Your Plan Highlights The City of Los Angeles Deferred Compensation Plan is a powerful tool to help you reach

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1 City of Los Angeles Deferred Compensation Plan invest in your dreams SM Your Plan Highlights The City of Los Angeles Deferred Compensation Plan is a powerful tool to help you reach your retirement dreams. As a supplement to other City retirement/pension benefits that you may have, this voluntary Plan allows you to save and invest extra money for retirement tax deferred! Not only will you defer taxes immediately, you will build extra savings consistently and automatically, have a variety of investment options to choose from and learn more about investing for your financial future. Read these highlights to learn more about your Plan and how simple it is to enroll. And, if you have any questions, please call a Plan representative at (888) Q What is a Deferred Compensation Plan? A The phrase Deferred Compensation Plan refers to a number of Internal Revenue Code sections that represent contributory retirement plans. The City s Deferred Compensation Plan is under Code section 457, commonly called a 457 Deferred Compensation Plan. Deferred Compensation Plans allow eligible employees to supplement any existing retirement/pension benefits by saving and investing before-tax dollars through voluntary salary deferral. Contributions and any earnings are tax deferred until money is withdrawn, usually at retirement when the retiree is typically in a lower tax bracket than while working. 1 Q How do I know if I am eligible to participate in my Plan? A You are eligible to participate if you perform services for the City as a full-time employee and/or are a member of one of the City s retirement or pension systems. Q Why should I participate in the Plan? A If you are interested in saving and investing additional money for retirement and/or reducing the amount of current state and federal income tax you pay each year, your Deferred Compensation Plan can be an excellent tool. Q Is there any reason why I should not participate? A Participating may not be advantageous if you are experiencing financial difficulties, have excessive debt, do not have an adequate emergency fund or if you expect to be in a higher income tax bracket during your retirement. Q How are the Plan s assets protected? A All Plan assets are held in trust for the exclusive benefit of Plan participants. This means that Plan assets are not subject to the claims of City creditors in the event of a municipal bankruptcy. Q What fees will I pay to participate? A Great-West Retirement Services SM, your Plan s service provider, charges a 0.11% annual administrative fee (charged % quarterly) based on your account balance and deducted on a prorated basis from each investment option in your account. Each investment option in the Plan has an investment management fee that varies from option to option. The City also charges a $0.50 per pay period fee that is deducted from each paycheck from which a deferral is made. 1 Withdrawals are subject to ordinary income tax.

2 Q How do I enroll in the Plan? A You are eligible to enroll at any time as long as you are a full-time City employee and/or a member of one of the City s retirement or pension systems. If you already know the benefits of deferred compensation and want to enroll, complete the enrollment form provided in the back pocket of this kit. Great-West Retirement Services also provides in this kit an Investment Guide to help you better understand your investment choices. Please submit your completed and signed form to Great-West Retirement Services at: Walk-In Center in City Hall 200 North Spring Street, Room 867 (Benefits Office, Mailstop 621) Los Angeles, CA Please do not contact the City Controller s Office or Paymaster s Office for the Department of Water and Power (DWP) to enroll or ask questions about the Plan. Local Great-West Retirement Services representatives can talk with you about any aspect of the Plan. Q How do I increase or decrease my contribution amount? A You can increase, decrease or stop your deferral amount by calling KeyTalk 2 or by logging onto the Web site. The change can take up to 2 to 3 payroll periods to become effective. Please do not contact the City Controller s Office or Paymaster s Office for DWP. Q If I need to stop contributing, can I start again at a later date? A Enrolling & Making Changes Yes. Call KeyTalk at (888) or log onto the Web site to resume your deferrals. Just enter your Personal Identification Number (PIN) and Social Security Number (SSN), then change your deferral amount from $0 to the whole dollar amount you wish to contribute per biweekly paycheck. If you forget your PIN, you may order a new one via KeyTalk or the Web site. 2A Q What happens if I go on disability or take a leave of absence? Being on disability, Injured on Duty status or taking a leave of absence will terminate your deferrals, but you can rejoin the Plan when you return to work. Contact Great-West Retirement Services to resume your deferrals. Q What happens if I transfer from the City to the Department of Water and Power or vice versa? A Contact Great-West Retirement Services for a Notice of Job Transfer Form. By completing this Form, you authorize Great-West Retirement Services to notify and transfer your deferral information to your new payroll center. You do not need to re-enroll. Q Can I use my Plan account as collateral for a loan? A No. You cannot assign, pledge, sell or otherwise transfer your account. Q Can my savings and investments in another retirement plan be transferred into the