4.3. & 4.4. SR 07-06-1998,~ity of
'ver
TO:
FROM:
DATE:
SUBJECT:
MEMORANDUM
Item # 4.3 & 4.4.
Mayor & City Council
Lori Johnson, Finance Director
June 24, 1998
Fire Relief Association Benefit Increase
Health/Dental Insurance Proposals
There are two items on the July 6, 1998, agenda which may require considerable
discussion. However, because I will be out of the office starting June 25 and returning
July 6, only general information will be presented in this memo as I do not yet have all of
the information needed to fully address these items. Additional detailed information will
be presented verbally and in writing at the July 6 Council meeting. If you have questions
prior to the meeting, please contact me on Monday, July 6.
The two issues to be discussed are the Elk River Fire Relief Association benefit increase
request and consideration of health and dental insurance proposals for non-union
employees. A final decision on the Relief Association's request is not needed until the
July 27 meeting so adequate time will be available to consider this item. A decision does
need to be made on the health and dental insurance proposals so that there is enough time
to implement an August 1 contract date. The following will provide a brief and very
general overview of these agenda items.
Fire Relief Association Benefit Request
As you may recall, each year the Relief Association has the option to increase its per year
benefit amount. Unless the Relief Association is fully funded (110%) the Council is asked
to approve the increase. If the Council did not approve the increase the Association could
still pay at the higher rate as long as it meets the fully funded requirement but the Council
would not be responsible for any liability above the last benefit amount which the Council
had approved.
For example, the current benefit level, which was approved by the Council, is $2,674.00
per year of service. The Relief Association is requesting an increase to $2,970.00 per year
of service. As in the past, with the exception of one year when a municipal contribution of
approximately $675 was required, no municipal contribution is required to support an
increase to $2,970.00. Because of the asset level necessary to support this increase, the
Council is being asked to approve the increase.
13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330 · TDD & Phone: (612) 441-7420 · Fax: (612) 441-7425
If the Council is comfortable with the assumptions and supporting information provided by
the Relief Association, it can simply increase the benefit level as requested. However, if
the Council is not comfortable with the assumptions, the approved benefit level may be
adjusted to any amount between $2,674.00 (the benefit level can never be decreased by
the Council) and $2,970.00. The City would be required to fund any shortfall in l~elief
Association assets used to make required benefit payments on the Council approved per
year amount although a shortfall is unlikely unless something catastrophic happens.
However, it is possible that a decrease in the Association's portfolio value may cause a
required municipal contribution the following year even though no increase in benefit level
is requested.
Even though a municipal contribution is not required based on $2,970.00, as in the past,
the budget includes funds for a municipal contribution to the Association. In addition to
acting on the benefit level, the Council may want to consider the 1998 contribution.
As was stated earlier, this item does not need to be approved until August 1 which means
that the Council must take action at the July 27 meeting at the latest.
Health and Dental Insurance Proposals
The city's non-union health and dental insurance contracts with Medica expire on July 31.
As you may recall, the city was fortunate to be a part of the Minnesota Chamber Coalition
which offered a three year contract with guaranteed rate increases of less than 6.5 percent.
This program was canceled last year, but all remaining contract years were honored.
Proposals for coverage have been received and will be presented at the meeting. A
summary of the results is as follows:
Proposals received from:
Medica
Blue Cross & Blue Shield (BCBS)
League of Minnesota Cities Insurance Trust
(LMCIT)
Epic Life
Hanratty & Associates (with underlying Medica or
BCBS coverage)
Denied Proposal request:
Health Partners
American Medical Security
After reviewing premium rates and coverage, Medica and BCBS were selected as the two
best proposals. Each offered several different plans from full coverage to $1,000
deductible. Currently our rates are age based meaning that the monthly premium is based
on the age of the employee, and if applicable, age of spouse and number of children. This
age based rate system makes it somewhat more difficult to analyze the rates. Also, the
proposal from Hanratty and Associates is not a traditional insurance plan; therefore it
necessitates a more in depth review as it requires the city to take the exposure for up to
$1,800 for each employee and $3,600 for each family.
