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1/15/2026 <br />2 <br />7 <br />Now… <br />Sluggish investment returns (not meeting <br />assumptions) <br />Assumptions have changed/grown more <br />conservative <br />Discount Rate (assumed rate of investment <br />returns): 8.25% → 7.00% → 6.80% <br />Inflation rate (prices going up) <br />Mortality rates (people living longer) <br />Shorter, more conservative amortizations <br />Why CalPERS Costs Have Trended Higher <br />Then (late 1990s)… <br />Robust investment returns (10%+) <br />Retirement plans were “Super- <br />Funded” through the late 1990s <br />Earnings on funds were more than <br />adequate to cover retirement costs <br />Super-funded status induced <br />widespread retirement benefits <br />enhancements <br />Past funding policies led to <br />contribution holidays and “free” <br />benefit improvements <br />Historical PERS <br />Returns <br />5-Year: 8.0% <br />10-Year: 7.1% <br />20-Year: 6.7% <br />30-Year: 7.6% <br />All assumptions will be revisited by CalPERS during <br />2025 Asset Liability Management (ALM) Study <br />8 <br />How CalPERS Benefits Get Funded <br />Investment <br />earnings used to <br />make up a higher <br />percentage <br />(65%-70%+) of <br />total <br />contributions <br />(pre-2008) <br />As investments <br />underperform <br />assumptions, <br />employers must <br />make up the <br />difference <br />9 <br />City’s CalPERS Retirement Plans – Citywide <br />2 Main CalPERS plans: Miscellaneous & Safety <br />Miscellaneous: 3,137 covered members; $235M UAL <br />Safety: 934 covered members; $247M UAL <br />PEPRA (effective 2013) helpful to manage long term pension costs for new <br />employees <br />Enacted revised benefit levels for new plan members <br />Higher employee contribution rates mean more normal cost is being paid by the <br />employee <br />However, 99% of current UAL comes from Classic plans and is not impacted <br />by PEPRA <br />10 <br />2025 Asset Liability Management (ALM) Study – Preliminary Results <br />CalPERS ALM Study: Occurs every four years <br />to review CalPERS’ investment portfolios <br />and retirement plan liabilities (based on <br />demographic & economic factors) <br />Recommended inflation adjustment will <br />increase Normal Cost and UAL; impact could <br />be up to 7% if COLA is greater than 2% <br />Timeline of Assumption Changes: <br />November 2025: Final adoption by the CalPERS <br />Board <br />Effective Date: June 30, 2025 actuarial valuation <br />Employer Contribution Impact: FY 2027–28 <br />Economic <br />Assumptions <br />•Discount Rate: <br />No change; <br />remains at 6.8% <br />•Inflation: <br />Adjustment <br />from 2.3% to <br />2.4%-2.6% <br />Demographic <br />Assumptions <br />•No changes <br />anticipated for <br />most <br />assumptions <br />•Salary Scale: <br />Adjustments <br />proposed with <br />expected cost <br />increase across <br />all groups <br />Preliminary Recommendations <br />(Presented in September 2025) <br />HISTORICAL AND PROJECTED CALPERS COSTS <br />(GENERAL FUND) <br />12 <br />$306 $328 <br />$242 <br />$380 $393 $376 $324 <br />69.3%68.5% <br />78.1% <br />67.3%67.4%69.9% <br />74.8%68.1%68.3%70.8% <br />76.0% <br />0.0% <br />10.0% <br />20.0% <br />30.0% <br />40.0% <br />50.0% <br />60.0% <br />70.0% <br />80.0% <br />90.0% <br />100.0% <br /> $- <br /> $50 <br /> $100 <br /> $150 <br /> $200 <br /> $250 <br /> $300 <br /> $350 <br /> $400 <br /> $450 <br />2019 2020 2021 2022 2023 2024 2025 <br />Mi <br />l <br />l <br />i <br />o <br />n <br />s <br />UAL Funded Ratio <br />History of General Fund UAL Balance & Funded Ratio <br />Funded Ratio With and Without General Fund Section 115 Trust <br />6.5%5.0%22.4%-7.5%6.1%9.5%12.1%CalPERS Returns*: <br />Source: CalPERS Actuarial Valuation Reports & CalPERS Pension Outlook Tool <br />*CalPERS’ Money-Weighted Rate of Return, as reported by CalPERS in its ACFRs <br />Funded Ratio w/ Trust <br />7 8 <br />9 10 <br />11 12 <br />Docusign Envelope ID: BB80A86F-2853-4F40-B02D-18F5B9DD615F