City of Fort BraggCalPERS Pension Program Review and Cost Management Strategy Assessment October 14, 2025
Today’s Discussion
Background on CalPERS Costs
Historical and Projected CalPERS Costs
Cost Management Strategies
Conclusion
Background on CALPERS Costs
City of Fort Bragg CalPERS Summary
City of Fort Bragg has a $7.3M CalPERS Unfunded Accrued Liability (“UAL”), as of the latest CalPERS valuation for 6/30/2024 Miscellaneous Plan: $4.13M | Safety Plans: $3.14M
CalPERS FY 2024-25 Preliminary Investment Returns: 11.6% Projected to decrease UAL to $5.7M (as of 6/30/2025)
City also has $7.8M of outstanding Lease Revenue Bonds (LRB) – UAL Restructuring, as of 6/30/2024 Issued in 2021 to restructure $7.8M of UAL at an all-in interest rate of 3.61% City established a Section 115 Pension Trust in FY 2023-24; Current Balance: $3.6M Continuing to manage ongoing CalPERS UAL costs will be critical for fiscal resiliency; especially amid potential assumption changes this year by CalPERS after their 2025 Asset Liability Management (ALM) Study
Background on How CalPERS WorksTwo Payments Made to CalPERS Annually (1) Normal Cost (“NC”): Annual cost for current employees (2) Unfunded Accrued Liability (“UAL”): Annual payment to amortize the “debt” to CalPERS New UAL is amortized over 20 years
New UAL is created when CalPERS investment returns <6.80% Source: CalPERS Actuarial Valuation as of June 30, 2024
Now…
Sluggish investment returns (not meeting assumptions)
Assumptions have changed/grown more conservative
Discount Rate (assumed rate of investment returns): 8.25% → 7.00% → 6.80% Inflation rate (prices going up)
Mortality rates (people living longer)
Shorter, more conservative amortizations
Why CalPERS Costs Have Trended Higher
Then (late 1990s)…
Robust investment returns (10%+)
Retirement plans were “Super-Funded” through the late 1990s Earnings on funds were more than adequate to cover retirement costs Super-funded status induced widespread retirement benefits enhancements Past funding policies led to contribution holidays and “free” benefit improvements Historical PERS Returns
5-Year: 8.0%
10-Year: 7.1%
20-Year: 6.7%
30-Year: 7.6%
All assumptions will be revisited by CalPERS during 2025 Asset Liability Management (ALM) Study
How CalPERS Benefits Get Funded
Investment earnings used to make up a higher percentage (65%-70%+) of total contributions (pre-2008) As investments underperform assumptions, employers must make up the difference
City’s CalPERS Retirement Plans
2 Main CalPERS plans: Miscellaneous & Safety
Miscellaneous: 193 covered members; $4.13M UAL
Safety: 94 covered members; $3.14M UAL
PEPRA (effective 2013) helpful to manage long term pension costs for new employees Enacted revised benefit levels for new plan members
Higher employee contribution rates mean more normal cost is being paid by the employee However, 93% of current UAL comes from Classic plans and is not impacted by PEPRA
Historical and Projected CalPERS Costs
History of the City’s UAL Balance & Funded RatioFunded Ratio With and Without Section 115 Trust
6.5%
5.0%
22.4%
-7.5%
6.1%
9.5%
11.6%**
CalPERS Returns*:
Source: CalPERS Actuarial Valuation Reports & CalPERS Pension Outlook Tool *CalPERS’ Money-Weighted Rate of Return, as reported by CalPERS in its Annual Comprehensive Financial Reports **CalPERS’ Time-Weighted Rate of Return
Funded Ratio w/ Trust
88.2%
Combined UAL + LRB payment projected to increase 55% from FY 2026 - FY 2029 ($877K → $1.36M) Combined payment then stays relatively flat until FY 2044 CalPERS’ 11.6% investment return in FY 2025 could potentially reduce future UAL payments by $225K per year City took advantage of lower payments in FY 2024 and FY 2025 to fund its Section 115 Pension Trust Balance as of FYE 2025: $3.6M
Historical & Projected CalPERS PaymentsRising Near-Term Payments 2021 LRB
(After Extraordinary Redemption)
Projected UAL Payments After 11.6% FY 2025 Return*
UAL Payments
6/30/2024 Actuarial Valuation
Source: CalPERS Actuarial Valuation Reports & CalPERS Pension Outlook Tool *Assumes FY 2024-25 investment returns of 11.6% and 6.8% thereafter.