Our insurance consultants, Barry Rosenberg and Rick Nelson of Minnesota Insurance, will
be in attendance Monday to help answer questions regarding the proposals. Steve Ehlen
of Hanratty and Associates will also be in attendance to garner support for his proposal.
At this time, it appears that staffwill be recommending either the Medica or Blue Cross
and Blue Shield proposal. However, further analysis needs to be completed based on
information just received from Blue Cross. Both verbal and written information on the
proposals and the recommendation will be presented Monday.
MEDICA PREMIER
Contract 3PR2
Rates for City of Elk River
Age Current Renewal
00-24
25-29
30-39
40-44
45-49
50-54
55-59
60-64
65-99
127.28
134.78
146.76
149.76
187.19
224.62
277.04
344.43
381.87
One Child
Two Children
Three or More Children
112.32
224.64
224.64
148.30
157.00
171.00
174.50
218.10
261.70
322.75
401.25
444.90
130.85
261.70
392.55
Single
Family
DENTAL
17.90
51.00
19.40
55.35
CITY OF ELK RIVER
Non-Union Health Insurance
July, 1998
.EMPLOYEE COVERAGE
S E
S E
S E
S E
S E
S E
S E
S E
S E
10 S E
11 S E
12 S E
13 S E
14 S E
15 S E
16 S E
17 S E
18 S E
19 S E
20 S E
21 S E
22 S E
23 S E
24 S E
25 S E
26 S E
27 S
Subtotal Single City Share
28 F E+S+C
29 F E+S
30 F E+S+C
31 F E+S+C
32 F E+S+C
33 F E +lC
34 F E+S
35 F E +lC
36 F E+S+C
37 F E+S+C
38 F E+IC
39 F E+IC
40 F E+IC
41 F E+IC
42 F E+S
43 F E+S+C
44 F E+S+C
45 F E+IC
46 F E+C
47 F E+S
48 F E+S
49 F E+S+C
50 F E+S+C
51 F E+IC
52 F E+IC
53 F E+S+C
54 F E+S
55 F E+S
56 F E+S+C
57 F E+S+C
58 F E+C
Subtotal Family
Employer Share
Employee Share
TOTAL MONTHLY PREMIUM
317.47
TOTAL ANNUAL PREMIUM
EMPLOYER
EMPLOYEE
S = Single E = Employee
F = Family S = Spouse
lC = One Child
C = Children
Current MEOICA BCBS BCBS $200Ded
Premium RENEWAL Blue Choice BC $15 Choice
146.76 171.00 190.05 185.75 163,26
149.76 17~50 190.05 185.75 163.26
146.76 171.00 190.05 185.75 163.26
146.76 171.00 190.05 185.75 163.26
149.76 174.50 190.05 185.75 163.26
224.62 261.70 190.05 185.75 163.26
127.28 148.30 190.05 185.75 163,26
187.19 218.10 190.05 185.75 163.26
149.76 17~50 190.05 185.75 163.26
149,76 174.50 190.05 185.75 163.26
146.76 171.O0 190.05 185.75 163.26
149.76 174.50 190.05 185.75 163.26
187.19 218.10 190.05 185.75 163.26
22~62 261.70 190.05 185.75 163.26
149.76 174.50 190,05 185.75 163,26
146.76 171,00 190.05 185.75 163.26
146.76 171.00 190.05 185.75 163.26
146.76 171.00 190.05 185,75 163.26
146,76 171.00 190.05 185,75 163.26
187.19 218.10 190.05 185.75 163.26
149.76 174.50 190.05 185,75 163,26
149.76 174.50 190.05 185.75 163.26
187.19 218.10 190.05 185.75 163.26
146.76 171.00 190.05 185.75 163.26
146.76 171.00 190,05 185.75 163.26
146.76 171.00 190,05 185.75 163.26
146.76 171.00 190.05 185.75 163.26
4,284.48 4,992.10 5,131.35 5,015.25 4,408.02
524.16 610.65 507.11 496.60 489.78
336.95 392.55 507.11 496.60 375.50
521.16 607.15 507.11 496.60 489.78
509.18 593.19 507.11 496.60 489.78
561.59 654.25 507.11 496.60 489.78
259.08 801.83 5(~7.11 496.60 342.85
688.86 802.52 507.11 496.60 375.50
262.08 305.32 507.11 496.60 342~5
63(t45 741.46 507.11 496.60 489.78
521.16 607.15 507.11 496.60 489.78
259.08 301.83 507.11 496.60 342.85
262.08 305.32 507.11 496.60 342.85
259.08 301.83 507.11 496.60 342.85
247.10 287.87 507.11 496.60 342.85
374.38 436.15 507.11 496.60 375.50
599.02 697.86 507.11 496.60 489.78
486.70 567.01 507.11 496.60 489.78
259.08 301.83 507.11 496.60 342.85
371.40 432.68 507.11 496.60 342.85
293.52 341.95 507.11 496.60 375.50
374.38 436.15 507.11 496.60 375.50
521.16 607.15 507.11 496.60 489.78
518.16 603.66 507.11 496.60 489.78
259.08 301.83 507.11 496.60 342.85
262.08 305.32 507.11 496.60 342.85
518,16 603.66 507.11 496.60 489.78
