintaining a high level of accountability

Highlights:

• CalPERS measures the satisfaction of employers who attend training. This year 95 percent of attendees reported satisfaction, exceeding our targets.
• The Member Stakeholder Perception Survey score increased from 80.7 percent to 83.7 percent in response to the question, "Does CalPERS do a good job of keeping members informed?"
• CalPERS measures the total number of attendees and total number of unique employers who attend the Educational Forum, our annual employer education event. Our target is to increase registration by 2 percent every year for the next five years.

Read the Open and Transparent Communication (PDF, 1.70 MB) section of the report.

• Building working relationships with the board, team members, stakeholders, and outside organizations including the media
• Be open and accessible, working for a solution in a collaborative way, ensuring all voices are heard
• Keeping the board informed on key issues and strengthening partnership

Highlights:

• CalPERS measures the value IT provides to business capability. The score was 84, above the peer median of 82.
• CalPERS measure the proportion of employers current on their pension program obligations: Ninety nine percent of employers are current.
• CalPERS uses the Lean Process Improvement Framework to reduce waste and increase vale to the customer. This year about 35 percent of CalPERS leadership participated in Lean white belt training, and all four green built candidates completed a lean improvement project.

Read the Efficient and Effective Organization (PDF, 1.70 MB) section of the report.

• The executive and leadership teams shall reflect CalPERS Core Values
• Leadership needs to collaborate to achieve support and success
• Top-down approach – leading by example from the CEO level

Highlights:

• CalPERS managed 122 metrics through the Enterprise Performance Management System, including 37 strategic measures, 37 business plan initiatives, and 48 key performance indicators.
• Our first Employee Engagement Survey results show perception of leadership in two areas: Manager relationship perception scored 71 percent, and senior and executive management relationships scored 54 percent.
• CalPERS maintains compliance with sustainability practices and the California State Governor's Executive Orders. We'll complete the Sustainability Roadmap, with deliverables for initiatives including greenhouse gas emissions, water conservation, and environmental preferable purchasing.

Read the Supportive and Engaged Leadership (PDF, 1.70 MB) section of the report.

• Creating a destination workplace where every team member can thrive and feel proud to work for CalPERS
• Fostering an inclusive environment where team members are valued and supported for their ideas by both their managers and colleagues

Highlights:

• The Annual Employee Engagement Survey will help ensure we continue to foster a culture where engaging behaviors are part of our daily interactions. The target response rate for this survey is in the high-performing range of greater than or equal to 70 percent.
• CalPERS will measure the average time to hire for those defined as hard-to-recruit. The time that is measured starts when the recruitment request is submitted to Human Resources until the time an official job offer is accepted by the candidate.
• Our Idea Factory is employee-driven innovation program. It's designed to inspire team members to share ideas and solutions. 100 percent of ideas submitted were responded to within 120 days of idea submission. 100 percent of approved ideas were implemented as scheduled.

Read the Team Member Engagement (PDF, 1.70 MB) section of the report.