PENSION SAVINGS PLAN ANNUAL REPORT BOARD OF DEFERRED COMPENSATION ADMINISTRATION

2006

ELECTED OFFICIALS of the CITY OF LOS ANGELES CALIFORNIA ANTONIO R. VILLARAIGOSA MAYOR

ROCKARD J. DELGADILLO CITY ATTORNEY

LAURA CHICK CONTROLLER

MEMBERS OF THE CITY COUNCIL ERIC GARCETTI PRESIDENT THIRTEENTH DISTRICT

WENDY GREUEL PRESIDENT PRO TEMPORE SECOND DISTRICT

JAN PERRY ASSISTANT PRESIDENT PRO TEMPORE NINTH DISTRICT

ED REYES First District

DENNIS P. ZINE Third District

TOM LABONGE Fourth District

JACK WEISS Fifth District

TONY CARDENAS Sixth District

RICHARD ALARCON Seventh District

BERNARD PARKS Eighth District

HERB J. WESSON, JR. Tenth District

BILL ROSENDAHL Eleventh District

GREIG SMITH Twelfth District

JOSE HUIZAR Fourteenth District

JANICE HAHN Fifteenth District

BOARD OF CIVIL SERVICE COMMISSIONERS

CITY OF LOS ANGELES

PERSONNEL DEPARTMENT EMPLOYEE BENEFITS DIVISION

CALIFORNIA

200 NORTH SPRING STREET, ROOM 867 LOS ANGELES, CA 90012 (213) 485-4846

SYLVIA DREW -IVIE PRESIDENT

NANCY McCLELLAND VICE PRESIDENT

-JOHN PEREZ ANTHONY DE LOS REYES MARISSA CASTRO-SALVATI -VICTORIA A. SCHOOLS COMMISSION EXECUTIVE ASSISTANT

ANTONIO R. VILLARAIGOSA MAYOR

April 15, 2007 The Honorable Antonio R. Villaraigosa, Mayor Honorable Council of the City of Los Angeles Pension Savings Plan Participants I am pleased to submit the City of Los Angeles Pension Savings Plan Annual Report for 2006. The Pension Savings Plan is the retirement program for parttime, temporary and seasonal employees. This program provides an important resource for these employees, in lieu of participating in Social Security, to acquire assets for retirement. The Personnel Department’s ongoing objective is to ensure that participants are able to maximize the benefits available to them under the Plan. Respectfully submitted,

Margaret Whelan General Manager Personnel Department

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PENSION SAVINGS PLAN

ADMINISTRATIVE STRUCTURE GENERAL MANAGER PERSONNEL DEPARTMENT (Administration & Contracting Authority)

Staff Support

Personnel Department Employee Benefits Division (Management functions: contracts, RFPs, consultant liaison, distribution processing)

Consultant

Board of Deferred Compensation Administration Advisory to General Manager

Third Party Administration/ Investment Provider

Recordkeeping & Investment Management (Participant Functions: Recordkeeping, Communication, Distributions) (Investment Management – Stable Value Fund)

City Controller/ DWP Payroll (Data/contribution transmission, corrections)

Consulting Services (Advisory Functions: RFP development, bid review, plan design recommendations, investment performance monitoring) City Attorney (Plan counsel, contract review, interpretive guidance, beneficiary and divorce claims)

PLAN STATISTICS Plan Assets - Year-end total Plan assets were $49.9 million vs. $46.3 million in 2005. All assets are invested in the Plan’s stable value fund, meaning there is no market risk associated with these assets. The graph below charts the growth in assets from 2000 through 2006.

As s e t H is to ry - 2 0 0 0 -20 0 6 (in m illions) $4 9.9

$53.0

$46 .3 $ 43.5

$48.0

$4 0.9

$43.0

$37 .5

$38.0

$ 33.2

Dec-06

Jun-06

Dec-05

Jun-05

Dec-04

Jun-04

Dec-03

Jun-03

Dec-02

Jun-02

Dec-01

$28.0

Dec-00

$33.0

Jun-01

$2 8.7

Participant Accounts - As of December 31, 2006, the City’s Plan had a total of 33,592 participant accounts, a 6.3% increase from the prior year, as the City’s hiring of part-time employees continued to remain strong.

