Cotati City Council
Agenda Staff Report
Item type: REGULAR AGENDA (ACTION)
To: City Council
Subject: 2025 CALPERS UNFUNDED ACTURARIAL LIABILITY
REVIEW, POLICY COMPLIANCE AND FUNDED STATUS
Date: December 9, 2025
Written by: Angela Courter, Director of Administrative Services Recommendation
It is recommended that the City Council receive and file the 2025 Pension Liability Review prepared by Ridgeline Municipal Strategies, LLC. No action will be taken.
Background
In October 2025, Ridgeline Municipal Strategies, LLC completed a comprehensive review of the City of Cotati’s pension liabilities with the California Public Employees’ Retirement System (CalPERS). Ridgeline completed its latest review using the most current CalPERS actuarial data available, which reflects the pension plans’ status as of June 30, 2024 (FYE 2024). The analysis evaluated the City’s Unfunded Accrued Liability (UAL) as of June 30, 2024, reviewed CalPERS’ recent investment performance through June 30, 2025, examined the long-term amortization structure of the City’s pension obligations, and provided recommendations for managing future pension costs.
In 2022, the City issued Pension Obligation Refunding Loans that enabled a reduction of the UAL by $6 million, which was refinanced at interest rates significantly lower than the CalPERS discount rate. By refinancing a portion of the City’s long-term pension liability at lower interest rates, the City achieved estimated cash-flow savings of approximately $2.25 million. Since that time, the City has continued to make annual UAL payments to CalPERS along with payments on the two refinancing loans. Additionally, the City has made voluntary Additional Discretionary Payments (ADPs) and has requested CalPERS to convert certain amortization bases to level payment structures to mitigate the effects of negative amortization.
Analysis/Discussion
CalPERS administers pension benefits for the City through two consolidated plan groupings:
Safety (Police) and Miscellaneous.
CalPERS’ investment performance has significantly influenced recent changes in the City’s UAL. Based on the most recent actuarial valuations as of June 30, 2024, the City’s combined plans held approximately $40.4 million in assets against an actuarial accrued liability of approximately $47.5 million, resulting in a total UAL of $7.1 million and an overall funded status of 85.1%. According to this actuarial valuation, CalPERS earned a 9.3% investment return, exceeding the assumed rate of 6.8%. While CalPERS also recorded certain noninvestment actuarial losses due to higher-than-expected salary increases and cost-of-living adjustments statewide, the net impact to Cotati was a reduction of approximately $445,000 in the City’s UAL.
For the fiscal year ending June 30, 2025, CalPERS announced a preliminary 11.6% return for the year. While final actuarial reconciliations are not yet known, current estimates indicate that this investment performance will reduce Cotati’s UAL by an additional $1.94 million.
When considering all known factors, such as regular City and employee contributions, ADPs, benefit payments, investment performance, and interest on the UAL. Ridgeline estimates that Cotati’s pension plans reached an approximate funded level of 90% as of June 30, 2025. This achievement aligns with the target funded status established in the City’s Unfunded Accrued Liability Management Policy adopted in 2022.
It is important to note that the UAL reduction attributable to the 2025 investment performance will be treated by CalPERS as a “credit base” and amortized over a 20-year period with a fiveyear ramp-up. The first credit will be recognized in fiscal year 2028, which will help lower longterm UAL payment obligations.
Ridgeline also reviewed the City’s Normal Cost rates, which reflect the ongoing annual cost of pension benefits earned by active employees. For fiscal year 2027, most Normal Cost rates for Miscellaneous and Safety employees are projected to decrease slightly for the employer, with no change for employees.
Conclusion
Based on current projections, Ridgeline concludes that the City does not require any policymandated additional discretionary UAL payments or actuarial base modifications for fiscal year 25/26. The City’s funded status is strong, and recent investment gains appear to have significantly reduced long-term UAL exposure.
However, Ridgeline recommends that the City consider making additional discretionary contributions, either directly to CalPERS or into the City’s Pension Rate Stabilization Fund when financially feasible and in alignment with City Policy. Such contributions would provide greater long-term stability, reduce future interest costs, and help protect the City from potential future market underperformance or actuarial adjustments.
Financial Considerations
There is no immediate fiscal impact associated with receiving this report. Any additional discretionary payments undertaken by the City in future years would require separate Council consideration and appropriation.
Environmental Issues
This action is not a project under CEQA pursuant to CEQA Guidelines Section 15378 and therefore does not require environmental review.