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EXHIBIT E over the next thirty years, beginning in 2010 and rising through 2013. The increased rates may well hit cities just as they are finally beginning to escape from the effects of the recession. As such, pension costs will soon escalate beyond our ability to manage them while the benefits exceed what taxpayers themselves can receive and what is needed to attract qualified employees. The local government pension situation will become untenable. In the past five years, a number of proposals have been introduced to reform the public pension system in Califomia. To date, no effective reform action has been taken by Ca1PERS, the Governor, or the State Legislature. Several organizations are now considering ballot initiatives that would reform the pension system in response to the inaction of State government. It is for this reason the working group has met on this subject several times since August and involved experts to assess the financial impacts of a systematic and regional reform effort. Our findings follow. Findings The public managers groups recognize that the most effective reform would be addressed at a statewide level with consistent pension standards for all. Ideally this would be accomplished through the State legislature, but could occur through the initiative process. However, poorly conceived pension reform by initiative could lead to greater costs for taxpayers and harm local government's ability to attract and retain qualified employees. By acting as a region, no one city will be disadvantaged by pension reform. Therefore, the managers groups support the goal of a modified level of retirement benefits for all new city employees in the Alameda/Contra Costa region. The managers also recommend that current employees pay for a portion of their pensions and that a new pension tier be created for city employees hired after the reforms are negotiated by the respective cities, with the following features: 1) Current employees shall participate in the funding of their pensions in all cities. This reform will generate immediate budgetary savings to cities to the extent that existing employees participate in paying for their own retirement. Savings could initially range from 1 — 9% of Ca1PERS -able payroll annually. 2) New Tier Retirement Proposal ➢ Safety employees — 2% at 50 (which rises to 2.7% at age 55 or older); ➢ Miscellaneous employees — 2% at 60 (which rises to 2.418% at age 63 or older); and ➢ Average of highest three years compensation as basis for pension calculation. The proposed new tier will deliver savings over a much longer time period as it affects only new hires after a new tier becomes effective. When the majority of employees are under a new tier, cities can expect to save approximately 2% of payroll per year. Within 30 years, annual savings of 5 - 7 % of payroll can be expected through reduction in the normal cost of the PERS contribution. The new tier will also lower each city's volatility index (ratio of assets held for pension payments to payroll), which will help stabilize future rate increases. These changes must be negotiated and implemented at the local level. Each city has a responsibility to meet and confer in good faith to reach agreement with its bargaining units. 3