CITY OF SANTA ROSA
CALPERS PENSION PROGRAM REVIEW &
COST MANAGEMENT STRATEGY ASSESSMENT
APRIL 21, 2026
Santa Rosa City Council Meeting
OVERVIEW
3 Brief Introduction to NHA Advisors
Based in San Rafael, California, NHA Advisors provides Municipal Advisory and Consulting services to Cities throughout the State 9 Registered Municipal Advisors and 8 consulting Practice Groups NHA’s Pension & Fiscal Sustainability Practice Group was established in 2014 and has served over 100 CalPERS members Education – NHA Summary Reports, White Papers, Newsletters, Workshops, Labor Groups
Financial Planning – CalPERS Sensitivity Analysis & Projection Modeling Cost Management Strategies – Section 115 Trusts, Strategic Additional Discretionary Payments (ADPs), POBs/UAL Restructurings, Hard and Soft Fresh Starts, Hybrid Strategies
Section 115 Trust Optimization Models
Stress Testing and Risk Assessment
Pension Funding Policy Development
Consulting Practice Groups
4 Today’s Discussion
I. Background on CalPERS Costs
II. Historical and Projected CalPERS Costs (General Fund) III. Cost Management Strategy Overview
IV. Cost Management Strategy Analysis (General Fund)
V. Conclusion
Appendix A – Pension Obligation Bond (POB) Considerations Appendix B – Additional Resources
BACKGROUND ON CALPERS COSTS
6 City of Santa Rosa CalPERS Summary
City of Santa Rosa has a Citywide $482M CalPERS Unfunded Accrued Liability (“UAL”), as of the latest CalPERS valuation for 6/30/2024
Miscellaneous Plan: $235M | Safety Plans: $247M
47.6% of Miscellaneous, 82.5% of Safety Fire, and 93.1% of Safety Police is attributable to the General Fund ➔ $331M General Fund UAL
CalPERS FY 2024-25 Final Investment Returns: 12.1%*
Projected to decrease Citywide UAL to $413M (as of 6/30/2025); General Fund UAL to $287M Projected benefit may be partially offset by CalPERS’ non-investment adjustments resulting from CalPERS’ 2025 Asset Liability Management (ALM) Study
City’s Section 115 Pension Trust has a ~$14.5M General Fund balance Additional $11.5M in internal General Fund pension reserve Strategies to leverage these $26M of pension assets - together with other UAL management strategies - for near-term General Fund budgetary relief, are analyzed in this presentation
*CalPERS’ Money-Weighted Rate of Return, as reported by CalPERS 7 Normal Cost = Annual Cost for Current Employees
Amount needed to fund
future retirement benefits
based on actuarial
calculations (life expectancy,
payroll increases, etc.)
Benefits are funded as they
are earned
Maintains the long-term
stability of the pension
system
Normal
Cost
Calculation
Employer
Contributions
Employee
Contributions
Assumptions
Used
8 Unfunded Accrued Liability (UAL) – Citywide
Shortfall between the promised
pension benefits and the funds
currently available in the CalPERS
system to pay for those benefits
Increases or decreases based on
CalPERS investment returns
Impacts amortized over 20 years
Irregular payment shape as UAL
comprised of over 30 layers; each
with its own term/shape
Santa Rosa has 101 layers
(amortization bases) between 5
years and 24 years
Funded Ratio
𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐴𝑠𝑠𝑒𝑡𝑠
𝐴𝑐𝑐𝑟𝑢𝑒𝑑 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 = 71.1%
Source: CalPERS Actuarial Valuation as of June 30, 2024 Market Value of
CalPERS Assets:
$1,188 Million
Accrued Liability:
$1,670 Million
Shortfall (UAL):
$482 Million
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800Millions
City of Santa Rosa
CalPERS Pension Funded Status
9 Now…
Assumptions have changed/grown more
conservative
Discount Rate (assumed rate of investment
