Loading...
8.3. SR 07-17-2017Request for Action To Item Number Mayor and City Council 8.3 Agenda Section Meeting Date Prepared by General Business July 17, 2017 Lori Ziemer, Finance Director Item Description Reviewed by 2018 Benefit Level for Elk River Fire Relief Cal Portner, City Administrator Association Reviewed by Action Requested Approve, by motion, an increase for the Elk River Fire Relief Association (ERFRA) benefit level to $6,285 per year of service effective January 1, 2018. Background/Discussion Prior to August 1 of each year, the ERFRA is required to certify to the city the required municipal contribution for the following year. A request for an increase in the Per Year of Service Pension amount for the next year (effective January 1) must also be acted on by the Council before August 1. ERFRA 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 and have reached the age of 50 years and have completed at least five years of active membership are entitled to a reduced service pension. On July 12, the ERFRA recommended an increase of 14%, or $750 from the current benefit level of $5,510, which was last approved effective January 1, 2016. The new rate of $6,285 would be effective January 1, 2018, and does not require a city contribution for 2018. The actual funding ratio of the relief assets was 113% as of 12/31/16, and even with the increased benefit level a funding ratio over 100% is projected. The relief assets are managed by The Parr McKnight Wealth Management Group of Wells Fargo and the year-to-date returns on their investments are 7% as of June 30. The mayor, fire chief, and finance director serve as trustees of the association. Financial Impact The annual voluntary contribution of $30,000 is planned to be budgeted in 2018 in the Fire Administration budget. Attachments  Memo from President of the Elk River Fire Relief Association July 12, 2017 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 approved a request to council for a 14.1% increase effective January 1 2018. The per year benefit level would go from $5,510 to $6,285. Investments Approximately ninety-seven percent of the Relief’s assets are invested through The Parr McKnight Wealth Management Group, of Wells Fargo Advisors. The Parr McKnight Group specializes in working with relief associations to help them formulate an investment policy statement, manage and supervise their investments, receive on going trustee education and assist in the reporting process. They currently work with over 65 relief associations in the State. The relief association has adopted an Investment Policy Statement for the investment for our pension fund. Our target investment allocation is sixty percent in stocks, thirty-five percent in bonds and five percent in cash. We rebalance to our target allocation annually. 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. Even with a 14.1% increase for 2018 we are projecting a funding ratio over 100%. Action Requested Approve 14.1% benefit increase. This would change the yearly benefit level from $5,510 to $6,285. The Relief Association membership thanks the Council for its past and future support.