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City Council Agenda Report Pension Trust and Reserve Analysis and Use Policy March 18, 2025 Page 2 $0 $5 $10 $15 $20 $25 20 1 8 20 1 9 20 2 0 20 2 1 20 2 2 20 2 3 20 2 4 20 2 5 20 2 6 20 2 7 20 2 8 20 2 9 20 3 0 20 3 1 20 3 2 20 3 3 20 3 4 20 3 5 20 3 6 20 3 7 20 3 8 20 3 9 20 4 0 20 4 1 20 4 2 20 4 3 20 4 4 20 4 5 Mi l l i o n s Normal Cost Projected UAL Payments* (9.3% FY 2023-24 Returns) including a 10.89% annual investment return in FY 2023–24, which is more than 1% above what the California Public Employees' Retirement System (CalPERS) earned that same year. Additionally, on May 21, 2019, the City Council authorized investing $1.7 million in a separate pension reserve within the General Fund. Pension Costs Overview The City participates in CalPERS and makes two types of payments to CalPERS each year: 1. Normal Cost Payment: The annual cost of benefits earned by current employees. 2. Unfunded Accrued Liability (UAL) Payment: Annual payment to amortize the unfunded accrued liability “debt”, which is the shortfall between the promised pension benefits and the funds currently available in the CalPERS system to pay for those benefits. The City’s UAL is amortized over a longer period (with different components amortized between 1 and 25 years) at a discount rate (equivalent to an interest rate) of 6.8%. This rate also represents CalPERS’ expected annual investment returns. As of June 30, 2024, the City’s total UAL balance is estimated at $155 million. This is an estimate based on CalPERS’ preliminary FY24 investment returns of 9.3%, which is expected to lower the UAL from $164 million to $155 million. The actual impact of the FY 2023–24 investment returns and other assumptions will not be known until the June 30,2024, actuarial valuation reports from CalPERS are finalized later this summer. The chart below depicts the City’s historical and projected UAL payments (blue bars) and Normal Cost (orange bars). The UAL payment is not only larger than the Normal Cost, but it is also more volatile given the unique way it is amortized. CalPERS’ investment returns and actuarial assumptions, both out of the City’s control, have a significant impact on the City’s UAL. Market Value of CalPERS Assets: $367 Million Accrued Liability: $521 Million Shortfall (UAL): $155 Million $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 $550 Mi l l i o n s City of Walnut Creek CalPERS Pension Funded Status Source:CalPERS Pension Outlook Tool.Assumes 9.3%investment returns in FY 2023-24. Docusign Envelope ID: BB80A86F-2853-4F40-B02D-18F5B9DD615F