411.81 479.76 507.11 496.60 375.50
299.52 348.94 507.11 496.60 375.50
408.84 476.30 507,11 496.60 489.78
524.16 610.65 507.11 496.60 489.78
371.40 432.68 507.11 496.60 342.85
12,700.86 14,796.50 15,720.41 15,394.60 12,766.99
9,271.18 9,697.32 9,841.57 9,841.57 9,841.57
3,429.68 5,099.18 5,878.84 5,553.03 2,925.42
16,985.34 19,788.60 20,851.76 20,409.85 17,175.01
$203,824.08 $237,463.22 $250,221.12 $244,918.20 $ 206,100.12
162,667.92 176,273.04 179,675.04 178,281.84 170,995.08
41,156.16 61,190.18 70,546.08 66,636.36 35,105.04
Incressed Reduced
Office Copay Coverage
JUL~ 2-98 THU 14~38 ORETE× FAX NO, 6124417626 P, 02
TO: Mayor and City Council
FROM: Jim Nystrom, President of the Elk River Fire Relief Association
Background o_£ the Assoclatiot~
The E_RFD Relief Association is made up of the active paid-on-call members of the ERFD. The
purpose of the association is to provide retirement, disability and death benefits to the members
or beneficiaries of members of the department.
The State of Minnesota provides the basic funding for the'association through distribution of
money collected from a gross earnings tax on fire insurance premiums sold in the state. The
funds are allocated to the departments based on the population mad property values in the area
served by that department.
The ER.FD Relief Association is directed by six trustees eleCted by members of the ERFD, the
fire chief, the city Finance Director, and the Mayor. A minimum of four meetings are held each
year to oversee the management of the Association's funds.
~[De~£Pens~n Plan
The members of the Relief Association are covered by a defined benefit plan.. Our plan is the
same type as the Public Employees' Retirement Association (PERA) or the Teacher's Retirement
Association (TRA). The yearly benefit level of the plan is determined by the number of
members and their length of service, and the value of the relief fund. The actuarial studies are
performed on an annual basis and presented to members of the Association ~.n. the City Council
for their approval, and submitted to the State Auditor.
Compensation Task Force
A task force, made up of the Mayor, the City's Financial Director, along with four fn'e fighters,
developed a long term compensation plan for the fire department. The plan included an hourly
wage rate for paid on call firefighters based on education and responsibility. The plan also
included a scheduled yearly contribution to the Relief Association. Prior to the compensation
agreement, the City contributed to the Association on a year-to-year request.
Investments
The Association's state-aid allocation and city's contribution are invested in the Association's
Special Fund. The Association has developed an investment policy providing maximum return
consistent with preservation of principal that follows State Statutes. A copy of the Summary of
Investment Policy is attached to this report.
Proposal
The Association is requesting that thc Council approve an increase of benefits for 1999 to $2970
for each year of service compared to $2674 for 1998. At the end of 1997, the City's auditor
showed the Association's assets were 110 percent of their liabilities. In most cases, a surplus is
desirable, but for the Relief Association a surplus is money that the members earned but cannot
share. Only benefit levels approved by the Council may be paid to the membership. The
Association has maintained a policy of calculating benefits based on 100 percent funding and has
done that again for 1999. For the 1999 report, we have used a projection of the actual investment
returns based on data available in May or 9% for the entire year. For the multi-year projection,
we have estimated a 7 percent return on investments.