returns): 8.25% → 7.00% → 6.80%
Inflation rate (prices going up) – Increasing
per 2025 ALM Study (see Slide 11)
Mortality rates (people living longer)
Shorter, more conservative amortizations
Investment returns not meeting original
expectations
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%
10 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
11 City’s CalPERS Retirement Plans – Citywide
2 Main CalPERS plans: Miscellaneous & Safety
Miscellaneous: 3,137 covered members; $235M UAL
Safety: 934 covered members; $247M 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, 99% of current UAL comes from Classic plans and is not impacted by PEPRA
HISTORICAL AND PROJECTED CALPERS COSTS
(GENERAL FUND)
13 $269 $289
$214
$335 $346 $331 $287
69.2% 68.4%
77.9%
67.1% 67.3% 69.8%
74.6%
68.1% 68.3% 70.9%
75.7%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
$-
$50
$100
$150
$200
$250
$300
$350
$400
2019 2020 2021 2022 2023 2024 2025
Millions
UAL Funded Ratio
History of General Fund UAL Balance & Funded Ratio
Funded Ratio With and Without General Fund Section 115 Trust
6.5% 5.0% 22.4% -7.5% 6.1% 9.5% 12.1%CalPERS Returns*:
Source: CalPERS Actuarial Valuation Reports & CalPERS Pension Outlook Tool *CalPERS’ Money-Weighted Rate of Return, as reported by CalPERS in its ACFRs Funded Ratio w/ Trust
14 $0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Millions
Historical & Projected General Fund CalPERS Payments
UAL + Normal Cost
UAL + Normal Cost General Fund
payments projected to rise to
$49M by FY 2031
UAL portion rising the fastest
$11M in FY 2018 → $27M in FY 2025
→ $36M in FY 2031
CalPERS’ 12.1% investment return
in FY 2025 could potentially
reduce future General Fund UAL
payments by $5M per year*
$5M annual benefit may be
partially offset by CalPERS’ non-
investment adjustments (e.g.,
inflation)
Won’t be known until July 2026 –
all analysis based on June 30,
2024 to be conservative
Source: CalPERS Actuarial Valuation Reports & CalPERS
Pension Outlook Tool. *Assumes FY 2024-25 investment
returns of 12.1% and 6.8% investment returns thereafter.
Projected UAL and normal cost assumes ALM impacts.
Normal Cost
UAL Payments
6/30/2024 Actuarial Valuation
$52M in additional
cumulative costs
above FY26 Levels
COST MANAGEMENT STRATEGY OVERVIEW
16 Pension Cost-Containment Strategies – Not Mutually Exclusive Prepay UAL early in Fiscal Year (≈ 3.3% discount) → City Does This Negotiate Cost Sharing With Employees → City Does This
• New employees already governed by lower cost/benefit PEPRA plans • Negotiated cost sharing of the City’s share
Fresh Start Amortization offered by CalPERS
• Pros: Smooths payment, shortens repayment period; reduces overall interest paid from shorter amortization period • Cons: New structure “locked-in” + increased annual payments in near term; still amortized at discount rate Use Cash Reserves to Pay Extra (two options) → City’s Section 115 Pension Trust has a $14.5M General Fund balance • Section 115 Trust – Separate trust solely dedicated to pension/OPEB • City’s annual UAL cost and Normal Cost can be supplemented with the Trust • ADP – direct payments to CalPERS to reduce UAL
• Choose optimal amortization bases to pay off
Restructure All or Portion of Remaining UAL → City issued Pension Obligation Bonds in 2003 (ref. in 2013) • Restructure portion of UAL at lower bond interest rate and “smooth out” payments for enhanced budget predictability, near and mid-term potential savings, and preservation of cash for other critical projects. Reinvestment risk associated with POBs should be evaluated.
