Cost (APC) Contributed Obligation

2003 $ 1,084,168 100% — 2002 1,384,290 100 — 2001 401,547 100 —

Annual Pension Cost

For the year ended June 30, 2003, the City’s annual pension cost and actual contributions were $1,084,168 for the safety employees. The City also contributed $1,609,353 on behalf of the safety em- ployees and $1,851,407 on behalf of miscellaneous employees. Miscellaneous part-time employees directly contributed $200,955. Total contributions were $4,745,883. The required contribution for the year ended June 30, 2003 was determined as part of the June 30, 2001 actuarial valuation using the entry age normal actuarial cost method with the contributions determined as a percent of pay. The actuarial assumptions included (a) 8.25% investment rate of return (net of administrative expenses); (b) projected salary increases that vary by duration of service ranging from 3.75% to 14.20% for mis- cellaneous members (from 3.75% to 11.59% for safety members), and (c) 3.75% cost-of-living adjustment. Both (a) and (b) include an inflation component of 3.50%. The actuarial value of the Plan’s assets was determined using a technique that smoothes the effect of short-term volatility in the market value of investments over a two to five year period depending on the size of investment gains and/or losses. Initial unfunded liabilities are amortized over a closed pe- riod that depends on the Plan’s date of entry into CalPERS. Subse- quent Plan amendments are amortized as a level percent of pay over a closed 20-year period. Gains and losses that occur in the opera- tion of the Plan are amortized over an open 13-year period, which results in an amortization of 10% of unamortized gains and losses each year. If the Plan’s accrued liability exceeds the actuarial value of plan assets, the amortization payment on the total unfunded li- ability may not be lower than the payment calculated over a 30-year amortization period. As of the actuarial valuation date of June 30, 2001 (for 2002-03 employer rates), the average remaining amorti- zation periods were 33 and 20 years for miscellaneous and safety members, respectively.

CalPERS Credit

Under Assembly Bill 2099, in any year that a plan is determined to be super-funded (actuarial assets exceed actuarial accrued liabili- ties) as of the most recently completed valuation, the employer may cover all, or a portion of, its employees’ member normal contribu- tions using its employer assets. During the year ended June 30, 2003, the City was informed that it had a Surplus Asset Account with CalPERS for its miscellaneous plan. Accordingly, the City transferred employer assets to the employee fund for the miscella- neous plan totaling $2,086,960. The amount is reported as a credit (miscellaneous revenue).

B. Employee Deferred Compensation Plan

The City offers an Employee Deferred Compensation Plan created in accordance with Internal Revenue Code Section 457 to its em- ployees, allowing them to defer or postpone receipt of income. Amounts so deferred may not be paid to the employee during em- ployment with the City except for a catastrophic circumstance cre- ating an undue financial hardship for the employee.

Effective January 1, 1999, Federal legislation (Small Business Job Protection Act of 1996) requires the Section 457 plan assets to be placed in trust for the exclusive use of the plan participants and their beneficiaries. The City’s deferred compensation adminis- trator, the International City Managers’ Association (ICMA) quali- fies as the plan trustee to meet Federal requirements. Since the plan assets are no longer considered the property and rights of the City, such assets are no longer reflected in the accompanying basic fi- nancial statements.

CITY OF BEVERLY HILLS, CALIFORNIA

Notes to Basic Financial Statements June 30, 2003

(10) EMPLOYEE RETIREMENT SYSTEMS AND DEFERRED COMPENSATION PLANS, CONTINUED

• Technical Service employees:

– For service retirees after the following dates through age 65, or the date the retiree becomes eligible for Medicare, the following health benefits are provided:

The City also offers to its employees a deferred compensation plan created in accordance with Internal Revenue Code Section 401(k). All amounts deferred and invested under this plan, with related in- terest, are the property and rights of the participating employees and, as such, are not reflected in the accompanying financial state- ments.

After July 1, 1985 Single-party rate After July 1, 1986 $200/month After December 1, 1987 $245/month After December 1, 1988 $270/month

– For service retirees after February 1, 1990 through age 70, or the date the retiree becomes eligible for Medicare, $300 per month in health benefits is provided.

(11) RELATED PARTY TRANSACTION – SALE/LEASEBACK In November 1984, the Parking Authority paid the City $6,500,000 in consideration for certain land to be used as the site for the construction of a new parking structure. Upon completion in August 1986, the City leased the parking facility from the Parking Authority. The sale of the land has been accounted for as a sale/leaseback transaction, and the re- lated gain of $1,890,055 is being amortized into income in the Parking Enterprise Fund over the 55-year life of the lease.

– For service retirees after July 1, 2000 through age 70, or the date the retiree becomes eligible for Medicare, the City provides up to $300 per month in health benefits. The benefit is extended up to $150 per month after age 70 if the employee retired on or after age 60 with 20 or more years of service and up to $75 with 15 to 20 years of service.

• Police Association employees: (12) POSTEMPLOYMENT HEALTH CARE BENEFITS

– For employees retiring (service retirement only) after July 1, 1989 through age 70, the City pays up to the two-party rate of the Peace Officers Research Association of California (PORAC) Plan under PERS.

In addition to the pension benefits described in note 10, the City pro- vides postretirement health care benefits in accordance with employees’ respective compensation plans. The provisions of the compensation plans are negotiated with formally recognized bargaining units and

groups not formally recognized and are adopted by City Council action. – For retirees who retired between July 1, 1978 and July 1, 1989, _{the City pays $211/month, through age 65.} – Retired sworn police personnel who received a disability retire-

ment on or after July 1, 1987 are eligible for the PERS health plan if the employee had 20 years of service with the Beverly Hills Police Department or is over 45 years of age at the time of his or her retirement.

The City is currently enrolled in various health care plans administered by the California Public Employees Retirement System (PERS). The City pays retirees’ PERS health care premiums to the following limits as stipulated in the compensation plans:

CITY OF BEVERLY HILLS, CALIFORNIA

Notes to Basic Financial Statements June 30, 2003

(12) POSTEMPLOYMENT HEALTH CARE BENEFITS,