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TECHNICAL MEMORANDUM
To: Ms. Angela Courter, City of Cotati
Mr. Damien O’Bid, City of Cotati
From: Dmitry Semenov, Ridgeline Municipal Strategies, LLC Date: October 31, 2025
Re: 2025 Pension Liability Review; Ridgeline #23035
INTRODUCTION
Ridgeline Municipal Strategies, LLC (Ridgeline) has performed a review of the Unfunded Accrued Liability (UAL) that the City of Cotati (City) has outstanding with the California Public Employees' Retirement System (CalPERS) as of FYE 2024. This technical memorandum documents the review results and outlines recommended actions the City could take to reduce future UAL costs.
Recommended for Implementation:
• No policy-mandated ADPs or actuarial base modifications are necessary for FYE 2026.
Recommended for Consideration Based on Overall Budget Outlook:
• Additional discretionary payments to reduce the UAL or contributions to the Pension Rate Stabilization Fund.
CITY’S PENSION PLANS AND UNFUNDED ACCRUED LIABILITY
The City provides pension benefits to its employees and retirees through six pension plans with CalPERS. Beginning with FYE 2024, CalPERS consolidated its reporting and now provides two reports: one report for all Safety (Police) plans and one report for all Miscellaneous plans.
City of Cotati
2025 Pension Liability Review – 11/24/2025
As of 06/30/2024 (the most recent official information available as of the date of this memorandum), the plans had a total actuarial accrued liability (the estimated amount necessary, as of the valuation date, to fund all earned pension benefits for current employees, retirees, and beneficiaries) of approximately $47.5 million, held approximately $40.4 million in assets, and were underfunded by approximately $7.1 million. The pension plans were 85.1% funded, as summarized in Table 1 below.
Source: CalPERS’ Actuarial Valuation Reports as of June 30, 2024 In January 2022, the City issued a pension obligation refunding loan and a street improvements financing loan (UAL Refunding Loans) that allowed it to pay down the UAL by $6,000,000. Since then, the City has been making reduced UAL payments to CalPERS on the remaining UAL, as well as payments on the two loans. Since the loan interest rates are significantly lower than the interest rate charged by CalPERS, the refunding allowed the City to generate approximately $2.25 million in total cash flow savings at the time of the refunding.
Subsequently, CalPERS’ investment performance and reconciliation adjustments resulted in additional UAL changes.
Since 2023, the City has been making Additional Discretionary Payments (ADPs) to offset the effects of negative amortization on new UAL balances, as well as requesting CalPERS to convert some of the actuarial bases to level amortization.
Figure 1 shows the recent and future UAL and UAL Refunding Loans amortization schedule. This schedule reflects the official CalPERS 2024 amortization schedule and DOES NOT include the ADPs made by the City. However, it does incorporate the impact of these ADPs on future UAL payments.
Pension Plan Total Accrued
Liability
Market Value
of Assets
Unfunded
Accrued
Liability
%
Funded
Safety - Police $21,078,060 $17,824,084 $3,253,976 84.6% Miscellaneous $26,425,977 $22,609,348 $3,816,629 85.6%
TOTAL $47,504,037 $40,433,432 $7,070,605 85.1%
City of Cotati
Table 1
Pension Plans Summary - 06/30/2024
City of Cotati
2025 Pension Liability Review – 11/24/2025
Figure 1
City of Cotati
Current UAL and UAL Refunding Loan Amortization Schedule (in $ millions) Source: CalPERS’ Actuarial Valuation Reports as of June 30, 2024 and UAL Refunding Loans Amortization Schedules City of Cotati
2025 Pension Liability Review – 11/24/2025
CALPERS INVESTMENT PERFORMANCE FOR FYE 2024 and FYE 2025 For FYE 2024, CalPERS generated an investment return of 9.3%, which exceeds the CalPERS’ performance target of 6.8%. This resulted in a UAL decrease, some of which was offset by certain actuarial reconciliation adjustments.
CalPERS recently announced an estimated FYE 2025 investment return of 11.6%, exceeding the 6.8% target. This will result in an additional UAL reduction. However, other actuarial reconciliation adjustments for FYE 2025 are not yet known. Figure 2 below shows the history of CalPERS’ annual investment returns.
Figure 2
City of Cotati
History of CalPERS’ Annual Investment Returns, FYE 1996-2025 Source: CalPERS
The average annual investment returns as reported by CalPERS are as follows:
• 5 years: 8.0%
• 10 years: 7.1%
• 20 years: 6.7%
• 30 years: 7.6%
City of Cotati
2025 Pension Liability Review – 11/24/2025
The average returns indicate that historically CalPERS has been able to achieve the longterm investment target rate of 6.8% (the current discount rate). CalPERS has gradually lowered its target rate over recent decades. It appears that the current target rate corresponds favorably to the past performance. However, past performance is not a guarantee of future results.
