SACRAMENTO – The California Public Employees Retirement System, the nation's largest pension fund, announced that it and other pension funds have reached an $895 million settlement of a class-action lawsuit against UnitedHealth Group Inc. over stock option backdating.

CalPERS had argued that investors were hurt because UnitedHealth and its then-chairman and chief executive, William McGuire, didn't really grant stock options when they said they did in the late 1990s and early 2000s. McGuire stepped down, and UnitedHealth was forced to restate profits back to 1994 by $1.5 billion before taxes.

When it filed the suit in 2006, CalPERS didn't put a dollar amount on its claims for all shareholders. But CalPERS attorney Ramzi Abadou earlier this year said it's in the billions.

On Wednesday, CalPERS and attorneys who follow such settlements said they believed the $895 million was the largest in an options backdating class action.

“This is a significant, epic settlement,” Abadou said. He also noted a corporate governance change calling for a shareholder-nominated director, calling it “a major advance in corporate-shareowner relations.”

CalPers has approximately 1.5 million members and a total investment portfolio valued at around $240 billion.

UnitedHealth Chief Executive Stephen J. Hemsley said the settlement will help avoid more costly litigation.

Also Wednesday, UnitedHealth announced a lower profit outlook and a restructuring that will trim 4,000 jobs.

Shares in UnitedHealth Group fell 51 cents, or 2 percent, to close at $25.12 Wednesday after sliding to $25.04 earlier in the session, a level not reached since 2003.

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Associated Press writer Elizabeth Dunbar in Minneapolis contributed to this report.