(a) Health benefit plan

Managed by Fundação Sabesp de Seguridade Social – “SABESPREV”, the plan is comprised of free-election health benefit plans, funded by contributions from the sponsor and the participating employees, which were the following in the year:

Company: 6.89% (2004 - 6.89%) in average on the payroll;
Participating employees: 3.21% of base salary and bonus, corresponding to 2.19% of the gross payroll, on average.


(b) Pension benefits

Managed by Fundação Sabesp de Seguridade Social – “SABESPREV”, the defined benefit pension plan is supported by monthly contributions as follows: 2.10% from the Company and 2.19% from the participating employees. In order to meet the provisions of CVM Resolution no. 371, of December 13, 2000, below is a description of the amounts of pension and retirement benefits paid granted and payable, to which the employees will be entitled after their service time.

Based on independent actuarial reports at December 31, 2005, calculated in conformity with the Projected Unit Credit Method, the Company had a net actuarial liability of R$ 329,772 (R$ 328,605 in 2004), representing the difference between the present value of the Company’s liability to the participating employees, retired employees, and pensioners, and the fair value of the related assets, as shown below:

(i) Reconciliation of assets and liabilities

	2005	2004
Present value of actuarial liabilities	(790,552)	(760,015)
Fair value of plan assets	678,185	584,702
Unrecognized gains	(217,405)	(153,292)
Net actuarial liability	(329,772)	(328,605)
Amortization of past service cost	53,214	106,429
Net liability recognized in the balance sheet	(276,558)	(222,176)

(ii) Expenses recognized in the statements of income

	2005
Current service cost	9,889
Interest cost	91,886
Expected return on plan assets	(70,221)
Amortization (gain)/loss	(5,312)
Employee contributions	(13,752)
Amortization of past service cost	53,215
Total	65,705

(iii) Changes in net actuarial liabilities

	2005
Present value of the net actuarial liability on December 31, 2004	(222,176)
Current service cost	(9,889)
Interest cost	(91,886)
Expected return on plan assets	70,221
Amortization (gain)/loss	5,312
Employee contributions	13,752
Amortization of past service cost	(53,215)
	(287,881)
Actual contributions by the Company in 2005	11,323
Present value of net actuarial liability in December, 2005	(276,558)

(iv) Reconciliation of changes in the present value of liabilities

	2005
Fair value of plan assets at December 31, 2004	584,702
Actual return on plan assets	98,667
Actual contributions in 2005	25,076
Benefits paid in 2005	(30,260)
Fair value of plan assets at December 31, 2005	678,185

(v) Reconciliation of changes in the present value of liabilities

	2005
Present value of liabilities at December 31, 2004	760,015
Current service cost	9,889
Interest cost	91,886
Benefits paid in 2005	(30,260)
Loss in the present value of liabilities	(40,978)
Present value of liabilities on December 31, 2005	790,552

(vi) Estimated expenses

	2006
Current service cost	17,545
Interest cost	93,270
Expected return on plan assets	(83,065)
Amortization (gain)/loss	(9,508)
Employees contributions	(15,411)
Amortization of past service cost	53,214
Total	56,045

(vii) Actuarial assumptions

Several statistical and other factors that attempt to project future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate, expected return on plan assets and the rate of future salary increases as determined by the Company, within certain internal guidelines. In addition, the actuary also uses subjective factors such as termination, turnover and mortality rates to estimate these factors. The actuarial assumptions used by the Company are reviewed on a regular basis and may differ materially from actual results due to changing market and economic conditions, regulatory events, judicial rulings, higher or lower termination/withdrawal rates or longer or shorter life spans of participants. Such differences may result in a significant impact on the amount of pension expense recorded by the Company.

The assumptions used for the actuarial valuation were as follows:

Economic assumptions	2005	2004
Discount rate	12.32% p.a.	12.32% p.a.
Expected rate of return on plan assets	12.06% p.a.	12.06% p.a.
Future salary increases	6.08% p.a.	6.08% p.a.
Growth in social security benefits and limits	4.00% p.a.	4.00% p.a.
Capacity factor
- Salaries	98%	98%
- Benefits	98%	98%

Demographic assumptions for	2005	2004
Mortality table	GAM 83	Adjusted IBGE
Disabled mortality table	RRB 1944	RRB 1944
Disability entry table	Modified RRB 1944	Modified RRB 1944
Turnover table	Prudential	Prudential
Retirement age	First age with entitlement to one of the benefits	First age with entitlement to one of the benefits
% active participants married at time of retirement	95%	95%
Age difference between participants and their spouses	Wives are 4 years younger than husbands	Wives are 4 years younger than husbands

For 2005 actuarial assessment, the general mortality table has been changed to GAM-1983 in replacement to the adjusted IBGE table, as the GAM-1983 table reflects the increase in life expectancy of the population evaluated.

Number of active participants at December 31, 2005 – 16,449 (16,673 in 2004). Number of inactive participants at December 31, 2005 – 4,881 (4,908 in 2004).

The evaluation of SABESPREV costing plan is made by an independent actuarial expert, based on different assumptions than those adopted for purposes of ascertaining benefits to employees, as set forth in CVM Resolution no. 371. SABESPREV’s technical deficit at December 31, 2005 is R$ 456,861 (2004 – R$ 357,378). Calculation is substantially different as for the actuarial method in calculating risk benefits before retirement, with sharing to SABESPREV and capitalization for the purpose of meeting CVM Resolution no. 371. Another significant difference is the discount rate of 6% for SABESPREV and 12.32% nominal rate for CVM Resolution no. 371, resulting from the combination of a long-term inflation rate of 4% per year and actual interest rate of 8%.

As permitted by CVM Resolution No. 371, the Company has elected to recognize, beginning 2002, over a 5-year period, the actuarial liability of the pension and retirement plan of its employees, as of December 31, 2001, in the amount of R$ 266,074.

As provided for, the amount of past service cost must be recorded as “Extraordinary Item”, net of tax effects, in the statement of income for the year as follows:

	2005	2004
Extraordinary item	53,215	53,215
Deferred Income and Social Contribution taxes	(18,093)	(18,093)
Net extraordinary item	35,122	35,122
Liabilities on December 31, 2001		266,074
Extraordinary item recorded for the period from 2002 to 2005		(212,860)
Balance to be recorded		53,214

The Sponsor and the SABESPREV are in process of negotiation so that the technical deficit is resolved, by changing from the Defined Benefit Plan to Defined Contribution Plan. The Management estimates not incurring in additional costs resulting from the change of the referred plans.