SUMMARY OF FYE 2024 UAL CHANGES
For FYE 2024, CalPERS added two new actuarial bases to each of the City’s pension plans:
• The Investment Gain base decreased the UAL to account for the investment overperformance of 2.5%, compared to the 6.8% discount rate. • The Non-Investment Loss base is the annual reconciliation to account for the differences between the actuarial assumptions and the actual plan experience for the year. This base increased the UAL, reportedly due to the larger than expected salary increases and COLA adjustments within the pension pool.
Table 2 summarizes the impacts of these two bases on the City’s UAL.
Source: CalPERS’ Actuarial Valuation Reports as of June 30, 2024 The combined impact of these two bases reduced the City’s total UAL by approximately $445,000, which helped to somewhat offset the back-to-back UAL increases of the two prior years.
IMPACT OF FYE 2025 CALPERS’ INVESTMENT PERFORMANCE ON THE CITY To assess the impact of CalPERS’ FYE 2025 investment performance on the funded status of pension plans, it is important to remember that to maintain an unchanged funded ratio, among other things, CalPERS needs to achieve an investment gain equal to the discount rate, which is currently 6.8%. Whenever investment returns fall below the discount rate, the funded level of the pension plans decreases and an additional UAL is created.
Pension Plan Investment
Returns Other Factors Total UAL Change
Safety - Police (444,285) 230,067 (214,218)
Miscellaneous (556,829) 326,494 (230,335)
TOTAL (1,001,114) 556,561 (444,553)
Table 2
City of Cotati
FYE 2024 UAL Change Factors
City of Cotati
2025 Pension Liability Review – 11/24/2025
Conversely, whenever the investment returns are above the discount rate, the funded level increases and the UAL amount is reduced.
The 11.6% investment return translates into a 4.8% funding surplus (the difference between the 6.8% discount rate and the 11.6% estimated investment return). This surplus is projected to reduce the City’s UAL by approximately $1.9 million, subject to future actuarial adjustments.
Table 3 shows the 2025 investment performance impact estimates for the City’s plans.
Source: Ridgeline
The investment overperformance impact is estimated based on the FYE 2024 market value of assets within each pension plan multiplied by 4.8%. However, CalPERS may make additional adjustments to account for actual vs. projected plan experience and methodology changes, similarly to what was done in FYE 2024.
CITY’S NORMAL COST RATES
In addition to the UAL changes, the City should be aware that its Normal Costs are changing as follows for FYE 2027:
• Classic Miscellaneous Tier 1 Plan: reduced by 0.02% of salaries (from 16.09% to
16.07%) for the City, while remaining unchanged for the employees; • Classic Miscellaneous Tier 2 Plan: reduced by 0.01% of salaries (from 10.76% to
10.75%) for the City, while remaining unchanged for the employees; • PEPRA Miscellaneous Plan: reduced by 0.03% of salaries (from 7.96% to 7.93%) for the City, while remaining unchanged for the employees;
• Classic Safety Tier 1 Plan: appears to have been eliminated (no active employees); Pension Plan Estimated 2025
UAL Change
Safety - Police ($856,000)
Miscellaneous ($1,085,000)
TOTAL ($1,941,000)
Table 3
City of Cotati
Estimated 2025 Investment Return Impact
City of Cotati
2025 Pension Liability Review – 11/24/2025
• Classic Safety Tier 2 Plan: increased by 0.02% of salaries (from 20.15% to 20.17%) for the City, while remaining unchanged for the employees;
• PEPRA Safety Plan: reduced by 0.08% of salaries (from 13.99% to 13.91%) for the City, while remaining unchanged for the employees.
CITY’S ESTIMATED FYE 2025 PENSION PLAN FUNDED LEVELS
CalPERS will publish the 06/30/2025 actuarial reports in or around August 2026. The reports will reflect any changes that have taken place during the fiscal year, including the investment performance, City’s and employees’ contributions, including ADPs, benefit payments to plan beneficiaries, and CalPERS’ adjustments to reconcile the actual vs. projected plan experience and to account for actuarial methodology changes.
While the reconciliation and methodology adjustments are unknown at this time, Ridgeline has developed an estimate of the other changes, including the FYE 2025 ADPs, which are summarized in Table 4 below.
