Finance Committee
May 14, 2025

5/1/2025
1 CITY OFRIVERSIDE– PENSIONUPDATECALPERS UAL, POB PERFORMANCE, ANDONGOINGCOSTMANAGEMENTSTRATEGIESMAY 14, 2025 2 Executive SummaryCity of Riverside (the “City”) has a $436.6M CalPERS Unfunded Accrued Liability (“UAL”), as of the latest CalPERS valuation for June 30, 2023 Miscellaneous Plan: $235.4M | Safety Plan: $201.2MCalPERS FY 2023-24 Investment Returns: 9.5%Projected to decrease UAL to $381.9M (as of 6/30/2024); annual budgetary impact from this change will be seen in FY 2026-27City’s 2020 Pension Obligation Bond (“POB”) has $399M of outstanding principal as of 6/30/2024Issued June 2020 to restructure $430M of UAL at a 3.69% interest ratePer adopted policy, City has prudently set-aside savings created from POB to bolster its Section 115 Trust ($77M balance as of 12/31/2024)Continuing to monitor and manage ongoing debt liabilities (i.e., UAL + POB) will be critical for fiscal resiliency; especially amid potential assumption changes this year by CalPERS 5/1/2025
2 3
$0.0$5.0$10.0$15.0$20.0$25.0$30.0$35.0$40.0$45.0$50.0$55.0$60.0$65.0$70.0$75.020212022202320242025202620272028202920302031203220332034203520362037203820392040204120422043204420452046MillionsFiscal YearPOB Debt ServiceUnrefunded UAL PaymentsUAL Payments Before POBTotal Payments After POBRewind to Spring 2020 – Pension Obligation Bond RecapIn the Spring of 2020, the City issued $432M of POBs to pay off approximately 67% of its then current UAL$230M of UAL remained outstandingCity locked in a 3.69% interest rate and achieved multiple objectives $140M of present value savings (32.5% of refunded UAL + Total Cash flow savings of >$175M (assumes CalPERS earns 7% returns)Equitable funding of both Miscellaneous and Safety Plans (targeted 92% funding ratio)Smoothed out payments to enhance budget predictability/flexibility and fiscal sustainability/resiliencyNo extension of payments to ensure savings in every single yearMaintained flexibility to pay off debt early (10-year call feature)Payments on $432M POBPayments on $230M UALNote: Savings assumed CalPERS earned 7% returns 4 $564$627$665$293-$62$351$437$38276.0%75.0%74.7%89.3%102.2%88.3%86.2%88.3%0.0%20.0%40.0%60.0%80.0%100.0%120.0%-$100$0$100$200$300$400$500$600$700$800$9002017 2018 2019 2020 2021 2022 2023 2024MillionsUALFunded RatioHistory of the City’s UAL Balance & Funded RatioSource:CalPERS Actuarial Valuation Reports and CalPERS Pension Outlook Tool. Pension Outlook Tool assumes FY 2023-24 returns of 9.5% and 6.80% returns from FY 2024-25 onward.2020 POB → UAL DecreaseIf No 2020 POB:Funded Ratio = 79% UAL = $780M22.4% Returns → UAL Decrease-7.5% Returns → UAL Increase 5/1/2025
3 5

5.0%22.4%-7.5%6.1%9.5%-10.0%-5.0%0.0%5.0%10.0%15.0%20.0%25.0%FY 2020 FY 2021 FY 2022 FY 2023 FY 2024CalPERS Investment Return*2020 POB All-In True Interest CostAverage CalPERS Investment Return (FY 2020 - FY 2024)2020 POB Performance: CalPERS Returns vs. 2020 POB Interest Rate7.1% Avg. CalPERS Investment Return vs. 3.69% POB Rate*FY 2020 - FY 2024 CalPERS investment return represents the Money-Weighted Rate of Return, used in CalPERS' ACFR and actuarial valuation reports.3.41% Difference Between POB Rate and PERS Returns 6 POB Performance - SummaryCity has benefitted tremendously from Finance Committee and City Council’s decisions to issue POBs at an opportune time in Spring of 2020$45 Million– Already saved by the City since issuance, allowing the City to grow its Section 115 Trust to very strong levels$175 Million– Projected savings through the life of the POB, given that CalPERS investment return performance is in line with expectations at time of issuanceBenefits from the City’s POB/pension funding strategy recently acknowledged by S&P in the City’s 2024A LRBs Credit Rating Report:“We expect the city's pension and OPEB profile to remain affordable and manageable over the outlook period.” 5/1/2025
