Santa Rosa's pension costs are continuing to climb and probably will for several years despite state and local reform efforts, but officials say healthy investment returns and lower benefits for new workers may eventually help rein in costs.

The city recently learned that its largest annual retirement cost, its payment to the California Public Employees Retirement System, is set to increase by about $1 million next year, to $20.4 million.

In addition, the city was informed that its unfunded liability — the amount its pension funds are underwater — has soared by $15 million, to $127.5 million, according to annual reports on the health of its three CalPERS pension funds. The figure represents the difference between the amount the city will owe its current and retired employees in coming years and the value of the assets in the city's CalPERS funds.

Two years ago, that shortfall was pegged at $100 million; last year it stood at $112 million.

Councilman Gary Wysocky called the new figures further evidence of a "benefit bubble" threatening the city's financial health.

"With numbers like this, I really am concerned about the future of this system for people 10 to 15 to 20 years down the road when they really need those benefits," Wysocky said this week. "It's a big number."

City Manager Kathy Millison cautioned against reading too much into the new CalPERS figures, saying that the full impact on the city's budget remains unclear.

"I don't think we have the complete information just yet," Millison said.

She said she expects greater clarity in February after a financial analyst has the chance to assess a variety of factors, including the impact of employee concessions and lower benefit levels set by the city and state for new workers.

The city's pension costs are poised to rise despite its reform efforts for two reasons.

One is that CalPERS calculated the city's costs for next fiscal year based on 2011 data, the latest available to it, said Laurence Chiu, the city's chief financial officer.

This means the city and state pension reform efforts are too new to immediately impact the city's costs, he said.

The reason they will likely continue to go up in the near future is that the changes passed by both the city and more recently the state mostly apply to workers who haven't been hired yet.

The city's costs likely won't begin decreasing until a significant number of new employees earning the lower benefits are employed by the city, he said.

"I think we won't see any real movement for the next five to 10 years," Chiu said.

Not only did CalPERS inform the city that it will face higher costs next year, it boosted its estimates for what the city will need to pay the following two years, as well.

That's in part because CalPERS earlier this year lowered its estimate for how much it expects to earn from investments, from 7.75 percent to 7.5 percent. That will force the cities to make up the difference.

Millison called the change in the CalPERS investment assumption "an obvious concern." The city has previously estimated the change could cost it $1.3 million to $1.7 million per year.

On a positive note, the investment returns for CalPERS were very healthy in 2011. The value of the pension giant's assets increased 22 percent to $242 billion.

For the city's three funds, that meant a $114 million increase, pushing the market value of the assets to $635 million. While the plans remain $197 million underwater on a market basis, the strong returns have improved the assets and the obligations, bringing what is known as the funding ratio to 76 percent, up from 68 percent the previous year, according to the reports.

Pensions with ratios of 100 percent, which is almost unheard of today in public pension plans, are considered fully funded.