2022 Pension
Liability Analysis
October 25, 2022
Municipal Advisory | Pension Optimization | Revenue Generation | Quantitative Strategies City of Cotati – UAL Update with 2022 Results 10/25/2022 2 CalPERS UAL Refunding Overview
• Jan 2022 – City closed on Pension Obligation and Street Improvement Loans • The closing took place right before an unprecedented run up in interest rates • Loan proceeds provided funds (incl. freed up reserves) to pay down CalPERS UAL by $6,000,000
• Aug 2022 – CalPERS published 06/30/2021 Actuarial Report:
• 21.3% investment gain
• 6.8% discount rate
• Aug 2022 – CalPERS announced estimated 2022 investment loss of 6.1% City of Cotati – UAL Update with 2022 Results 10/25/2022 3 06/30/2021 Pension Plans Overview
Pension Plan Total Accrued
Liability
Market Value
of Assets
Unfunded
Accrued
Liability
%
Funded
Miscellaneous $20,210,569 $15,497,090 $4,713,479 76.7%
Safety $16,529,171 $12,872,975 $3,656,196 77.9%
Safety 2nd Tier $1,122,174 $1,158,259 -$36,085 103.2%
Misc 2nd Tier $1,243,659 $1,275,085 -$31,426 102.5%
PEPRA Safety $1,236,914 $1,275,374 -$38,460 103.1%
PEPRA Misc $945,813 $980,241 -$34,428 103.6%
TOTAL $41,288,300 $33,059,024 $8,229,276 80.1%
Source: 06/30/2021
CalPERS Actuarial
Reports
MVA and UAL balances
do not reflect Jan 2022
UAL refunding
City of Cotati – UAL Update with 2022 Results 10/25/2022 4 2022 Funded Level Estimate (Rounded)
Description Misc Plan Safety Plan Total
Market Value of Assets
2021 Balance $15,497,000 $12,873,000 $28,370,000
Normal Cost Contribution $142,000 $67,000 $209,000
UAL Payment $642,000 $372,000 $1,014,000
UAL Refunding $3,402,000 $2,598,000 $6,000,000
Benefit Payments ($1,120,000) ($950,000) ($2,070,000)
Projected 2022 Balance $18,563,000 $14,960,000 $33,523,000 Unfunded Accrued Liability
2021 Balance $4,713,000 $3,656,000 $8,369,000
UAL Payment ($642,000) ($372,000) ($1,014,000)
Interest $321,000 $249,000 $570,000
UAL Refunding ($3,402,000) ($2,598,000) ($6,000,000)
Projected 2022 Balance $990,000 $935,000 $1,925,000
Pension Plan 2022 Funded Level 94.9% 94.1% 94.6%
All 2022 numbers are
estimates and may vary
Source: 06/30/2021
CalPERS Actuarial
Reports
Does not include
impact of 2022
investment loss
City of Cotati – UAL Update with 2022 Results 10/25/2022 5 2021 UAL + POB Amortization Schedule
Historical Payments
Sources: 06/30/2021
CalPERS Actuarial
Reports and Loan
Amortization Schedules
UAL and Debt Service
Payments only – no
normal cost
City of Cotati – UAL Update with 2022 Results 10/25/2022 6 2022 CalPERS Performance
• Estimated investment loss of 6.1% (Aug 2022)
• Unofficial updated investment loss of 7.8% (Sept 2022) • Funding shortfall of 12.9-14.6% (after discount rate) • FY2023 results are too early to tell
• Normal Cost contributions are increasing by 2-3% for
Classic Plans and 0.2-0.8% for PEPRA Plans
Pension Plan
Estimated
2022 Add'l
UAL
Miscellaneous $1,999,000
Safety $1,661,000
Safety 2nd Tier $149,000
Misc 2nd Tier $164,000
PEPRA Safety $165,000
PEPRA Misc $126,000
TOTAL $4,264,000
Add’l UAL is estimated based on CalPERS preliminary
returns (6.1% loss) and does not include any other
possible adjustments. Actual UAL change may vary.
City of Cotati – UAL Update with 2022 Results 10/25/2022 7 CalPERS Investment Returns
CalPERS Historical
Average Rates of
Return Thru 2021-22:
5 years – 6.7%
10 years – 7.7%
20 years – 6.9%
30 years – 7.7%
Source: CalPERS
City of Cotati – UAL Update with 2022 Results 10/25/2022 8 Long Term Perspective
• Market corrections are usually followed by
market recoveries
• However, market returns are unlikely to
quickly and fully recapture 2022 loss due
to discount rate hurdle
• Proactive actions are encouraged
City of Cotati – UAL Update with 2022 Results 10/25/2022 9 2022 Loss Impact on Funded Level (rounded)
Description Misc Plan Safety Plan Total
Market Value of Assets
2021 Balance $15,497,000 $12,873,000 $28,370,000
Normal Cost Contribution $142,000 $67,000 $209,000
UAL Payment $642,000 $372,000 $1,014,000
UAL Refunding $3,402,000 $2,598,000 $6,000,000
Investment Gain / (Loss) ($1,999,000) ($1,661,000) ($3,660,000) Benefit Payments ($1,120,000) ($950,000) ($2,070,000)
2022 Balance $16,564,000 $13,299,000 $29,863,000
Unfunded Accrued Liability
2021 Balance $4,713,000 $3,656,000 $8,369,000
UAL Payment ($642,000) ($372,000) ($1,014,000)
Interest $321,000 $249,000 $570,000
UAL Refunding ($3,402,000) ($2,598,000) ($6,000,000)
Investment (Gain) / Loss $1,999,000 $1,661,000 $3,660,000 2022 Balance $2,989,000 $2,596,000 $5,585,000
Pension Plan 2022 Funded Level 84.7% 83.7% 84.2%
All 2022 numbers are
estimates and may vary
Source: 06/30/2021
CalPERS Actuarial
Reports
City of Cotati – UAL Update with 2022 Results 10/25/2022 10 2022 Investment Loss Impact Estimate
Historical Payments
Sources: 06/30/2021
CalPERS Actuarial
Reports, Loan
Amortization Schedules,
CalPERS, and UAL
estimates
UAL and Debt Service
Payments only – no
normal cost
Safety & Misc Tier 1 only
Estimated add’l UAL
interest ≈ $4.4M
City of Cotati – UAL Update with 2022 Results 10/25/2022 11 UAL Policy Implementation Strategies:
Eliminate Negative Amortization
• Additional Discretionary Payments to cover FY2023 and FY2024 interest on new UAL:
• ≈ $250,000 – pay on 07/01/2023 and 07/01/2024
• Convert from ramp-up to level UAL amortization for 2022 base • Estimated cash flow savings of ≈ $775,000
City of Cotati – UAL Update with 2022 Results 10/25/2022 12 2022 Adjusted Loss Impact Estimate
Historical Payments
Sources: 06/30/2021
CalPERS Actuarial
Reports, Loan
Amortization Schedules,
CalPERS, and UAL
estimates
UAL and Debt Service
Payments only – no
normal cost
Safety & Misc Tier 1 only
Estimated add’l UAL
interest ≈ $3.65M
City of Cotati – UAL Update with 2022 Results 10/25/2022 13 UAL Policy Implementation Strategies:
ADPs for 90% Funded Level
• Current estimate ≈ $2,000,000
• ADPs could be made over several years
• Revisit in Sept / Oct 2023, after FY2023 results are known 10/25/2022 14
Questions?
Dmitry Semenov
Ridgeline Municipal Strategies, LLC
(916) 250-1590
[email protected]
RidgelineMuni.com