City s 457 Plan? A Yes, you can roll over before-tax retirement funds from another employer s eligible governmental 457(b), 401(a), 401(k) or 403(b) plan, or from your personal IRA into the City s 457 Plan. Great-West Retirement Services will provide you one consolidated statement for the various funds you choose to roll into the Plan (a separate administrative charge will apply to these monies), and you will have the same access to the investment choices as you do for your contributions to the Plan. Making Your Deferrals (Contributions) Q Are there limits on the amount I can contribute to the Plan? A a In 2005, the IRS lets you contribute or defer $14,000 or 100% of your includible compensation, whichever is less, into your Plan account. The City s payroll system will not allow your contributions to exceed the annual maximum. The maximum annual contribution amount will increase over the next several years and then be indexed to inflation. See the table below for the maximum contribution limits in future years. Inflation-indexed increases will be made in no less than $500 increments and may or may not be made every year $14, $15, $15,000 (plus any inflation-indexed increases)

3 b c d As a Plan participant, you may contribute a minimum of $15 on a biweekly pay period basis. Contributions may exceed the normal limits for participants within three years prior to normal retirement age. This is called the Catch-Up provision. Please see page 4, and ask your Great-West Retirement Services Plan representative for complete details. If you are age 50 or over, you may contribute an additional $4,000 in 2005, making your maximum contribution $18,000. This additional contribution limit will increase by $1,000 in 2006 to $5,000. You cannot use Age 50+ Catch-Up at the same time as regular 457 Catch-Up. In order to participate in the Age 50+ Catch-Up, you only need to increase your deferral to the appropriate level through KeyTalk or the Web site. A form is not needed. Q How do I make contributions or deferrals to the Plan? A When you enroll, you decide the whole dollar amount (no cents or percentage) you want to contribute and the investment options to which you wish to contribute. Your contributions will be automatically deducted from your regular biweekly paychecks (there are normally 26 regular paychecks per calendar year). Money from special checks (e.g., accumulated sick or vacation time reimbursements) may not be deferred. Additionally, there will be no deferral-free paycheck unless you have exceeded the annual contribution limit or if you have elected to stop deferrals through KeyTalk or the Web site. Q What happens to the money I contribute? A The Plan offers a wide variety of professionally managed investment options ranging from conservative to aggressive in risk/return potential. Once you have decided the amount to contribute, you will instruct Great-West Retirement Services to invest that money in any combination of the available investment options that you believe can help you meet your financial goals. Your contributions will be automatically deducted from 3your biweekly paychecks and deposited to your investment selections. If your investment goals change, you can change the dollar amount you invest in each option, and you can also change the options in which you invest. And, if you stop contributing, the money you have saved, plus any investment earnings, will remain in your account in the investment options you have selected until you are eligible to take a withdrawal. Your Investment Options Q What investment options are available? A The Plan offers a variety of investment choices from fixed interest options to bond, balanced, stock and international options. Within these categories, a number of the investment options are either index or actively managed. The Plan also offers a selfdirected brokerage account which allows you to invest in nearly 1,500 mutual funds for an additional fee. Please refer to the individual investment option profiles and/or the investment guide for more complete information. Q May I change my investment option(s)? A Requests to transfer from option to option or to change your future contribution amounts may be made as often as you believe necessary. A convenient way to make changes is to use the Plan s Web site at or call KeyTalk at (888) Funds may impose redemption fees on certain transfers, redemptions or exchanges if assets are held less than the period stated in the fund s prospectus or other disclosure documents. For more information, please refer to the fund s prospectus and/or disclosure documents. Also, transfer restrictions may apply with some funds. Review the investment option profiles, and/or see your Great-West Retirement Services representative for details. Q Do I receive statements of my account? A You will receive quarterly account statements directly from Great-West Retirement Services. You may also review your account through the Web site or KeyTalk. You may elect to receive your retirement Plan documents including quarterly statements through Online File Cabinet. 2 Access to KeyTalk and the Web site may be limited or unavailable during periods of peak demand, market volatility, systems upgrades/maintenance, or other reasons. Transfer requests made via the Web site or KeyTalk received on business days prior to close of the New York Stock Exchange (1:00 p.m. Pacific Time or earlier on some holidays or other special circumstances) will be initiated at the close of business the same day the request was received. The actual effective date of your transaction may vary depending on the investment option selected.