4 7
$0$10$20$30$40$50$60$70$80$90$10020182019202020212022202320242025202620272028202920302031203220332034203520362037203820392040204120422043204420452046 MillionsHistorical and Projected UAL + POB Payment ScheduleCity’s UAL + POB payments are rising due to CalPERS underperformancePayments rising to ~$80M by FY 202964% higher than FY 2025 payment ($49M)City has taken advantage of the savings from the 2020 POB to fund its Section 115 Trust$77M balance as of 12/31/2024*CalPERS UAL Payments as of the 6/30/2023 Actuarial Valuation. Source:CalPERS Actuarial Valuation Reports.**Includes debt service for the 2020 POB, 2017 POB, and 2004 POB.POB Debt Service** CalPERS UAL Payments*UAL + POB Payments if No 2020 POB 8 Section 115 Pension Trust – BackgroundTrust was established in FY 2019-20Per the City’s Pension Funding Policy, 50% of unanticipated one-time revenues are to be prioritized to make payments towards the City’s UALTrust balance has grown from $9.4M (FYE 2020) to $77M (as of 12/31/2024), due to City contributions and Trust investment earnings$9 $11 $19 $33 $62 $77 $0$10$20$30$40$50$60$70$80FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 12/31/2024MillionsCity of RiversideSection 115 Pension Trust Balance 5/1/2025
5 9
Continued Cost ManagementSensitivity Analysis Given CalPERS ALM StudyCalPERS is currently underway with its Asset Liability Management (“ALM”) StudyPotential assumption changes include CalPERS’ discount rate (i.e., expected investment earnings)The UAL is highly sensitive to assumption changes and any future investment underperformance by CalPERSSource:CalPERS Pension Outlook Tool Impact of CalPERS Discount Rate Reduction
UAL Increase: $437M to $515MUAL Payment Increase: $11M6.8%6.5% 10 Section 115 Trust Modeling AssumptionsBeginning Trust Balance (as of 12/31/24): $77MGeneral Fund’s Share of Trust:96% GF modeling assumes $74M beginning Trust balance (as of 12/31/24)Trust Deposits:FY 2024-25: $9.3MFY 2025-26: $9.0M (per GF 5-Year Financial Plan)FY 2026-27: $8.0M (per GF 5-Year Financial Plan)FY 2027-28: $6.0M (per GF 5-Year Financial Plan)Annual Investment Return:5.0%Assumes the entire Trust balance is usedDiscount Rate:6.8% (no change) Annual Investment Returns: 6.8%General Fund Cost Allocation:100% Safety Plan + 45% Miscellaneous PlanCalPERS AssumptionsSection 115 Trust Assumptions 5/1/2025
6 11
$0$5$10$15$20$25$30$35$40$45$50$55$60$652025202620272028202920302031203220332034203520362037203820392040204120422043204420452046 MillionsContinued Cost ManagementLeveraging Section 115 Trust to Smooth General FundPension PaymentsOrange dashed line shows the General Fund’s net payments, based on withdrawals from the Trust beginning in FY 2028-29Net Payments Smoothing Level: $44.6 millionGeneral Fund Net PaymentsCalPERS UAL Payments*POB Debt Service** *Source: June 30, 2023 CalPERS Actuarial Valuation.**Includes the General Fund’s portion of debt service for the 2020 POB and 2017 POB.Withdrawal Period 12 Conclusion and RecommendationsStrategic measures taken by the City over the past several years have strengthened its financial position and enhanced financial resiliency City must stay vigilant in combatting rising pension costs given steep increases in upcoming UAL payments and sensitivity to CalPERS investment underperformance and/or assumption changesRecommendationsContinue setting aside additional funds towards pension costs over the next 2-3 yearsConsider increasing deposits from those listed in 5-year financial plan if possibleCity and NHA will continue to analyze options this Spring to identify most optimal strategy given current market conditions, City resources, and CalPERS’ ALM Study impactsFresh Start amortization and/or Additional Discretionary Payment (ADP) options in conjunction with Section 115 Trust smoothing strategy 5/1/2025
