Lawsuit alleges CalPERS misled customers with long-term care plans

A new lawsuit alleges the California Public Employees’ Retirement System intentionally misled more than 100,000 policyholders who purchased long-term care insurance from the giant pension fund.

This case, filed Tuesday in Los Angeles County Superior Court, adds to the growing backlash against CalPERS over its recent decision to hike rates 85% for many of these policies, starting in 2015.

CalPERS, which runs the nation’s second-largest long-term care plan after one for federal government employees, has said the hefty rate increases are necessary to keep this insurance fund intact for future claims.

The CalPERS program, like other plans sold by private insurers, has been plagued by higher-than-expected claims, lower investment returns and poor pricing.

“Wonderful people were duped into thinking they had purchased protection in the event they were no longer able to care for themselves,” said Gregory L. Bentley, an attorney at Shernoff Bidart Echeverria Bentley LLP, one of three firms that filed the suit seeking class-action status on behalf of policyholders.

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One of the named plaintiffs, Elma Sanchez, 88, purchased a long-term care policy from CalPERS around 1998 for $179 a month, according to the lawsuit. In 2015, her monthly premium would reach $793.75.

The lawsuit alleges that CalPERS touted the financial strength of its program and said it had the experience to successfully manage it. But the agency pursued an improper investment strategy that left the program grossly underfunded and then failed to warn policyholders about these financial problems in a timely manner, according to the suit.

A spokesman for CalPERS said it disputes the allegations.

“We consulted with member and policyholder groups and completed rigorous analyses of options before making the very tough decision that rate increases were necessary,” spokesman Brad Pacheco said.

The 85% rate increase primarily affects about 110,000 people who purchased the agency’s policies from 1995 to 2004 that provided lifetime benefits.

CalPERS has been offering customers several ways to adjust their benefits to avoid these premium increases. The agency also has been taking other steps to shore up the struggling program.

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