Analysis Provided on
Following Slides
Analysis and Considerations
Provided in Appendix
COST MANAGEMENT STRATEGY ANALYSIS
(GENERAL FUND)
18 Strategic Goals
More predictable budgeting that matches expense growth with revenue growth Decrease total amount paid
Pay off unfunded liability quicker
Maintain local control over local funds
Provide maximum cost avoidance and budgetary relief in the near term 19 Usage of Section 115 Pension Stability Trust
Created by City with $10 million in proceeds from PG&E settlement funds resulting from 2017 Tubbs Fire
Funds can be more broadly invested versus the investment portfolio of the City Through positive investment returns the trust has grown to approximately $14.5 million At adoption, City Council directed savings from paying off Pension Obligation Bonds to be directed to the Trust
This directed savings resulted in $11.5 million in additional funding being assigned in the Pension Internal Service Fund
This additional funding ended with the budget reductions over the past 2 years 20 Execute a CalPERS Fresh Start (FS) and leverage the Section 115 Trust over 9 Years to offset General Fund CalPERS costs; Ramp-up payments for better budget alignment
Option 1
(FS/115)
No Fresh Start; Use Section 115 Trust to offset General Fund CalPERS costs; Ramp-up payments for better budget alignment Option 2
(115 Trust)
Liquidate the Section 115 Pension Trust by FYE 2026 by making an Additional Discretionary Payment (ADP) to CalPERS to directly pay down the General Fund’s UAL to generate near term cost avoidance Option 3
(ADP)
Cost Management Strategy Options
Goal: Smooth “Peak” Payments and Achieve Budget Predictability 21 $0
$5
$10
$15
$20
$25
$30
$35
$40
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Millions
Option 1: Fresh Start + Section 115 Trust Ramp-Up
Net General Fund UAL Payments
Fresh Start (16-Year Safety &
15-Year Misc) + Section 115
Trust Ramp Up
Assumes $26M of Section 115
Trust assets, growing @ 5% per
year, is exhausted over the next
9 years (2027 – 2035)
Annual net General Fund
payment growing 2% a year –
from $27M to $32M – to
provide near-term budget relief
$36.9M of General Fund cost
avoidance over next 8 years
(2027 – 2034)
UAL Payments
(6/30/2024 Valuation)
Net Payments
(Fresh Start +
Section 115 Trust)
22 Option 1: Fresh Start + Section 115 Trust Ramp-Up
Net General Fund UAL Payments
Option 1 (Fresh Start + Section 115 Trust)
Fiscal Year UAL Payments (6/30/2024
Actuarial Valuation)
Fresh Start UAL
Payments
Difference: Fresh Start vs.
Current UAL Payments
Section 115 Trust
Withdrawals
Net General Fund UAL
Payment
Difference vs. Current
UAL Payments
2027 $30,813,335 $32,630,319 ($1,816,985) $5,565,413 $27,064,907 $3,748,428 2028 $31,993,256 $32,630,319 ($637,063) $5,024,115 $27,606,205 $4,387,052 2029 $35,044,465 $32,630,319 $2,414,146 $4,471,991 $28,158,329 $6,886,136 2030 $35,440,302 $32,630,319 $2,809,982 $3,908,824 $28,721,495 $6,718,806 2031 $35,732,564 $32,630,319 $3,102,245 $3,334,394 $29,295,925 $6,436,639 2032 $34,318,182 $32,630,319 $1,687,863 $2,748,476 $29,881,844 $4,436,338 2033 $33,929,358 $32,630,319 $1,299,038 $2,150,839 $30,479,481 $3,449,877 2034 $31,914,745 $32,630,319 ($715,574) $1,541,249 $31,089,070 $825,675 2035 $31,017,597 $32,630,319 ($1,612,722) $919,468 $31,710,852 ($693,255) 2036 $29,612,502 $32,630,319 ($3,017,817) $0 $32,630,319 ($3,017,817) 2037 $27,161,309 $32,630,319 ($5,469,011) $0 $32,630,319 ($5,469,011) 2038 $25,851,260 $32,630,319 ($6,779,059) $0 $32,630,319 ($6,779,059) 2039 $24,452,749 $32,630,319 ($8,177,571) $0 $32,630,319 ($8,177,571) 2040 $23,394,621 $32,630,319 ($9,235,698) $0 $32,630,319 ($9,235,698) 2041 $23,444,642 $32,630,319 ($9,185,677) $0 $32,630,319 ($9,185,677) 2042 $19,790,688 $21,415,432 ($1,624,744) $0 $21,415,432 ($1,624,744) 2043 $17,062,562 $0 $17,062,562 $0 $0 $17,062,562
2044 $23,843,011 $0 $23,843,011 $0 $0 $23,843,011
2045 $1,523,824 $0 $1,523,824 $0 $0 $1,523,824
2046 $352,199 $0 $352,199 $0 $0 $352,199
2047 $940,209 $0 $940,209 $0 $0 $940,209
2048 $181,853 $0 $181,853 $0 $0 $181,853
Total $517,815,233 $510,870,221 $6,945,012 $29,664,767 $481,205,454 $36,609,779 23 $0
$5
$10
$15
$20
$25
$30
$35
$40
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Millions
Option 2: Current UAL Payments + Section 115 Trust Ramp-Up Net General Fund UAL Payments
No Fresh Start, but execute a 7
Year Section 115 Ramp Up
Assumes $26M of Section 115
Trust assets, growing @ 5% per
year, is exhausted over the next
7 years (2027 – 2033)
Annual net General Fund
payment growing 2% a year –
from $28M to $32M – to
provide near-term budget relief
$29.9M of General Fund cost
avoidance over next 7 years
(2027 – 2033)
UAL Payments
(6/30/2024 Valuation)
Net Payments
(Current UAL +
Section 115 Trust)
24 Option 2: Current UAL Payments + Section 115 Trust Ramp-Up Net General Fund UAL Payments
Option 2 (Current UAL Payments + Section 115 Trust)
Fiscal Year UAL Payments
(6/30/2024 Actuarial Valuation) Section 115 Trust Withdrawals Net General Fund UAL Payment Difference vs.
