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ARTICLE XII 12.0 RETIREMENT 12.1 General. The terms of the existing contract between the City and California Public Employees' Retirement System (CalPERS) governing the City retirement benefits for affected employees are incorporated by reference herein. The City shall continue to make contributions to CalPERS in accordance with its contract with Ca1PERS for affected employees covered by said contract as amended. 12.2 Deferred Retirement. The City will continue to make payment to CalPERS on behalf of each affected employee, in an amount necessary to pay one hundred percent (100%) of his or her individual retirement contribution which is equal to seven percent (7%) and will increase to eight percent (8%), effective January 1, 2009. Such payments shall be credited to the individual employee's Ca1PERS account. Such payments are not increases in base salary and no salary rate range applicable to any of the employees covered by this Agreement shall be changed or deemed to have been changed by reason thereof. As a result, the City will not treat these payments as ordinary income and, thus will not withhold Federal or State income tax from said payments. The City has received an opinion or ruling from the Internal Revenue Service confirming that these payments are deferred compensation, and not ordinary income. In the event that the City receives a ruling from the Internal Revenue Service that such payments are ordinary income of the employees instead of deferred compensation, the City's obligation to make such payments shall discontinue and in place thereof the base salary of each said employee shall forthwith be increased by fourteen (14) salary rate ranges (7%), or sixteen (16) salary rate ranges (8%), after January 1, 2009. For the purpose of reporting an employee's compensation to CalPERS, the City shall include these payments as if they were a part of the employee's base salary. 12.3 2% at 55 Retirement Benefit. Effective July 1, 1997, the City agreed to pay 2.266% of the cost of providing Ca1PERS 2% at 55 retirement benefit to employees of this unit. Employees agreed to pay one percent (1%) of the total cost of 3.266% for the 2% at 55 retirement benefit by authorizing a one percent (1%) deduction from their salary (two (2) salary rate ranges) effective July 1, 1997. Effective November 1, 2001, this one percent (1%) deduction is eliminated. 12.4 Credit for Unused Sick Leave. Effective January 1, 2002, or as soon as practicable thereafter, an employee covered by this Agreement, can have unused accumulated sick leave at the time of retirement converted to additional service credit at the rate of 0.004 years of service credit for each day of unused sick leave (i.e., 200 days of sick leave equals .80 additional year's of service credit). The City must report only those days of unused sick leave that were accrued by the employee during the normal course of 53 25F-55