Cost Management Strategies
Pension Cost-Containment Strategies – Not Mutually Exclusive
Section 115 Trust Smoothing Example #1No Additional Deposits; 6/30/2024 CalPERS Valuation Assumptions:
CalPERS Discount Rate: 6.8% (no change)
CalPERS Investment Returns: FYE 2024 Actuarial Report (9.5% in FY 2023-24; 6.8% thereafter) UAL Balance: $7.3M
Beginning Trust Balance: $3.6M
Total Additional Deposits: $0M
Trust Annual Investment Earnings: 5.00%
Ending Trust Balance: $0 (FYE 2044)
UAL Payments*
Net Payments
Smoothing Level: $980K
Withdrawals from Trust
*Source: CalPERS Actuarial Valuation as of June 30, 2024 2021 LRB
Section 115 Trust Smoothing Example #2No Additional Deposits; 11.6% CalPERS Returns in FY 2024-25 Assumptions:
CalPERS Discount Rate: 6.8% (no change)
CalPERS Investment Returns: 11.6% in FY 2024-25; 6.8% thereafter UAL Balance: $5.7M
Beginning Trust Balance: $3.6M
Total Additional Deposits: $0M
Trust Annual Investment Earnings: 5.00%
Ending Trust Balance: $0 (FYE 2043)
UAL Payments*
Net Payments
Smoothing Level: $800K
Withdrawals from Trust
2021 LRB
*Source: CalPERS Pension Outlook Tool. Assumes FY 2024-25 investment returns of 11.6% and 6.8% thereafter.
Conclusion
Conclusion
City of Fort Bragg has been proactive in managing rising pension costs 2021 UAL Restructuring: City restructured $7.8M of UAL at an interest rate of 3.61% Section 115 Pension Trust: $3.6M balance as of FYE 2025 These actions have led to an overall funding ratio that is above the City’s peers City’s $3.6M Section 115 Pension Trust is very strong at 2.5x of its FY 2026 UAL + Normal Cost + LRB payment The Trust can help mitigate the pressure on the City’s General Fund from rising pension costs over the next 10-20 years, while also providing budgetary flexibility City should stay vigilant to combat the impact of rising pension costs, including an annual review of pension cost projections + ongoing pension cost management strategies City should reassess pension cost projections once CalPERS finishes its 2025 Asset-Liability Management Study in November 2025 Another update in early 2026 may be beneficial to better re-calibrate the 115 smoothing strategy and potential future deposits/withdrawals
Questions?
Appendix – Additional Resources
CalPERS Historical Preliminary Investment Returns (Time-Weighted)* *Preliminary Investment Returns represent the time-weighted rate of return and reflect private market asset valuations as of March 31. The money-weighted rate of return, used in the CalPERS ACFR and Valuation Reports may differ from the Preliminary Investment Returns. Source: CalPERS.
Section 115 Trust – OverviewConsideration for Funds Earmarked for Pension and OPEB What is it? Restricted Account for pension and/or OPEB
Advantages:
Potential Higher Investment Returns in Managed Account
In FY 2025, Moderate Risk Section 115 Trust portfolios (40-50% Equity / 50-60% Fixed Income) had investment returns of 8.5-11.0% Longer-Term Benefit: Trust funds can grow over time and pay off a large % of UAL or OPEB liability in the future Shorter-Term Benefit: Apply funds to “smooth” payment spikes in UAL, Normal Cost, or OPEB; can reimburse City for pensions costs made if severe budgetary challenges Flexibility – more investment options than CalPERS and the City can decide when and how to use Disadvantages:
Doesn’t directly reduce UAL until funds are transferred to CalPERS Requires reserves/surplus contributions to build account balance Investment risk (dependent on type of investment portfolio)
Additional Discretionary Payment (“ADP”)
What is it? City makes ADP directly to CalPERS and CalPERS eliminates payments associated with the portion of the UAL paid off, essentially giving the City credit at the discount/interest rate (currently 6.8%) Advantages:
Reduced UAL / higher CalPERS funding ratio
Reduced future payments
Broader, less restrictive CalPERS investment portfolio has potential for higher returns Disadvantages:
Requires reserves / surplus to fund
Re-investment and market timing risk with ADP funds
Less budgetary flexibility and investment control (vs. Section 115 Trust option)
Section 115 Trust vs. CalPERS ADP Comparison
OPTION
Section 115 Trust
CalPERS ADP
Reduced UAL & UAL Payments with CalPERS
No
Yes
Reduced Pension Liability in Financial Report (ACFR)
No (Shows up as an asset on the City’s financial statements) Yes
Control of Investment Strategy
Yes
No
Funds Managed By
Trust Administrator
CalPERS
Flexibility in Uses
Yes
No
Enhanced Budgetary Flexibility
Yes
No
Savings
Varies; Depends on when City utilizes funds to pay liabilities Immediate; Length of time varies based on which amortization component is paid off