Current UAL Payments
2027 $30,813,335 $2,920,859 $27,892,475 $2,920,859
2028 $31,993,256 $3,542,932 $28,450,325 $3,542,932
2029 $35,044,465 $6,025,134 $29,019,331 $6,025,134
2030 $35,440,302 $5,840,584 $29,599,718 $5,840,584
2031 $35,732,564 $5,540,852 $30,191,712 $5,540,852
2032 $34,318,182 $3,522,636 $30,795,546 $3,522,636
2033 $33,929,358 $2,517,900 $31,411,457 $2,517,900
2034 $31,914,745 $0 $31,914,745 $0
2035 $31,017,597 $0 $31,017,597 $0
2036 $29,612,502 $0 $29,612,502 $0
2037 $27,161,309 $0 $27,161,309 $0
2038 $25,851,260 $0 $25,851,260 $0
2039 $24,452,749 $0 $24,452,749 $0
2040 $23,394,621 $0 $23,394,621 $0
2041 $23,444,642 $0 $23,444,642 $0
2042 $19,790,688 $0 $19,790,688 $0
2043 $17,062,562 $0 $17,062,562 $0
2044 $23,843,011 $0 $23,843,011 $0
2045 $1,523,824 $0 $1,523,824 $0
2046 $352,199 $0 $352,199 $0
2047 $940,209 $0 $940,209 $0
2048 $181,853 $0 $181,853 $0
Total $517,815,233 $29,910,897 $487,904,337 $29,910,897 25 $0
$5
$10
$15
$20
$25
$30
$35
$40
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Millions
Option 3: CalPERS Additional Discretionary Payment (ADP) Net General Fund UAL Payments
Assumes $26M of Section 115
Trust assets is exhausted at FYE
2026 by making a $26M ADP to
CalPERS
ADP pays off UAL amortization
bases of 5-10 years that
contribute to the near-term peak
Annual net General Fund
payments would result in a
“ramp-up” structure to provide
near-term budget relief, but not
as linear as Option 1 or Option 2
$32.5M of General Fund cost
avoidance over next 10 years
(2027 – 2036)
UAL Payments
(6/30/2024 Valuation)
Net Payments
(Section 115 Trust
Used for ADP)
26 Option 3 (Section 115 Trust Used for ADP)
Fiscal Year UAL Payments
(6/30/2024 Actuarial Valuation)
Reduction in UAL Payments from
ADP Net General Fund UAL Payment Difference vs.
