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6.1 B - Attachment No. 4 NOTE 9-EMPLOYEE BENEFITS(CONTINUED� being amortized as a level dollar closed 30 year basis, as a level percent of payroll with a remaining amortization period at June 30,2008 of 30 years. GASB 45 requires the interest rate to represent the underlying expected return for the source of funds used to pay benefits. The actuarial methods and assumptions included 4.25% interest rate, representing the long term expected rate of return on the City's pooled investments. Annual inflation assumed to increase at 3% per annum and Aggregate Payroll assumed to increase at 3.25% per annum. The study also used assumptions for the salary merit and longevity increases, and demographic assumptions such as mortality, withdrawal, and disability based on Ca1PERS 1997-2002 Experience Study. Retirement assumption was also based on CaIPERS 1997-2002 Experience Study of the Miscellaneous Plan 2.7% at 55 years, with expected retirement age of approximately 59, and Public Safety 3% at 50 years, with expected retirement age of approximately 54 for Police and 55 for Fire. C. Cafeteria Benefit Plan The City has a cafeteria benefit plan established pursuant to section 125 of the IRS code. Under this plan eligible employees may direct a contribution, made by the City, into any combination of the following three benefit categories: 1. Medical Insurance Premium Account 2. Out of Pocket Medical Spending Account 3. Dependent Care Spending Account In addition to directing the City's contribution to the above categories, eligible employees may elect to contribute pre-tax dollars to these categories. Under no circumstances may an employee direct more than $5,000 annually into the Dependent Care Spending Account and $8,000 annually into the Medical Spending Account. This cap applies to both City contributions and employee pre-t� contributions. There are no legal limits on contributions to the Health Premium Account. All regular full-time and part-time employees employed on a regular and continuous basis, including certain contractual employees, are eligible to participate in this plan. Temporary and casual employees are not eligible. The plan year adopted by the City begins on January 1 and ends December 31. To obtain reimbursement of expenses incurred within a plan year within the spending accounts(items 2 or 3), employees must submit claims within 90 days of the end of the plan year or separation of service from the City, whichever occurs first. Funds unclaimed after 90 days of the close of the plan year are then remitted to the City. D. Deferred Compensation Plans City employees may defer a portion of their compensation under four separate, optional City-sponsored deferred compensation plans created in accordance with Internal Revenue Code Section 457. Under these plans, participants are not t�ed on the deferred portion of their compensation until distributed to them; distributions may be made only at termination, retirement, death, or in an emergency as defined by the plans. Effective January 1, 1998, the City signed new deferred compensation plan administration agreements with the deferred compensation providers to provide for the administration and management of employees' deferred compensation plan assets. These agreements incorporate changes in the law governing deferred compensation plan assets which now require plan assets to be held for the exclusive benefit of plan participants and their beneficiaries. Since the assets held under these new plans are not the City's property and are not subject to claims by general creditors of the City, they have been excluded from these financial statements. 54