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City of San Leandro Notes to Basic Financial Statements For the year ended June 30, 2012 84 NOTE 13 - COMMITMENTS AND CONTINGENCIES, Continued D. Others The City participates in several Federal and State grant programs. These programs have been audited by the City’s independent accountants in accordance with the provisions of the Federal Single Audit Act of 1984 and applicable State requirements. No cost disallowances were proposed as a result of these audits. However, these programs are still subject to further examination by the grantors and the amount, if any, of expenditures that may be disallowed by the granting agencies cannot be determined at this time. The City expects such amounts, if any, to be immaterial. The City is a defendant in a number of lawsuits which have arisen in the normal course of business. While substantial damages are alleged in some of these actions, their outcome cannot be predicted with certainty. In the opinion of the City Attorney, these actions when finally adjudicated will not have a material adverse effect on the financial position of the City. As discussed in Note 12 to the Financial Statement, the City maintains a Self Insurance Fund which has reserves of $1,752,614 at the end of June 30, 2012. These reserves are available to satisfy any future liability. NOTE 14 - EMPLOYEE RETIREMENT PLANS A. California Public Employees’ Retirement System Plan Description - The City of San Leandro Miscellaneous Plan is an agent multiple-employer public employee defined benefit pension plan. CalPERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. PERS acts as a common investment and administrative agent for participating public entities within the State of California. The City of San Leandro Safety Plan is in a cost-sharing multiple-employer plan which is a single plan with pooling (cost-sharing) arrangements for the participating employers. All risks, rewards, and costs, including benefit costs, are shared and are not attributed individually to the employers. A single actuarial valuation covers all plan members and the same contribution rate(s) applies for each employer. A menu of benefit provisions and other requirements are established by State statutes within the Public Employee’s Retirement Law. The City of San Leandro selects optional benefit provisions from the benefit menu by contract with CalPERS and adopts those benefits through local resolutions. The City of San Leandro participates in separate Safety and Miscellaneous (Police, and Miscellaneous) Employee Plans. Funding Policy - Active plan members are required by state statute to contribute 8% for miscellaneous employees hired before January 1, 2010 and 9% for safety employees of their annual covered salary. The City makes the contributions required for most City employees on their behalf and for their account, which amounte d to $2,535,479 for the year ended June 30, 2012. The city is required to contribute at an actuarially determined rate; the fiscal year 2011-12 rate for miscellaneous employees is 17.55%. As previously mentioned the safety fund is in a cost-sharing multiple-employer plan and the city’s current employer contribution rate required is 25.82% of annual covered payroll. In 2003-04, CalPERS combined the retirement plans for all public agencies with less than 100 active members to reduce the volatility of employer contribution rates. CalPERS also created for each member a side fund to amortize each agency’s June 30, 2003 unfunded liability over a fixed term at a fixed interest rate. A negative side fund, which the city incurred at the time , causes the required employer contribution rate to be increased by the amortization of the side fund. The safety side fund is distinct from the City’s other CalPERS plans and liabilities. The public safety side fund employer contribution rate is 20.86% which is amortized at 7.75% and scheduled to be fully amortized by June 30, 2024. The total required contribution rate in fiscal year 2011-12 for public safety is 46.68% of annual covered payroll for both side fund and multiple-employer plan, an increase of 9.6% from prior fiscal year.