4 Q What is the Self-Directed Brokerage Account? A Often referred to as a Self-Directed Brokerage Window, this option may suit investors who have a strong comfort level with the financial markets and want maximum involvement and investment choice with their Plan account. The Self-Directed Brokerage option (SDB) offers nearly 1,500 no-load and load-waived mutual funds, beyond the Plan s other options. Along with normal Plan expenses, the SDB option is $75 per year, assessed quarterly, with no additional transaction fees. Any SDB activity will be reflected in your quarterly account statement. Using OptionsPlus, available through First Trust Corporation, you may review the SDB profile sheet and/or call First Trust at (800) or log onto their Web site at for complete information or a current prospectus. The provider of securities through a SDB option is subject to change. Catch-Up Q What is Catch-Up? A Catch-Up refers to a provision of the Internal Revenue Code which permits a participant who is within three calendar years of normal retirement age to defer additional amounts over the normal maximum contribution allowed, not to exceed twice the normal maximum contribution. You are only eligible if you under-contributed in prior years during which you were eligible. Contact Great-West Retirement Services for complete information and to initiate your catch-up deferrals. Maximum Catch-Up Year Amount Allowed 2005 $28, $30, $30,000 plus any inflationindexed increases Taking Distributions (Withdrawals) Q May I withdraw money from my Deferred Compensation Plan account any time? A No, there are withdrawal restrictions. However, you are permitted to withdraw funds when one of the following occurs: H You retire, resign or permanently leave active service with the City; H You die (your beneficiary will receive your account); H You suffer an unforeseeable emergency which causes extreme financial hardship (please refer to Financial Hardship section); or H You apply for a de minimis withdrawal. (To be eligible, your account value must be valued at $5,000 or less, you must not have made a Plan contribution in two years and you may not have received a prior de minimis distribution.) Note: You may be eligible to borrow against your Deferred Compensation account. Please refer to the Loans section on page 5. However, your Deferred Compensation Plan should be considered a longterm investment. Your deferrals should be money you have designated for your retirement and do not consider typical, short-term savings. Contact Great-West Retirement Services for further information about your distribution options. Q Is there an early withdrawal penalty for distributions made prior to age 59½? A No. Early distribution penalties do not apply to 457 Deferred Compensation Plans. However, any withdrawals will be taxed as ordinary income at your current tax rate. Any funds rolled out of the City s 457 Plan to an IRA, 401(a/k) or 403(b) or any IRA, 401(a/k) or 403(b) funds rolled into the City s 457 Plan may, upon distribution of the account, be subject to a 10% early distribution penalty if withdrawn prior to age 59½. 4

5 Q What happens to my money if I die? A Upon your death, your designated beneficiary(ies) will receive the full value of their portion of your remaining account balance. Your beneficiary(ies) have several distribution options available to them. Please refer to the Plan s Distribution Options booklet for further details. Q If I change employment, can I roll over or transfer my Plan account? A The balance in your City of Los Angeles Deferred Compensation Plan account can be rolled over to another governmental 457(b), 401(k), 401(a), 403(b) or an IRA plan that accepts rollovers from a 457 Plan. You may also leave your account with the City s Plan until you reach the mandatory distribution age of 70½, at which time you must begin to take distributions. Financial Hardship Q If I have a financial hardship, can I withdraw funds from my Deferred Compensation Plan account? A You must petition the City s Board of Deferred Compensation Administration and provide documentation