Riverside finance committee hears update on CalPERS liabilities, pension obligation bond performance

The City of Riverside Finance Committee received an update May 14 on the city’s unfunded accrued liability with the California Public Employees’ Retirement System (CalPERS), the performance of a pension obligation bond (POB) issued in 2020 and plans to use a Section 115 trust to smooth future pension payment spikes.

Financial adviser Mike Meyer of NHA said the city issued roughly $432,000,000 of pension obligation bonds in 2020, locking in a 3.69% interest rate and using the proceeds to convert a portion of the CalPERS unfunded accrued liability (UAL) to fixed-rate debt. “In the last five years, about $45,000,000 of savings,” Meyer said, describing realized savings from the difference between CalPERS returns and the bond rate.

The update also described how CalPERS investment returns since issuance have affected the remaining UAL and the city’s planning. Edward Enriquez, the city’s chief financial officer, told the committee the city originally faced a UAL that had grown as high as about $642,000,000 before the bond strategy was pursued. Meyer said the most recent published UAL is about $436,000,000 and that staff project it could be roughly $382,000,000 when the next CalPERS reports are issued this fall, depending on CalPERS’ forthcoming asset-liability assumptions.

Why it matters: City staff and advisers said the POB reduced the city’s exposure to CalPERS’ year-to-year return volatility and created resources to smooth future payments. Meyer emphasized the city has built a Section 115 trust using some of the bond savings and other one-time receipts; that trust had a reported balance of about $77,000,000 as of December 2024 and is intended to offset a spike in pension payments projected later in the decade.

Details and projections: Meyer said CalPERS’ long-term assumed return was about 6.8%, and its five-year average return since the bond was issued is about 7.1%. “The savings is really the differential between that 7.1 and the 3.69% on the bonds,” he said. Using conservative planning assumptions for the trust (5% investment return for analysis), staff modelled deposits of roughly $9 million this fiscal year, $9 million next year, $8 million in 2027 and $6 million in 2028 into the Section 115 trust. The consultant presented a scenario in which the general fund’s pension-related payments could be smoothed to a long-term level near $44.6 million, with withdrawals from the trust offsetting amounts above that level as payments rise.

Risks and watch items: Staff and consultants warned that CalPERS’ periodic asset-liability management study (scheduled to publish results this fall) could change assumptions such as the discount rate; Meyer said that a hypothetical decrease in CalPERS’ assumed investment return from 6.8% to 6.5% would materially increase the city’s UAL (he estimated an increase to about $515 million in that scenario). Staff recommended continued monitoring and periodic updates to the committee.

Public comment and committee discussion: Caller Jason Hunter, Ward 1, urged the committee to consider who manages the Section 115 trust and asked for historical returns; he also repeated concerns about the city’s longstanding general fund transfers from utility funds and ongoing litigation related to water transfers. Council member Falcone and others asked for plain-language takeaways; Falcone asked Edward Enriquez to provide a concise explanation for non-specialists. Christie Thomas, the finance director, and Edward Enriquez described the trust’s investment approach as more growth-oriented than the city’s operational cash portfolio and confirmed staff follow applicable government code limits.

Next steps: Staff and the consultant recommended remaining vigilant, continuing deposits to the Section 115 trust where feasible, and returning with periodic updates. The committee did not take a formal vote on policy changes during the presentation; the session served as an informational update.