Participant Accounts 35,000

26,214 (+2.2%)

27,702 (+5.7%)

29,012 (+4.7%)

29,588 (+2.0%)

31,599 (+6.8%)

33,592 (+6.3%)

30,000 25,000 20,000 15,000 10,000 5,000 0 2001

2002

2003

5

2004

2005

2006

Comparison to Deferred Compensation Plan – Both the Pension Savings Plan and the City’s optional Deferred Compensation Plan (available to full-time employees) are established under Section 457 of the Internal Revenue Code. However, because each program serves different employee populations, assets in the Deferred Compensation Plan vastly exceed those held within the Pension Savings Plan. Assets - DCP vs. PSP

$2.6 billion Deferred Compensation Plan $49.9 million

Pension Savings Plan $0

$1,000,000,000

$2,000,000,000

$3,000,000,000

Despite the asset size difference, both programs have similar participant totals, as indicated below:

Participants - DCP vs. PSP

Deferred Compensation Plan

36,784

33,592

Pension Savings Plan 0

10,000

6

20,000

30,000

40,000

Closed vs. Added Accounts – Due to the large number of accounts relative to the asset base, the Pension Savings Plan is a more expensive plan to administer. As a result, program staff in concert with the Plan Administrator strive to facilitate the closing of accounts, which occurs through participants taking distribution following severance of employment or rolling over Pension Savings account balances to the Deferred Compensation Plan if/when they transition to full-time City employment. The graph below indicates the number of new accounts added compared to those closed for 2002-2006:

1 ,8 4 1

2006

3 ,5 9 8 1 ,8 2 7

2005

A c c o u n ts C lo s e d

3 ,6 2 7

A c c o u n ts A d d e d

2 ,1 4 2

2004

3 ,3 0 2 1 ,9 6 4

2003

3 ,6 1 5

2 ,0 7 2

2002 0

1 ,0 0 0

2 ,0 0 0

3 ,5 0 8

3 ,0 0 0

4 ,0 0 0

Source of Closed Accounts – The following graph breaks out closed accounts by distributions vs. rollovers for 2002-2006. Rollovers are primarily sent to the Deferred Compensation Plan when participants transition from part-time, temporary or seasonal employment to full-time employment.

2,000

1,794

1,795 1,434

1,600

1,429

1,200 800

760 750

566

722

478 280

400 0 2006

2005

2004

2003

7

2002

Distributions Rollovers

Participants at Balance Levels – The graph below breaks out participant accounts by balance level. The average account balance in 2006 was $1,487, virtually unchanged from the 2005 average balance of $1,465.

P a r tic ip a n ts b y B a la n c e L e v e l 1 4 ,0 0 0

1 2 ,1 0 6

1 2 ,0 0 0 1 0 ,0 0 0 8 ,0 0 0

6 ,9 1 0

6 ,0 0 0

4 ,3 2 7

3 ,6 0 5 2 ,4 6 6

4 ,0 0 0

1 ,7 1 4

2 ,0 0 0

1 ,6 5 6

1 ,3 5 4

366

0 Under $100

$ 1 0 1 -$ 2 0 0

$ 2 0 1 -$ 3 0 0

$ 3 0 1 -$ 4 0 0

$ 4 0 1 -5 0 0

$501$ 1 ,0 0 0

$ 1 ,0 0 1 $ 5 ,0 0 0

$ 5 ,0 0 1 $ 1 0 ,0 0 0

O ver $ 1 0 ,0 0 1

Stable Value Fund – All assets within the Pension Savings Plan are invested in the Great-West Stable Value Fund, managed by and provided through the Plan administrator, Great-West Retirement Services. The Stable Value Fund is a separate account held for the exclusive benefit of participants in the Plan. Fund participants receive all of the investment performance of the Fund excluding fixed administrative and investment management fees. Assets are primarily invested in mortgage backed securities and/or asset-backed securities. Following are key features of the Stable Value Fund for 2006: • All Securities Rated - AAA • Average Duration – 2.9 Years • Coupon Yields Range - 4.0% to 8.0% • Investment Management Fee – 0.25% • Administration Fee – 1.58% • 2006 Annual Yield (adjusted, net of fees) – 3.40%

Summary of Investments - 12/31/06 Reperforming 1% Asset-Backed Securities 0%

CMO/Agency Guaranteed Final Maturity 3% Floater

Collateralized Mortg Oblig-SEQ 11%

Collateralized Mortg Oblig-PAC 2%

3% FNMA-Balloons 2%

Adjustable Rate Mortgages 8%

FGLMS Pass Throughs 18%

FNMA Pass Throughs 44% FHLMC Pass-Throughs 8%

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Conclusion The Pension Savings Plan represents a valuable benefit for the City’s many part-time, temporary and seasonal employees. The Personnel Department will continue its mission to administer a program that provides competitive rates of return at a reasonable cost.

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