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to offset the cost of medical insurance premiums for retired employees based on years of service with the City. The cost of providing and obtaining health care services has risen significantly in recent years and attempting to address the health care issue is the subject of an intense national debate which has not resulted in any clear identifiable answers. Unfortunately, Pleasanton is not immune to the issues facing all employers and individuals trying to deal with this subject. However, the City has taken steps that are reducing health care costs related to current employees and future retirees. Because health care benefits are subject to the state's collective bargaining laws, obtaining changes to benefits has been central to negotiations with each of the City's labor groups. Active Employee Health Care Since 2007, employee groups have been moving in the direction of changing medical plan designs, reducing premium increases, and assuming a greater share of the cost burden. The employee's share of the co- payments for doctor visits and prescription medication has increased, a cap on the medical premiums paid by the City has been established, a less expensive non -HMO plan was substituted and competition among providers is now encouraged. Without these actions, the premium increases would have been greater than those realized. These changes have resulted in savings to date of approximately $550,000 through June 2011. Retired Employee Health Care In addition to inflationary pressures related to providing health care benefits to current employees, post- retirement medical contributions have also increased as a result of increased private sector medical costs. Since 1990 the City has provided a post - retirement medical benefit that allows eligible employees (and their spouses) retiring from the City to continue participation in group health plans with the City paying a percentage of the plan's cost based on years of service. As an example, for an employee retiring from the City with 15 years of service, the City would pay 60% of the health plan premium. The City has funded its post retirement medical benefits through annual contributions to its Retiree Insurance Reserve Funds. However, unlike many cities that have limited their annual contribution to the amount that must be paid to retirees, (a practice commonly referred to as "pay -as- you -go ") the City has significantly "pre- funded" or established reserves to cover the cost of not only existing retirees but a portion of the cost of current employees in anticipation of their retirement. Currently the balance in the Retirees Medical Reserve Fund is $44.9 million. It should be noted that a significant portion of this fund was built up in the mid- 1990's when the CaIPERS annual rates were substantially less or at $0. A significant concession in the recent negotiations with the PCEA/AFSCME group is the modifications to retiree medical benefits for newly hired employees. With this change, the benefit will now only cover the City employee (not the spouse) and only up to age 65. At that point, retirees must transition to self -paid Medicare. Essentially, the benefit is eliminated following age 65. Should all bargaining groups agree to this modification, the City could realize a $5.4 million reduction in its estimated unfunded liability. In 2009, Page 6 of 9