7 APPENDIX
14 Section 115 Trust Smoothing – General Fund OnlyCity’s Forecasted Deposits per General Fund Five-Year Financial Plan **The Ending Balance of Trust includes the annual interest earnings of the Trust, which are assumed to be 5.00%.Safety Miscellaneous (Assumes 45% is General Fund Allocable) Section 115 Trust (96% GF Share)Fiscal YearTotal UAL Payments*2020 POB (Safety)POB + Projected UAL PaymentsTotal UAL Payments* 2017 POB2020 POB (Miscellaneous)POB + Projected UAL PaymentsDeposits to Trust (GF Share)Withdrawals from Trust (GF Share)Ending Balance of Trust (GF Share)Net General Fund Payments (Incl. Deposits & Withdrawals)2025 $10,644,777 $10,219,317 $20,864,094 $2,146,069 $1,661,569 $8,909,404 $12,717,042 $9,297,597 $0 $76,246,278$42,878,7342026 $15,062,608 $9,988,674 $25,051,282 $6,337,834 $1,661,006 $8,952,728 $16,951,568 $9,000,000 $0 $89,508,591$51,002,8502027 $17,287,326 $11,373,316 $28,660,642 $8,246,267 $1,661,344 $8,413,105 $18,320,715 $8,000,000 $0 $102,384,021$54,981,3582028 $19,041,829 $13,428,340 $32,470,169 $9,942,756 $0 $7,243,529 $17,186,286 $6,000,000 $0 $113,818,069$55,656,4552029 $24,121,740 $15,540,522 $39,662,262 $11,639,246 $0 $6,041,840 $17,681,086 $0 $12,724,079 $106,148,690$44,619,2692030 $24,643,025 $17,481,702 $42,124,727 $11,760,857 $0 $4,907,905 $16,668,762 $0 $14,174,219 $96,573,194$44,619,2692031 $24,958,814 $17,187,645 $42,146,459 $11,760,857 $0 $4,770,866 $16,531,723 $0 $14,058,913 $86,639,996$44,619,2692032 $23,233,809 $18,952,401 $42,186,210 $11,760,857 $0 $5,792,898 $17,553,755 $0 $15,120,696 $75,105,062$44,619,2692033 $22,129,185 $20,095,196 $42,224,381 $11,760,857 $0 $5,686,431 $17,447,288 $0 $15,052,400 $63,055,295$44,619,2692034 $20,954,971 $21,321,858 $42,276,829 $11,760,858 $0 $5,568,794 $17,329,651 $0 $14,987,211 $50,471,489$44,619,2692035 $19,187,242 $23,391,793 $42,579,035 $11,760,858 $0 $5,494,335 $17,255,192 $0 $15,214,958 $37,019,357$44,619,2692036 $17,145,046 $23,444,904 $40,589,950 $11,760,857 $0 $5,483,817 $17,244,674 $0 $13,215,355 $24,997,463$44,619,2692037 $14,983,924 $22,625,051 $37,608,975 $11,760,858 $0 $4,834,889 $16,595,746 $0 $9,585,452 $16,182,612$44,619,2692038 $14,284,228 $21,529,827 $35,814,055 $11,760,857 $0 $4,384,184 $16,145,041 $0 $7,339,827 $9,284,925$44,619,2692039 $13,544,091 $20,350,031 $33,894,122 $11,760,858 $0 $3,902,011 $15,662,869 $0 $4,937,721 $4,564,564$44,619,2692040 $13,359,786 $19,089,519 $32,449,305 $11,760,857 $0 $3,392,269 $15,153,126 $0 $2,983,162 $1,660,688$44,619,2692041 $13,359,647 $18,237,150 $31,596,797 $11,760,858 $0 $2,919,520 $14,680,377 $0 $1,657,905 $2,922$44,619,2692042 $11,669,489 $13,628,073 $25,297,562 $11,760,858 $0 $1,270,145 $13,031,003 $0 $0 $3,068$38,328,5652043 $11,314,540 $11,142,505 $22,457,045 $11,760,857 $0 $600,553 $12,361,410 $0 $0 $3,222$34,818,4552044 $6,619,914 $8,509,463 $15,129,376 $11,760,858 $0 $0 $11,760,858 $0 $0 $3,383$26,890,2342045 $1,925,287 $3,032,624 $4,957,911 $3,243,505 $0 $0 $3,243,505 $0 $0 $3,552$8,201,4162046 $284,857 $0 $284,857 $0 $0 $0 $0 $0 $0 $3,730$284,857*Uses assumptions from June 30, 2023 CalPERS Actuarial Valuation**