In past years several members of the Council has expressed concern that the City might
be liable for extra expense in the event that a series of extraordinary evems could happen. To
address those concerns, the Association has completed a series of annual reports of the fund '~ Ixt, t'
considers retirements, new members, and estimated income. A tabulation of the results of those
reports follows: They show that not only are current benefit rates sustainable, they can also
increase at approximately the rate of inflation. The ReliefAssociatlon history of benefit
increases during the past years has always been consistent with income and have not placed any
unusual liability on the City.
TABULATION
Year 1998 1999 2000 2001 2002 2003
Benefit 2674 2970 3080 3280 3475 3700
Surplus 104,000 1863 1117 482 891 1650
(Defici0
ASSUMPTIONS
7% Return on Fund
3% Yearly Increase in State Aid
$20,150 Yearly Contribution From City with
3% yearly increase
Two Retirements Even Years, One Odd Years
34 Member Total
JUL, 2-98 ?HU 14:40 CP~?E× F,'~ NO, 612441?626 P, 04
SUM1VIARY OF THE ELK RIVER FIRE RELIEF ASSOCIATION
INVESTMENT POLICY '
The Trustees of the Elk River Fke Relief Association (ERFRA) will invest the funds of the
ERFRA to gain maximum return consistent with preservation of principal.
The policy will be implemented by meeting the following criteria:
· The Portfolio will consist of a.diverse range of investments.
· Investments will be held until maturity.
· Investments will be purchased from high quality sources.
· Dividends and interest will be reinvested.
· Purchase of mutual funds shall be made using the dollar-cost-averaging method.
· All investments will meet the requirements of Minnesota Statutes applicable to
the investment of Fire Relief Pension funds.
· The Trustees will meet all requirements of the 1989 Fiduciary Liability and
Responsibility Act for all Minnesota Pension funds. Specifically, no Trustee may
personally profit, directly or indirectly, from the investment or management of
plan assets.
The ERFRA's funds will be invested using the following guidelines.
· A minimum of twenty five percent (25%) and a maximum of fifty percent (50%)
in non-fluctuating share value investments. At least $50,000 should be in a
savings, money market or other liquid cash account.
· Fifty percent (50%) to seventy five percent (75%) in bond mutual funds.
· Zero (0) to twenty percent (20%) in stock mutual funds.
· Zero (0) to five percent (5%) in real estate funds.
FIREFIGHTER COMPENSATION
APPROVED BY CITY COUNCIL
OCTOBER 27, 1997
Firefighter Compensation has been approved as follows for 1998 and 1999.
These terms and conditions remain in effect until ~mended by the City
The pensi6n contribution and pay. rate will increase on January 1, 1998; and
January 1, 1999.. Future increases will be considered With' adoption of the
City Pay resol~ti°n. ·. -
HOliday Pay '- double time shall be paid for emergency hours worked on
New Years Day, MemOrial Day, .July 4, 'Labor 'Day, Thanksgiving, Christmas
Eve, and Christmas Day~ .' .:,..~ ..
Educational Incentive Pay; Additional pay will'be provided for '"
Firefighters who complete more than ihe m~n]mum, mandatory
training/education hours. All EduCational Incentive training hours must be
approved by the Fire Chief. ' M~n~mum required hours for First Responder
and Firefighter One, annual m~u~mum State and Federal required training
hoUrs and training hours required for ~mbulance services shall not be
included as eligible Educational Incentive pay tr~n.~ng hours. Educational
Incentive Pay shall be paid accora~ng to the following schedule:
Hours of training
Additional
48-107 $.50
108-167 .25
168-227 .25
228-287 .25
288-347 .25
348-407 .25
408 and over .25
per hour pay
Pay Rates - Capt~ns will receive an additional $.50 per hour above the
Firefighter Pay rate. Assistant Chiefs will receive an additional $1.00 per
hour abovethe Firefighter pay rate.
Rates of Pay
Position 1998
PrObationary firefighter $8.00
Firefighter -$8.75
1999
$8.00
$9.25
Pension Contribution - 1998 - $20,150
1999 - $21,350