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8.3. SR 07-15-2013 v El l Request for Action River To Item Number Mayor and City Council 8.3 Agenda Section Meeting Date Prepared by General Business July 15, 2013 Tim Simon, Finance Director Item Description Reviewed by Elk River Fire Relief Association 2014 Benefit Level Cal Portner, City Administrator Reviewed by Action Requested Approve by motion the Elk River Fire Relief Association benefit level per year of service benefit to $5,167 per year, effective January 1, 2014. Background/Discussion Prior to August 1 of each year,the Elk River Fire Relief Association is required to certify to the city the required municipal contribution for the following year. An increase in the service pension must also be acted on by the Council before August 1. The Fire Relief Association operates under a defined benefit plan. The pension liability is calculated by the number of active service years multiplied by a set benefit level. Members who retire with less than 20 years of service, have reached age 50, and have completed at least five years of active membership are entitled to a reduced service pension. The Relief Association Board recommended at its May 29 board meeting to request an increase of 1.5% or $76 in the per year benefit level to $5,167 effective January 1,2014, from the current benefit level of $5,091,which was last approved effective January 1,2008. The proposed increase does not require a city- required contribution for 2014. Since the last approved increase in 2008, the markets have seen historic decreases, and as a result numerous funding ratios in pensions across the country have seen a decrease. The markets have recovered somewhat as has the reliefs funding ratio. The Relief Board has changed its thought process from historically requesting an increase to be at 100% funding ratio,which doesn't allow for market volatility, and if the market drops it may be several years until the next increase. The current practice is to request smaller gradual increases and leaving the funding ratio over 100% to absorb more market volatility without triggering mandatory city contributions. The Relief Association projections indicate that based on a 5% return to have a funding ratio over 100% if this increase is approved. The year-to-date returns are 5.8 percent Qune 30). The mayor, fire chief, and finance director serve as trustees of the Association, and will be available to answer questions. Relief Association representatives will also be at the meeting. p0WIeE0 0 NAWREI Financial Impact The annual voluntary contribution of$30,000 is planned to be budgeted in 2014 in the Fire Administration budget. Attachments • Benefit level worksheet • Memo from Elk River Fire Relief President Scott Schmidt p0wIIAEU @T NATUREI d o 0 0 0 0 0 0 o o o O O O O L ry � 0 0000 V o C o O L V Q N N N m o m m m m m d � m ti ti ti ti ti ti ti °a °a °a °a m a a 0 a d d p m m m m m m m d Q c o o o 0 0 m V a )• d a LL > E d � a d d a a d d c 0 z O n O •�, o ai 0 �o m� o 0 o 'F m n m n v ai 1 0 n o o n y a m a O m w ri o m m m cl m n a m a m m IT,n .n w o w w v m a ol m o� a w w o m m o 0 0 I o o o ry a a a o 0 0 0 o o o o d a c 0 V m m O N�� � o m a � a V o T W d O' d K d O O O O O O O O O O O O O O 0 O O O O O O V O O O O O W O N N N N N N N V C d a l7 d d O a` V V V p w w (9 0 City of Elk) Rive Fire Department July 3, 2013 To: Mayor and City Council From: Scott Schmitt,President of the Elk River Fire Department (ERFD) Relief Association Background of the Association The ERFD 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 pension benefit is also one way to encourage volunteer or paid-on-call members to "stay on the job". The State of Minnesota has provided the major share of funding for the association through distribution of the money collected from a gross earnings tax on fire insurance premiums sold in the state. The funds are allocated back to the departments based on the population and property values in the area served by that department.There is a strong relationship between state fire aid and the number of fire-related calls a fire department responds each year. The state fire aid was established in 1885 and has been the most stable source of funding. According to the most recent state auditor's report,Elk River is in the 98%in the amount received and the 97%in pension amount.The relief association does benefit from the population and valuation that comes from the areas of Otsego and Big Lake Township that is served by ERFD. The City has also shown continued support of the Relief Association as exampled by this year's budgeted contribution of$30,000. State law requires that a relief association be governed by a nine-member board of trustees. The ERFD 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. Type of Pension Plan The members of the Relief Association are covered by a defined benefit plan. The benefit level of the plan is determined by the number of members,their length of service, and the value of the relief fund. Benefit level studies are performed on an annual basis. When a benefit level increase is warranted an approval request is made to the City Council. This year the relief board unanimously approved a request to council for a 1.5%increase effective January 2014. This is the first request since the fall of the markets in 2008. The per year benefit level would go from $5,091 to $5,167. Investments Approximately ninety-seven percent of the Reliefs assets have been transferred over to the Parr McKnight Wealth Management Group. The Parr McKnight Group manages the funds for over fifty relief associations in the State and has a consistent record of beating the State Board of Investment. Our funds are allocated similar to the State Board of Investment Income Share fund which invests sixty percent in stocks, thirty-five percent in bonds and five percent in cash. The Relief Board believes in long term investing and has resisted attempting to time market moves. Funding Ratios The ERFD relief Board believes that it has fiduciary responsibilities to both the membership and to the Council. The responsibility to the membership is to seek the highest financially sound benefit level. The responsibility to the Council is to not expose the city to any financial risk which could lead to mandatory contributions. Historically after the State and City contributions our investments only needed returns of 2-3% to cover normal costs and stay one hundred percent funded. Even with a 1.5%increase for 2014 we are projecting a funding ratio over 100% assuming a 5% annual return on investments. Action Requested Approve 1.5%benefit increase. This would change the yearly benefit level from$5091 to $5167. The Relief Association membership thanks the Council for its past and future support.