Current UAL Payments
2027 $30,813,335 $4,621,147 $26,192,187 $4,621,147
2028 $31,993,256 $4,750,539 $27,242,717 $4,750,539
2029 $35,044,465 $4,883,554 $30,160,911 $4,883,554
2030 $35,440,302 $5,020,294 $30,420,008 $5,020,294
2031 $35,732,564 $5,160,862 $30,571,702 $5,160,862
2032 $34,318,182 $3,111,852 $31,206,330 $3,111,852
2033 $33,929,358 $2,867,224 $31,062,134 $2,867,224
2034 $31,914,745 $1,023,150 $30,891,596 $1,023,150
2035 $31,017,597 $701,199 $30,316,399 $701,199
2036 $29,612,502 $360,416 $29,252,086 $360,416
2037 $27,161,309 $0 $27,161,309 $0
2038 $25,851,260 $0 $25,851,260 $0
2039 $24,452,749 $0 $24,452,749 $0
2040 $23,394,621 $0 $23,394,621 $0
2041 $23,444,642 $0 $23,444,642 $0
2042 $19,790,688 $0 $19,790,688 $0
2043 $17,062,562 $0 $17,062,562 $0
2044 $23,843,011 $0 $23,843,011 $0
2045 $1,523,824 $0 $1,523,824 $0
2046 $352,199 $0 $352,199 $0
2047 $940,209 $0 $940,209 $0
2048 $181,853 $0 $181,853 $0
Total $517,815,233 $32,500,237 $485,314,996 $32,500,237 Option 3: CalPERS Additional Discretionary Payment (ADP) Net General Fund UAL Payments
27 $0
$5
$10
$15
$20
$25
$30
$35
$40
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Millions
Comparison of Option 1 / Option 2 / Option 3
Net General Fund UAL Payments
UAL Payments
(6/30/2024 Valuation)
Option 1 Option 2 Option 3
28 Comparison of Option 1 / Option 2 / Option 3
Net General Fund UAL Payments and Cost Avoidance
Current
Situation
Option 1
(Fresh Start + Section 115 Trust)
Option 2
(Current UAL Payments + Section 115 Trust)
Option 3
(Section 115 Trust Used for ADP)
Fiscal
Year
UAL Payments
(6/30/2024
Valuation)
Fresh Start
UAL Payments
Section 115
Trust
Withdrawals
Net General
Fund UAL
Payment
Difference vs.
Current UAL
Payments
Section 115
Trust
Withdrawals
Net General
Fund UAL
Payment
Difference vs.
Current UAL
Payments
Reduction in UAL
Payments from
ADP
Net General
Fund UAL
Payment
Difference vs.
Current UAL
Payments
2027 $30,813,335 $32,630,319 $5,565,413 $27,064,907 $3,748,428 $2,920,859 $27,892,475 $2,920,859 $4,621,147 $26,192,187 $4,621,147 2028 $31,993,256 $32,630,319 $5,024,115 $27,606,205 $4,387,052 $3,542,932 $28,450,325 $3,542,932 $4,750,539 $27,242,717 $4,750,539 2029 $35,044,465 $32,630,319 $4,471,991 $28,158,329 $6,886,136 $6,025,134 $29,019,331 $6,025,134 $4,883,554 $30,160,911 $4,883,554 2030 $35,440,302 $32,630,319 $3,908,824 $28,721,495 $6,718,806 $5,840,584 $29,599,718 $5,840,584 $5,020,294 $30,420,008 $5,020,294 2031 $35,732,564 $32,630,319 $3,334,394 $29,295,925 $6,436,639 $5,540,852 $30,191,712 $5,540,852 $5,160,862 $30,571,702 $5,160,862 2032 $34,318,182 $32,630,319 $2,748,476 $29,881,844 $4,436,338 $3,522,636 $30,795,546 $3,522,636 $3,111,852 $31,206,330 $3,111,852 2033 $33,929,358 $32,630,319 $2,150,839 $30,479,481 $3,449,877 $2,517,900 $31,411,457 $2,517,900 $2,867,224 $31,062,134 $2,867,224 2034 $31,914,745 $32,630,319 $1,541,249 $31,089,070 $825,675 $0 $31,914,745 $0 $1,023,150 $30,891,596 $1,023,150 2035 $31,017,597 $32,630,319 $919,468 $31,710,852 ($693,255) $0 $31,017,597 $0 $701,199 $30,316,399 $701,199 2036 $29,612,502 $32,630,319 $0 $32,630,319 ($3,017,817) $0 $29,612,502 $0 $360,416 $29,252,086 $360,416 2037 $27,161,309 $32,630,319 $0 $32,630,319 ($5,469,011) $0 $27,161,309 $0 $0 $27,161,309 $0 2038 $25,851,260 $32,630,319 $0 $32,630,319 ($6,779,059) $0 $25,851,260 $0 $0 $25,851,260 $0 2039 $24,452,749 $32,630,319 $0 $32,630,319 ($8,177,571) $0 $24,452,749 $0 $0 $24,452,749 $0 2040 $23,394,621 $32,630,319 $0 $32,630,319 ($9,235,698) $0 $23,394,621 $0 $0 $23,394,621 $0 2041 $23,444,642 $32,630,319 $0 $32,630,319 ($9,185,677) $0 $23,444,642 $0 $0 $23,444,642 $0 2042 $19,790,688 $21,415,432 $0 $21,415,432 ($1,624,744) $0 $19,790,688 $0 $0 $19,790,688 $0 2043 $17,062,562 $0 $0 $0 $17,062,562 $0 $17,062,562 $0 $0 $17,062,562 $0 2044 $23,843,011 $0 $0 $0 $23,843,011 $0 $23,843,011 $0 $0 $23,843,011 $0 2045 $1,523,824 $0 $0 $0 $1,523,824 $0 $1,523,824 $0 $0 $1,523,824 $0 2046 $352,199 $0 $0 $0 $352,199 $0 $352,199 $0 $0 $352,199 $0 2047 $940,209 $0 $0 $0 $940,209 $0 $940,209 $0 $0 $940,209 $0 2048 $181,853 $0 $0 $0 $181,853 $0 $181,853 $0 $0 $181,853 $0 Total $517,815,233 $510,870,221 $29,664,767 $481,205,454 $36,609,779 $29,910,897 $487,904,337 $29,910,897 $32,500,237 $485,314,996 $32,500,237 29 Option 1
(Fresh Start + 115 Trust)
OPTION 2
(100% Section 115 Trust)
Option 3
(100% ADP)
Cost Avoidance
(First 5 Years) $28M $24M $24M
Cost Avoidance
(Total) $37M $30M $33M
Local Investment
Control, Budget Flex &
Section 115 Liquidity
Yes Yes No
Budget Predictability 2% Linear Payment,
then Level (16 Years)
2% Linear Payment for
8 Years
Escalating payment for
7 years
Retirement of UAL
Debt Early Yes (6 Years Earlier) No No
RECOMMENDED
Comparison of Option 1 / Option 2 / Option 3
Summary of Key Differences
CONCLUSION
31 Conclusion/Recommendation
Recommendation: Option 1 – Fresh Start + 115 Trust Combo Maximum Cost Avoidance in Short-Term, and Overall
Budgetary Flexibility, Liquidity and Local Investment Control More Optimized Payment for Budget Predictability
Early Retirement of UAL Debt
Future Considerations/Follow Up
Pension Funding Policy
One-Time $: How will unanticipated funds or year-end surplus get allocated towards pension? POBs: When would City consider? What would evaluation process consist of? Establishing guardrails and required evaluation process through policy could strategically position City if opportunity arises in future
APPENDIX A – POB CONSIDERATIONS
33 $0
$5
$10
$15
$20
$25
$30
$35
$40
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
Millions
Metrics 20-Year POB
(Refi 100% of GF UAL)
UAL Funded ($) $318,774,850
% of General Fund UAL Funded 100%
Maturity 20 Years (FY 2046)
All-In Interest Rate 5.48%
Est. PV Savings (%) 5.89%
Est. PV Savings ($) $18,779,350
Est. Cumulative Savings ($14,681,939)
Savings (2027-2037) $64,102,734
Average Annual Savings (2027-2037) $5,827,521
Stress Test (market crash first year
before PV savings are negative)* -3.5% to 0% (est.)
UAL Restructuring/Pension Bond – High Level Analysis
Refinancing 100% of City’s General Fund UAL
UAL Payments
(6/30/2024 Valuation)
POB Payments
(20 Years, Refi 100% of GF UAL)
* Estimated range for preliminary discussion purposes
34 Primary Benefits
• Fiscal Sustainability Tool: Ability to
“re-shape” pension debt payments
• Near-Term Budgetary Savings
• Interest Rate Savings “Arbitrage”:
Potential to borrow at lower rates
than retirement plan discount rate
(projected earnings)
• Increase Funding Ratio
• Flexibility to Modify Maturity
• Create resiliency to absorb future
shocks
Primary Risk: Reinvestment
& Market Timing Risk
• Savings is ultimately dependent on
future plan returns, which are
unknown at time of issuance
(primary concern of GFOA)
• Present value savings occur if plan
earns greater returns than pension
bond interest rate
• Near-term losses exacerbate this
risk given large lump sum deposit
into the market
These risks should
be quantified
through a stress
testing process
to better
understand the
PV and CASH
FLOW impacts of
potential poor
investment
performance by
CalPERS
What if the plan
only earns 4% or
5%?
What if there is
another 2008-like
recession?
