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B/J RT' E L 71SS0Cri\'TES. LLC October 23,2007 Pamela Arends-King Assistant Director of Finance & Management Services City of Santa Ana 20 Civic Center Plaza Santa Ana, CA 9270] Re: GASB 45 - Other Post Employment Benefits (OPEB) Actuarial Study Fee Estimate Dear Ms. Arends-King: Bartel Associates would be pleased to provide the City of Santa Ana actuarial consulting services. This letter summarizes the project scope and our fee estimate associated with the City's retiree health care obligation. Background The City participates in the CalPERS retirement program providing Miscellaneous employees the 2.7%@55 benefit and Safety employees the 3%@50 benefit. The City also participates in the CalPERS healthcare program (PEMHCA) providing eligible retirees the PEMHCA minimum contribution using the "5% unequal method." Some employee groups can elect to use accumulated sick leave to pay for retiree health care premiums until these amounts are exhausted. The City does not provide contributions for retiree dental, vision, or life benefits. The City has approximately 942 full-time active employees and 276 retirees currently receiving healthcare benefits. AB 2544 approved by the Governor on September 30, 2006 changes the way the 5% "unequal method" works. The amount provided to retirees must be a percentage of the amount provided to active employees where the percentage is 5% multiplied by the number of years that the agency has participated in PEMHCA. In addition, the City contributes a retiree medical subsidy (a percentage of active employees' pay that varies by bargaining group) to a fund to be used to help pay for retiree healthcare coverage. This fee letter assumes these programs contain individual accounts and GASB 45 does no apply. However, if these programs do not contain individual accounts then the City should discuss them with its' outside auditor because GASB 45 may apply. The Governmental Accounting Standards Board (GASB) issued Statement No. 45, "Accounting and Financial Reporting by Employers for Postemployment Benefit Plans Other Than PeQsions," called "OPEB" by GASB, in June 2004. I was a memberofGASB's task force providing background information to the Board on this issue. The City currently pays for OPEB on a pay-as-you-go basis. GASB has made it clear the City will need to recognize its retiree healthcare promise as employees render service. It is important to note the new GASB OPEB standards will likely result in net obligations significantly different ITom the City's current pay-as-you-go method. We believe the "5% unequal method" cash subsidy falls under GASH 45 while any sick leave usage is covered by GASB 16, "Accounting for Compensated Absences."