1. MEMBERS’ COST OF LIVING CONTRIBUTIONS Presentation to the FCERA Board of Retirement Regular Board Meeting January 24, 2007 Harvey L. Leiderman Jeffrey R. Rieger Reed Smith, LLP

2. 2 COLA UAAL On December 6, 2006, the Board voted unanimously to change the methodology of calculating member contribution rates so that any COLA UAAL attributable to the Basic and Settlement Benefits will not be included in member rates going forward

3. 3 Initial Implementation Decisions On January 10, 2007, the Board decided:  Adjustments will be made to account for the amounts that were contributed by members as a result of the prior COLA UAAL practice.  “Deferred normal cost” contributions will be netted against any amounts contributed towards COLA UAAL.  General and safety member contributions will be analyzed separately.  All determinations will be made to the best approximations practicable.  Contribution adjustments will be implemented during the 2007-2008 fiscal year (at the earliest).

4. 4 Issues To Be Addressed Today (1)If the board is going to make adjustments through reductions to future contributions, how will that be accomplished? (2)Will the board make any “refunds” to members who paid COLA UAAL, but have already retired or deferred?

5. 5 Guiding Principles (1)Ultimate goal is to put the members, the plan and the employers in the same position in which they would have been had the prior COLA UAAL practice never been in place. (2)In achieving the ultimate goal, the best approximations “practicable” should be used, accounting for administrative cost and burden.

6. 6 Guiding Principles (3)If groups of members are treated together for the purpose of making adjustments, care should be taken to avoid any significant “subsidies” among members within each group. (4)To deal with equitable and logistical issues, active members and retired members should be analyzed separately (in addition to separate analysis of safety/general and tiers, as per the Board’s prior direction.)

7. 7 Important Facts (1)Net impact: (a)General members will have paid approximately $3.5 million towards COLA UAAL. (b)Safety members will have paid approximately $4 million towards COLA UAAL.

8. 8 Important Facts (2)It is possible to “credit” COLA UAAL payments back to members who are still active, through reductions to future contributions. (3)Members who will have retired or deferred prior to July 1, 2007 will not receive any “credits” against future member contributions because they will no longer be making contributions.

9. 9 Important Facts (4)Members who retired before July 1, 2003 or entered the system after June 30, 2007 will not have paid any COLA UAAL. (5)Members who retire or defer while contribution adjustments are being made will only receive a partial reimbursement through contribution adjustments.

10. 10 Important Facts (6)Members who entered the system between July 1, 2003 and July 1, 2007 will have paid some amount towards COLA UAAL, but not as much, proportionally, as members who entered the system prior to July 1, 2003.

11. 11 Recommended Approach General Members (1)General members who enter the system after July 1, 2007 will make their normal contributions, without adjustments. (2)Determine the best estimate of total amount paid towards COLA UAAL by members who remain in active status as of July 1, 2007. That amount will then be credited to all such active general members as a group when developing general contribution rates for the fiscal year 2007-2008.

12. 12 Recommended Approach (3)Determine the best estimate of the total amount paid towards COLA UAAL by general members who will have retired or deferred as of July 1, 2007. That amount will be refunded in lump sum payments to such members in a process to be determined. (4)The contribution rates for general members who remain in active status as of July 1, 2007 will be based on the assumption that no general members will retire or defer between July, 1 2007 and June 30, 2008. When members retire or defer in that time period, they will receive a lump sum cash refund equal to the credits they would have received in credits if they had stayed through June 30, 2008.

13. 13 Recommended Approach Safety Members (1)Safety members who enter the system after July 1, 2007 will make their normal contributions, without adjustments. (2)Determine the best estimate of the total amount paid towards COLA UAAL by safety members who entered the system prior to July 1, 2003. That amount would then be credited to all such active safety members who entered the system prior to July 1, 2003, as a group, when developing safety contribution rates for that group for the fiscal year 2007-2008.

14. 14 Recommended Approach (3) Determine the best estimate of the total amount paid towards COLA UAAL by safety members who will have retired or deferred prior to July 1, 2007. That amount will be refunded in lump sum payments to such members in a process to be determined. (4)Determine the best estimate of the total amount paid towards COLA UAAL by safety members who entered the system between July 1, 2003 and July 1, 2007. That amount will be refunded in lump sum payments to such safety members in a process to be determined. These safety members’ contributions for the fiscal year 2007-2008 will not include any “credits.”

15. 15 Recommended Approach (5)The contribution rates for safety members with an entry date prior to July 1, 2003, and who remain active after July 1, 2007, will be based on the assumption that no such safety members will retire or defer between July, 1 2007 and June 30, 2008. When such members retire or defer in that time period, they will receive a lump sum cash refund equal to the credits they would have received if they had stayed through June 30, 2008.