Sources: CalPERS, Ridgeline
Description Misc Plans Safety Plans Total
Market Value of Assets
2024 Balance $22,609,000 $17,824,000 $40,433,000
Normal Cost Contribution $504,000 $332,000 $836,000
UAL Payment $247,000 $230,000 $477,000
ADP $218,000 $180,000 $398,000
Investment Gain / (Loss) $2,623,000 $2,068,000 $4,691,000 Benefit Payments ($1,310,000) ($1,100,000) ($2,410,000) Estimated 2025 Balance $24,891,000 $19,534,000 $44,425,000 Unfunded Accrued Liability
2024 Balance $3,817,000 $3,254,000 $7,071,000
UAL Payment ($247,000) ($230,000) ($477,000)
Interest $260,000 $221,000 $481,000
ADP ($218,000) ($180,000) ($398,000)
Investment (Gain) / Loss ($1,085,000) ($856,000) ($1,941,000) Estimated 2025 Balance $2,527,000 $2,209,000 $4,736,000 Pension Plan 2025 Funded Level 90.8% 89.8% 90.4%
City of Cotati
2025 Pension Plan Funded Level Estimate
Rounded to '000s
Table 4
City of Cotati
2025 Pension Liability Review – 11/24/2025
The amounts calculated in Table 4 are estimates only and can only be finalized once CalPERS publishes the 06/30/2025 actuarial reports in August 2026.
The UAL payments and benefit payments estimates were generated by CalPERS. ADP amounts reflect actual payments paid by the City. The Normal Cost contributions, investment gain / loss, and UAL interest estimates were generated by Ridgeline.
It is estimated that the City’s Miscellaneous and Safety plans were approximately 90% funded as of 06/30/2025, before any additional adjustments that could be made by CalPERS.
Concurrently with the issuance of the UAL Refunding Loans, the City adopted an Unfunded Accrued Liability Management Policy, which calls for the City to maintain a target pension plan funded level objective of 90%. The City has now reached that target funded level.
AMORTIZATION OF UAL CREDIT
The 2025 UAL credit will be amortized over a 20-year period with a 5-year ramp-up. The first application of the credit will take place in FYE 2028 (July 2027).
Figure 3 illustrates how the UAL credit will impact the City’s UAL repayment structure for the combined plans. The estimated amortization schedule is based on the 2025 UAL base balances shown in Table 3 above and does not include any additional changes that could be made by CalPERS.
City of Cotati
2025 Pension Liability Review – 11/24/2025
Figure 3
City of Cotati
UAL Repayment with Projected 2025 UAL Investment Gain Credit (in $ millions) Source: CalPERS’ Actuarial Valuation Reports as of June 30, 2024, UAL Refunding Loans Amortization Schedule, Ridgeline City of Cotati
2025 Pension Liability Review – 11/24/2025
Table 5 provides the annual detailed estimate of the existing UAL amortization, the UAL Refunding Loans repayments, and the new UAL amortization schedule.
Source: CalPERS’ Actuarial Valuation Reports as of June 30, 2024, UAL Refunding Loans Amortization Schedules, Ridgeline POB Street Loan Existing UAL 2025 UAL POB Street Loan Existing UAL 2025 UAL Total Debt Service UAL Total 2023 $197,540 $73,354 $218,709 $0 $489,603 $150,855 $56,018 $190,922 $0 $397,796 $477,768 $409,631 $887,399 2024 $197,539 $73,354 $192,898 $0 $463,791 $150,855 $56,018 $170,871 $0 $377,744 $477,766 $363,769 $841,535 2025 $197,541 $73,354 $247,153 $0 $518,048 $150,856 $56,018 $229,636 $0 $436,510 $477,769 $476,789 $954,558 2026 $197,542 $73,354 $301,275 $0 $572,172 $150,857 $56,018 $267,121 $0 $473,996 $477,772 $568,396 $1,046,168 2027 $197,540 $73,354 $326,930 $0 $597,824 $150,855 $56,018 $281,859 $0 $488,732 $477,767 $608,789 $1,086,556 2028 $197,539 $73,354 $330,083 ($26,601) $574,375 $150,854 $56,018 $283,142 ($20,987) $469,028 $477,766 $565,637 $1,043,403 2029 $197,541 $73,354 $370,495 ($53,203) $588,187 $150,856 $56,018 $315,198 ($41,974) $480,098 $477,769 $590,516 $1,068,286 2030 $197,540 $73,354 $356,843 ($79,804) $547,933 $150,855 $56,018 $304,305 ($62,961) $448,218 $477,768 $518,383 $996,151 2031 $197,543 $73,354 $343,191 ($106,406) $507,682 $150,857 $56,018 $293,412 ($83,948) $416,340 $477,772 $446,250 $924,022 2032 $197,537 $73,354 $343,191 ($133,007) $481,076 $150,853 $56,018 $293,414 ($104,934) $395,351 $477,763 $398,664 $876,427 2033 $197,541 $73,354 $343,191 ($133,007) $481,079 $150,856 $56,018 $293,409 ($104,934) $395,349 $477,769 $398,659 $876,428 2034 $197,542 $73,354 $343,190 ($133,007) $481,079 $150,856 $56,018 $293,413 ($104,934) $395,353 $477,771 $398,662 $876,432 2035 $197,539 $73,354 $343,192 ($133,007) $481,079 $150,855 $56,018 $293,413 ($104,934) $395,351 $477,766 $398,664 $876,430 2036 $197,539 $73,354 $343,191 ($133,007) $481,077 $150,854 $56,018 $293,413 ($104,934) $395,351 $477,765 $398,663 $876,428 2037 $197,540 $73,354 $343,191 ($133,007) $481,079 $150,855 $56,018 $293,414 ($104,934) $395,353 $477,768 $398,664 $876,432 2038 $0 $73,354 $343,191 ($133,007) $283,538 $0 $56,018 $293,412 ($104,934) $244,496 $129,372 $398,662 $528,034 2039 $0 $73,354 $343,189 ($133,007) $283,536 $0 $56,018 $293,416 ($104,934) $244,500 $129,372 $398,664 $528,036 2040 $0 $73,354 $343,188 ($133,007) $283,535 $0 $56,018 $277,790 ($104,934) $228,874 $129,372 $383,037 $512,409 2041 $0 $73,354 $343,191 ($209,610) $206,935 $0 $56,018 $277,794 ($184,898) $148,914 $129,372 $226,476 $355,849 2042 $0 $73,354 $343,190 ($343,190) $73,354 $0 $56,018 $277,789 ($277,789) $56,018 $129,372 $0 $129,372 2043 $0 $0 $111,857 ($111,857) $0 $0 $0 $79,379 ($79,379) $0 $0 $0 $0 2044 $0 $0 $266,391 ($266,391) $0 $0 $0 $192,475 ($192,475) $0 $0 $0 $0 TOTAL $2,963,105 $1,467,082 $6,840,920 ($2,394,124) $8,876,983 $2,262,830 $1,120,365 $5,788,997 ($1,888,820) $7,283,371 $7,813,381 $8,346,972 $16,160,354 Debt Service UAL
Table 5
City of Cotati
Estimated UAL Amortization Schedule - CalPERS
FYE
Miscellaneous Plan Safety Plan Total
Debt Service UAL
Total
City of Cotati
2025 Pension Liability Review – 11/24/2025
The debt service allocation to the Miscellaneous and Safety plans is made based on the UAL balances paid down with the UAL Refunding Loans (see Table 6 below).
Source: UAL Refunding Loans Amortization Schedules
The 2025 UAL credit amortization calculation is estimated based on the Market Value of Assets for each plan.
PENSION COST OPTIMIZATION STRATEGIES ASSESSMENT
When the UAL Refunding Loans were issued, the City adopted a UAL Management Policy to guide future pension liability management.
In addition to following the historical practice of prepaying the UAL payments by July 31 of each year, in FYEs 2024 and 2025, the City made ADPs to address negative amortization. The combination of these ADPs and the two years of favorable market returns have allowed the City to achieve the 90% funded level target within the plans, as shown in Table 7.
Source: Ridgeline
Description UAL
Paydown %
Miscellaneous Plan UAL Payoff $3,402,000 56.70%
Safety Plan UAL Payoff $2,598,000 43.30%
Total $6,000,000 100.00%
Table 6
City of Cotati
Debt Service Allocation
Description Amount Comments
Estimated 2025 MVA $44,425,000 See Table 4
Estimated 2025 UAL $4,736,000 See Table 4
Estimated 2025 Total Accrued Liability $49,161,000
Estimated 2025 Funded Level 90.4% See Table 4
90% Funded Level Amount $44,245,000
ADP Required to Achieve 90% Funded Level ($180,000) Funded Target Met Table 7
City of Cotati
FYE 2025 Funded Ratio Target Estimate
City of Cotati
2025 Pension Liability Review – 11/24/2025
The Investment Gain bases added to the City’s plans for FYE 2024 and expected to be added for FYE 2025 have the negative amortization dynamic working in the City’s favor:
• The ramp-up structure of Investment Gain bases helps maximize the interest cost offset benefit.
• The level amortization for Non-Investment Loss bases ensures that their amortization starts with the first payments.
• The accrued interest during the first two “no payment” years for the NonInvestment Loss bases is offset by the accrued interest on the Investment Gain bases.
The FYE 2023 bases have been converted from ramp-up to level repayment, and no further action is required for them.
CONCLUSION and RECOMMENDATIONS
Given the estimated funded level of the plans, the prior actions taken by the City, and the FYE 2024 actuarial bases dynamic, no policy-mandated ADPs are needed in FYE 2026.
Additionally, unless CalPERS makes significant adjustments to the plans in FYE 2026, at this time we do not expect that policy-mandated ADPs will be needed in FYE 2027.
Based on the overall budget outlook, the City could consider making discretionary ADPs or Sequestered Savings contributions into its Pension Rate Stabilization Fund.