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1/15/2026 <br />2 <br />7 <br />$0.0 <br />$0.5 <br />$1.0 <br />$1.5 <br />$2.0 <br />$2.5 <br />$3.0 <br />$3.5 <br />$4.0 <br />$4.5 <br />$5.0 <br />20 <br />1 <br />8 <br />20 <br />1 <br />9 <br />20 <br />2 <br />0 <br />20 <br />2 <br />1 <br />20 <br />2 <br />2 <br />20 <br />2 <br />3 <br />20 <br />2 <br />4 <br />20 <br />2 <br />5 <br />20 <br />2 <br />6 <br />20 <br />2 <br />7 <br />20 <br />2 <br />8 <br />20 <br />2 <br />9 <br />20 <br />3 <br />0 <br />20 <br />3 <br />1 <br />20 <br />3 <br />2 <br />20 <br />3 <br />3 <br />20 <br />3 <br />4 <br />20 <br />3 <br />5 <br />20 <br />3 <br />6 <br />20 <br />3 <br />7 <br />20 <br />3 <br />8 <br />20 <br />3 <br />9 <br />20 <br />4 <br />0 <br />20 <br />4 <br />1 <br />20 <br />4 <br />2 <br />20 <br />4 <br />3 <br />20 <br />4 <br />4 <br />20 <br />4 <br />5 <br />Mi <br />l <br />l <br />i <br />o <br />n <br />s <br />Historical & Projected CalPERS Payments <br />Source: CalPERS Actuarial Valuation Reports & CalPERS Pension Outlook Tool <br />*Assumes FY 24 investment returns of 9.5% and 6.8% investment returns thereafter. <br />Projected UAL Payments* <br />Hypothetical UAL Payments from a Discount Rate <br />Reduction to 6.5% ($37M →$42M 2025-26 UAL) <br />UAL payments <br />have doubled <br />since FY 2018 <br />($1.5M → <br />$3.1M) <br />Projected to rise <br />to over $4M by <br />end of decade <br />Would increase <br />to $4.5M if <br />discount rate is <br />reduced to 6.5% <br />8 <br />CalPERS UAL Sensitivity <br />Planning for Potential Increases to UAL <br />CalPERS is currently underway <br />with its 2025 Asset Liability <br />Management (“ALM”) Study <br />Potential assumption changes <br />include CalPERS’ discount rate (i.e., <br />expected investment earnings) <br />The UAL is highly sensitive to <br />assumption changes and any <br />future investment <br />underperformance by CalPERS Source: CalPERS Pension Outlook Tool <br />Impact of CalPERS Discount Rate Reduction <br />6.8%6.5% <br />2025-26 UAL Balance: $37.0M → $42.0M <br />Max UAL Payment: $4.2M → $4.6M <br />Impact of CalPERS FY 2025 Investments <br />6.8% Return <br />(Assumed) <br />0.0% Return <br />(Hypothetical) <br />2025-26 UAL Balance: $37.0M → $42.9M <br />Max UAL Payment: $4.2M → $4.9M <br />COST MANAGEMENT STRATEGIES <br />10 <br />Pension Cost-Containment Strategies – Not Mutually Exclusive <br />Prepay UAL early in Fiscal Year (≈ 3.3% discount) –CITY DOES THIS <br />Negotiate Cost Sharing With Employees <br />•New employees already governed by lower cost/benefit PEPRA plans <br />•Negotiated cost sharing of the City’s share <br />Fresh Start Amortization offered by CalPERS <br />•Pros: Smooths payment, shortens repayment period; reduces overall interest paid from shorter amortization period <br />•Cons: New structure “locked-in” + increased annual payments in near term; still amortized at discount rate <br />Use Cash Reserves to Pay Extra (two options) –CITY MAINTAINS A 115 TRUST <br />•Section 115 Trust – Separate trust solely dedicated to pension/OPEB <br />•City’s annual UAL cost and Normal Cost can be supplemented with the Trust <br />•ADP –direct payments to CalPERS to reduce UAL <br />•Choose optimal amortization bases to pay off <br />Restructure All or Portion of Remaining UAL <br />•Restructure portion of UAL at lower bond interest rate and “smooth out” payments for enhanced budget predictability, near and mid-term <br />potential savings, and preservation of cash for other critical projects NOT RECOMMENDED GIVEN CURRENT INTEREST RATES <br />11 <br />Section 115 Trust Overview <br />Preliminary Options to Leverage for Savings <br />City maintains a Section 115 Trust with a current balance of: ~$4.0M (as of <br />3/31/2025) <br />Invested in PARS “Moderate Conservative” portfolio (2nd most conservative of PARS 5 options) <br />Note that PARS offers 5 different portfolio options differing in risk tolerance and stock/bond allocations <br />NHA performed 4 scenarios for comparison/evaluation: <br />1a - Keep 115 Trust and use to smooth future peak in payments <br />Keep in Moderate Conservative Portfolio: 3.82% assumed annual investment return (5-year avg) <br />1b – Same as 1a, but use Balanced portfolio (Similar risk profile as CalPERS; 6.9% 5-year <br />returns) <br />2a – Additional Discretionary Payment (ADP) – directly pay down $4M of UAL with CalPERS <br />20-year amortization bases for largest “cumulative” savings <br />2b – Same as 2b, but target shorter amortization bases for more savings over the next 12 years <br />12 <br /> $- <br /> $0.5 <br /> $1.0 <br /> $1.5 <br /> $2.0 <br /> $2.5 <br /> $3.0 <br /> $3.5 <br /> $4.0 <br /> $4.5 <br />20 <br />2 <br />5 <br />20 <br />2 <br />6 <br />20 <br />2 <br />7 <br />20 <br />2 <br />8 <br />20 <br />2 <br />9 <br />20 <br />3 <br />0 <br />20 <br />3 <br />1 <br />20 <br />3 <br />2 <br />20 <br />3 <br />3 <br />20 <br />3 <br />4 <br />20 <br />3 <br />5 <br />20 <br />3 <br />6 <br />20 <br />3 <br />7 <br />20 <br />3 <br />8 <br />20 <br />3 <br />9 <br />20 <br />4 <br />0 <br />20 <br />4 <br />1 <br />20 <br />4 <br />2 <br />20 <br />4 <br />3 <br />20 <br />4 <br />4 <br />Mi <br />l <br />l <br />i <br />o <br />n <br />s <br />Scenario 1a – Section 115 Trust (Moderate Conservative Portfolio) <br />Smooth the Mountain Peak of Payments <br />Assumptions: <br />CalPERS Discount Rate: 6.8% <br />(no change) <br />CalPERS Investment Returns: <br />9.5% in FY 24; 6.8% <br />thereafter <br />Initial Trust Deposit: ~$4.0M <br />Additional Deposits: $0 <br />Trust Annual Investment <br />Earnings: 3.82% <br />Ending Trust Balance: $0 <br />UAL Payments* <br />Net Payments <br />Smoothing Level: $3.5M <br />*Source: CalPERS Pension Outlook Tool <br />Withdrawals from Trust <br />($4.9M) <br />7 8 <br />9 10 <br />11 12 <br />Docusign Envelope ID: BB80A86F-2853-4F40-B02D-18F5B9DD615F