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(CPI) to assess the general cost of living increases in determining wage adjustments for the duration of the contract. The CPI increases for all wage earners in the San Francisco-Oakland-San Jose area, which is posted every other month are attached (Attachment 2). The most recent increase for June 2008 was 4.7%. Revised Vesting Schedule for New Employees: Under the recently expired MOU, retirees eligible to retire and receive retiree medical benefits received the two-party benefit. With the revised vesting schedule, the retirees with less than 20 years of service would receive only single party benefits, rather than the two-party benefit currently provided. This is a significant shift in philosophy for the City and necessary to preserve the City's long-term financial strength. GASB 45, a new accounting standard for local governments, now requires the City of Pleasanton to measure and report both the overall retiree medical liability and the annual required contribution. Implementation is required by June 2009. With Council direction last fiscal year, the City of Pleasanton initiated early disclosure in its financial statements (see Attachment 3). If the City were to change the benefit to the single party premium for all employees retiring with less than 20 years of service as is proposed with PPOA, and assuming half of the total workforce fell into that category within 10 years, then the actuarial liability would be reduced by approximately $2.3 million. Medical Insurance Reform for Active Employees: Amends the medical insurance benefit for active employees. As recently negotiated with the Firefighter's union, co- payments for doctor's visit and prescription drugs for all plans were increased to better align them with industry standards. This action reduces the cost of annual premiums going forward. Once the City implemented this reform for the Firefighter's union, the premiums were reduced by approximately 7%. The MOU 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. These changes will allow for increased competition among health providers who bid for the City's business. Lastly, in the third year of the agreement, the City will pick up an increase of no more than 15% of the medical premium. Under the terms of the recently expired MOU, the City paid the full cost of the Kaiser family premium, which has averaged more than 15% annually. This new limit will cap the City's future exposure. While the cap appears only in the third year of the contract, it signals a fundamental shift in the City's philosophy of covering premiums regardless of cost. Subsequent multi-year contracts will also include a "cap" strategy going forward albeit incrementally lower to address the escalating trend of premiums nationally. Medical Insurance Reform for Retired Employees: Amends the medical insurance benefit for employees who retire after July 2009. This provision establishes that for employees who retire after July 1, 2009, 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. Page 3 of 4