of your current financial emergency and that it was the result of an unforeseen event. The City s Board of Deferred Compensation Administration will use the standards set by the Internal Revenue Service to determine if a distribution is permissible. Loans Q Can I borrow against my Deferred Compensation Plan Account? A Yes. The City allows you to borrow against your account. The following general rules apply to the lending process. For complete information, please contact a Great-West Retirement Services representative. a 5b You can borrow up to 50% of your account balance, or $50,000, whichever is less. The minimum loan amount is $1,000 (meaning you must have at least $2,000 in your account to be eligible to take out a loan). The interest rate is set at 2% above the Prime Lending Rate as declared in the Wall Street Journal on the first business day of each month. The interest is paid to your account. c General purpose loans can be set for up to 60 months (5 years) at the choice of the participant. Home purchase loans can be set for up to 180 months (15 years). d Loan payments must be made through payroll deduction unless you are paying off a loan balance. e Contact your Great-West Retirement Services representative for loan fee information. f Loans are initiated electronically only by calling KeyTalk at (888) or through the Plan Web site at Tax Questions Q Does deferred compensation affect my pension or reduce my City pension/retirement benefits? A No. Deferred Compensation is a supplementary Plan which does not replace or reduce your City retirement benefits. Q What forms do I have to file with my federal or state income tax for contributions? A None. Your gross income on your W-2 Form issued by the City will have been reduced by the amount contributed. Q Do I report earnings on my Deferred Compensation Plan account? A No. Do not report any earnings on either your federal or state income tax forms. Any earnings on your deferrals are tax deferred until withdrawn. Q When will the contributions and any earnings in my Plan account be taxable? A Deferred Compensation is taxable as ordinary income during the years in which it is distributed to you or to your beneficiary. Q How much will my distribution be taxed? A Federal income tax is withheld at 20% and state income tax is withheld based on your state of residency at the time of your distribution. You may or may not owe additional income tax depending upon your personal tax situation. By January 31 following the year(s) in which you receive a distribution, you will receive a Form 1099-R for the distribution amount.

6 Great-West Retirement Services refers to products and services provided by Great-West Life & Annuity Insurance Company and its subsidiaries and affiliates. Core securities (except OptionsPlus), when offered, are offered, through GWFS Equities, Inc., a wholly owned subsidiary of Great-West Life & Annuity Insurance Company, 8525 East Orchard Road, Greenwood Village, CO Core investment options are through collective trusts, mutual funds and a group fixed or variable deferred annuity underwritten by Hartford Securities Distribution Company, Inc. and subadvised by Wellington Management Co., LLP. 6Neither Great-West Retirement Services nor the City of Los Angeles are permitted to provide tax or financial planning advice. Great-West Retirement Services SM, KeyTalk and Online File Cabinet are service marks of Great-West Life & Annuity Insurance Company. All rights reserved. This document is intended to provide you with a general summary of the City of Los Angeles Deferred Compensation Plan. It should in no way be construed as a Plan Document or a complete description of the Plan. The City s Plan was established under Internal Revenue Code Section 457, which authorizes deferred compensation plans for employees of state and local governments. Employees join the Plan, choose their investment options and participate over time on a voluntary basis. The Plan summarized herein is detailed in the Los Angeles Administrative Code, Division 4, Chapter 14, Section et seq. Form# CB1003Highlights (3/1/05)