Section 115 Pension Prefunding Trust
September 9, 2026
Presented by Christie Donnelly, Finance Director
• Pension costs move. We can plan for it.
2 Source: CalPERS actuarial valuations; City UAL analysis $24.1M improvement
Combined UAL improved in one year
(6/30/24 to 6/30/25).
$35.2M to $36.6M
Annual employer pension cost is still
large and expected to remain above
$35M for years.
Budget pressure
Without VLF backfill, FY 2026-27
General Fund deficit will be closer to
$12.5M
• Payments rise to a peak over the next few years, then taper down. • Even with CalPERS “5-year ramp,” one bad investment year may dramatically impact this graphic
A reserve can help smooth the hard years.
FY 2027-28 Total Pension bill
• $36.6M Pension-only reserve
• Pays both parts
• Trust assets can pay UAL or normal cost.
• More investment flexibility
• Trust documents can allow a broader long-term mix, including diversified equity exposure not available to regular City funds under Government Code.
• Future Council flexibility
• Using trust assets for pension costs can free operating dollars for other priorities when needed.
• What a Section 115 trust does
3 Discipline today. Options tomorrow.
UAL = past bill
Cost of pension benefits already earned in prior years and still being paid down.
Normal cost =
current bill
Cost of pension
benefits employees
are earning now.
UAL
$26.5M
Normal Cost
$10.1M
• Why staff recommends a single-employer trust
4 City-held
reserve
Already in place
Most liquid
Government Code limits
investments
Easier to repurpose
Multi-employer
115 trust
Quick / turnkey
Bundled administration
Pre-set investment menu
Less local control
Single-employer
115 trust
Built for SSF
Choose advisors
Tailor governance + investment
policy
Greater local control
RECOMMENDED
Why this matters: City funds are limited by Government Code investment rules. A Section 115 trust can allow a broader long-term mix, such as diversified equity funds, subject to a Council-approved investment policy.
Trust assets stay pension-only, but they can pay both UAL and normal cost. • Recommended path
COUNCIL DIRECTION TODAY
1. Today
Authorize staff to develop a
single-employer Section 115
trust.
2. Next
Analyze the right size.
Preliminary target – $24M.
3. Return
Bring back trust terms,
providers,
and funding
recommendation
for Council approval.
No money moves today.
Today's action is to approve first steps, analysis, and preparation of the trust documentation.
Final trust documents, governance, providers and funding amount will come back to Council for approval.
Section 115 Pension Prefunding Trust
City of South San Francisco
THANK YOU
COUNCIL DIRECTION REQUESTED