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eligible for Medicare. This significant shift in philosophy for the City began when the change was implemented with Management/Confidential group of employees starting in January 2009. Since the reduction in benefit applies to new hires, the impact will not be realized immediately; however, it will significantly reduce the City's actuarial liability over time. Medical Insurance Reform for Active Employees: The newly negotiated tentative agreement amends the medical insurance benefit for active employees. As implemented with all other employee groups, co-payments for doctor's visit and prescription drugs for all plans were increased to better align them with industry standards. This action will serve to reduce the cost of annual premiums going forward. The tentative agreement further provides that future increases in the contributions made by the City toward the cost of medical premiums will be based on the dollar increase in the lowest cost HMO plan, rather than the premium for the Kaiser Health plan. This change will allow for increased competition among health providers who bid for the City's business and benefit us by lowering the premiums. Lastly, the City will pick up an increase of no more than 15% of the medical premium. This new limit will cap the City's future exposure and employees will pick up any increase above 15%. Medical Insurance Reform for Retired Employees: The new contract amends the medical insurance benefit for employees who retire on or after July 1, 2011. This provision establishes that for employees who retire on or after this date, their health benefit plan design will be the same as the active employees with respect to the higher co-payments and newly implemented caps on increases. These reforms in medical plan design and premium caps (for active and retired employees) now apply to all City groups, represented and non-represented, and signify the change in the cost sharing arrangement between employees and the City. The changes will reduce the City's long term liability for providing retiree medical insurance. CONCLUSION This set of negotiations with PCENAFSCME represents a shift in philosophy from previous contract discussions as the City sought to share in the cost of benefits with employee groups. These concessions from the bargaining units are in line with the City's strategy to maintain a balanced budget without relying on drawing from reserve funds. The parties have met formally and in good faith to develop this tentative agreement. In this first public discussion, the topic is introduced to allow for comments from the public. The next step in the process is for the City Council to consider the terms of the agreement and authorize the City Manager to finalize and execute the final agreement. Page 3 of 4