UAL Restructuring/Pension Bond
Benefits and Risks
35 2%
3%
4%
5%
6%
7%
8%
3% 4% 5% 6% 7% 8% 9% 10%
POB Interest Rate
Investment Returns
UAL Restructuring/Pension Bond
Actual PV Savings Based on POB Interest Rate and Future Investment Returns Green Bubbles Represent Positive POB Savings
Larger Bubble → Larger Positive Savings
Red Bubbles Represent Negative POB Savings
Larger Bubble → Larger Negative Savings
CalPERS 20-Year
Annualized Returns
POB Rates During
2020/2021
Current Taxable
Rates for POB
Note: The chart shown above is for illustrative purposes only and does not reflect any data associated with City of Santa Rosa. 36 Given the complexity and risks associated with a UAL restructuring, a thorough evaluation process would be recommended
UAL Restructuring/Pension Bond
Evaluation Process Recommendations
Policy Development
(“Guardrails”)
At what rates would the City consider a POB? 2% below CalPERS discount rate? 2.5%? Stakeholder
Education
Significant education recommended (public workshops, CC meetings, etc.) Important that risks are quantified and decisions made eyes wide open Options Evaluation Term; Repayment shape (level, ramp, tailored?); Size (25% of UAL? 100%?) Which part of UAL to Pay Off (safety vs. miscellaneous, short bases vs. long bases…) Risk Assessment /
Stress Testing
Important to model out “downside” scenarios to understand future cash flows with or without the pension bond
Risk Mitigation
Strategies
Dollar cost averaging (phased issuances), utilizing near-term savings towards pension (115 Trust, ADPs), tailored payment shape to withstand future economic shocks APPENDIX B – ADDITIONAL RESOURCES
38 CalPERS 2025 Asset-Liability Management (ALM) Study Results How Does it Impact Santa Rosa (Citywide)?
UAL: No material impact projected for
Santa Rosa
Note, some agencies with larger COLA’s
(5-7%) seeing >10% jumps in UAL just
from ALM assumption adjustments
Normal Cost: Annual increase of
~4.0% ($510K) starting in FY 2028
Little support/guidance from CalPERS
for further discount rate reductions
Notable Assumptions*
• Discount Rate: No change; remains at 6.8%
• Price Inflation: Increase from 2.3% to 2.5%
• Wage Growth Assumption: Increase from
2.8% to 3.0%
• Salary Scale: Moderate to higher merit
increases for most plans
*Source: CalPERS Asset Liability Management Stakeholder Webinar (December 4, 2025)
Source: CalPERS Pension Outlook Tool
39 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.
12.2%11.9%
18.8%
-2.9%
-23.6%
11.1%
20.7%
1.0%
12.5%
18.4%
2.4% 0.6%
11.2%
8.6% 6.7%
4.7%
21.3%
-6.1%
5.8%
9.3%
11.6%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Annual Return Target Discount Rate
40 Classic vs. PEPRA Pension Example Comparison
Employee #1 is a Classic member and Employee #2 is a PEPRA member – both have served for 25 years and have a final average compensation of $125K
Employee #2 will have a lower pension than Employee #1 due to a lower benefit factor, and will also retire at 57 years old instead of 50 years old like the Classic member The City will save money from PEPRA’s lower pension amount and because PEPRA’s pension may be paid out for a shorter amount of time due to retirement occurring 7 years later compared to Classic The difference in pension between Classic and PEPRA is even more apparent at higher compensation levels, as there is a pensionable compensation limit of approximately $175K for PEPRA and $330K for Classic Service
Credit
Benefit
Factor
Final
Compensation
Annual
Pension
Employee #1 (Classic)
25 Years x 3.0% @ 50 x $125,000 = $93,750
Employee #2 (PEPRA)
25 Years x 2.7% @ 57 x $125,000 = $84,375
41 Cost of PEPRA vs. No PEPRA – Citywide
PEPRA is projected to lower Normal Cost; UAL balance is mostly unaffected Source: CalPERS Pension Outlook Tool. Assumes no PEPRA
implementation in orange bar projections.
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
2052
2054
Millions
Projected Normal Cost
No PEPRA PEPRA
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
Millions
Projected UAL Balance
No PEPRA PEPRA
42 Section 115 Trust – Overview
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) 43 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) 44 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 (Show 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
Cost Avoidance Varies; Depends on when City
utilizes funds to pay liabilities
Immediate; Length of time
varies based on which
amortization component is paid
off