Compliance November 23, 2016

Another Plan Challenged for Offering Sequoia Fund

The lawsuit alleges the Sequoia Fund was an imprudent investment for the retirement plan because of its high concentration in Valeant Pharmaceuticals stock.
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Participants in the FMC Corporation Savings and Investment Plan have sued the firm and the plan over the plan’s offering of the Sequoia Fund.

According to the complaint, the Sequoia Fund is a high-cost mutual fund run by adviser Ruane, Cunniff & Goldfarb and its portfolio managers, Robert D. Goldfarb and David M. Poppe. The lawsuit claims the plan’s fiduciaries breached their Employee Retirement Income Security Act (ERISA) duties by continuing to offer the fund, because it was not diversified. The complaint says the fiduciaries should have known that throughout 2015—in violation of the plan’s investment policies regarding concentration and in spite of the concerns of fund shareholders—the Sequoia Fund’s assets were concentrated in a single stock: Valeant Pharmaceuticals, Inc.

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The fund was the largest shareholder in Valeant in 2015, owning nearly 10% of Valeant, and Valeant represented more than 30% of the fund’s total assets, according to the lawsuit.

The lawsuit seeks losses to the plan on behalf of all participants and beneficiaries of the plan during the proposed class period.

In another lawsuit questioning Disney’s offering of the Sequoia Fund as an investment in its retirement plan, a federal court in California dismissed the charges, finding that participants had not plausibly alleged that the plan’s fiduciaries were responsible for monitoring the underlying investments in the mutual fund.

Administration November 23, 2016

CalPERS Saves Pension Fund $922 Million in Five Years

The California Public Employee Retirement system outlines several cost-saving strategies including changes to its health care program and its investment-management practices.

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The California Public Employees’ Retirement System (CalPERS) saved its Pension Fund $922.5 million in the last five years, according to the Annual Cost Efficiency and Effectiveness Report, released by the CalPERS board of directors.

The report highlights initiatives that led to savings in the investment, health care, and information technology programs between fiscal years 2011 and 2016. 

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In its investment office, $325 million in savings was achieved by reducing reliance on external consultants, internalizing functions previously outsourced at a higher cost, and re-negotiating existing investment contracts with external managers for more favorable cost terms and improved economics

    The health care program achieved $565.4 million in savings by:

    • Developing innovative methods to achieve pharmaceutical cost containment;
    • The removal of ineligible dependents from individual employee health plans;
    • Reducing administrative fees with the implementation of new flex-funded health plans;
    • Reducing costs for hip and knee replacement by standardizing pricing among providers;
    • Requiring members to pay the cost difference between brand name and equivalent generic drugs; and
    • Consolidating multiple Medicare payers to a single Medicare payer

    A total of $32.1 million in savings for investment technology was achieved by transferring consultant work and knowledge to state staff.

      “We will continue to look at means to control and reduce costs while focusing on innovative measures that streamline our operations,” says Richard Costigan, chair of the Finance and Administration Committee. “This savings is a reflection of CalPERS’ efforts to cut costs and leverage the savings that improve our health and retirement programs for our members and employer partners.”

      In Fiscal Year 2015-16, CalPERS’ costs savings and reductions resulted in another $289.3 million from the previous fiscal year of $633.2 million to a new grand total of $922.5 million.

      “The savings and cost avoidance of nearly $290 million in a one-year period is an accomplishment that speaks to our operational effectiveness,” says Cheryl Eason, CalPERS chief financial officer. “Our priorities are to balance our operational requirements, while demonstrating fiscal responsibility.”

      CalPERS also credits savings on other key operational improvements including the development of the Funding Risk Mitigation Policy and a new option for members to receive their health statement online.

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