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1/15/2026 3 13 $0 $10 $20 $30 $40 $50 $60 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 20 4 6 20 4 7 20 4 8 Mi l l i o n s Historical & Projected General Fund CalPERS Payments UAL + Normal Cost UAL + Normal Cost General Fund payments projected to rise to $55M by FY 2031 Over double vs. FY 2018 levels UAL portion rising the fastest $12M in FY 2018 → $30M in FY 2025 → $41M in FY 2031 CalPERS’ 12.1% investment return in FY 2025 could potentially reduce future General Fund UAL payments by $6M per year $6M annual benefit may be partially offset by CalPERS’ non- investment adjustments (e.g., inflation) Source: CalPERS Actuarial Valuation Reports & CalPERS Pension Outlook Tool. *Assumes FY 2024-25 investment returns of 12.1% and 6.8% investment returns thereafter. Normal Cost UAL Payments 6/30/2024 Actuarial Valuation Projected UAL Payments After 12.1% FY 2025 Return* COST MANAGEMENT STRATEGY OVERVIEW 15 Pension Cost-Containment Strategies – Not Mutually Exclusive Prepay UAL early in Fiscal Year (≈ 3.3% discount) → City Does This Negotiate Cost Sharing With Employees •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 $16M 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 previously issued Pension Obligation Bonds in 2003 and 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. NOT CURRENTLY RECOMMENDED GIVEN INTEREST RATES COST MANAGEMENT STRATEGY ANALYSIS (GENERAL FUND) 17 Section 115 Trust – Overview Funds Earmarked for Pension and OPEB What is it? Restricted Account for pension and/or OPEB City’s Section 115 Pension Trust has a $16M General Fund balance as of September 2025 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) 18 Cost Management Strategy Options Execute a CalPERS Fresh Start and leverage the Section 115 Trust over 6 Years to offset the General Fund’s UAL Payment (ramp up)Option 1 Do not execute a CalPERS Fresh Start, but still leverage the Section 115 Trust over the next 6 years to offset burden on the General Fund Option 2 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 savings Option 3 13 14 15 16 17 18 Docusign Envelope ID: BB80A86F-2853-4F40-B02D-18F5B9DD615F