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8.2. SR 07-16-2018 Eclty1� ,.,�� Request for Action River To Item Number Mayor and City Council 8.2 Agenda Section Meeting Date Prepared by General Business July 16, 2018 Lori Ziemer, Finance Director Item Description Reviewed by 2019 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 $7,120 per year of service effective January 1, 2019. 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 effective January 1 for the next year 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 are entitled to a reduced service pension if they have reached the age of 50 years and have completed at least five years of active membership. On June 13, the ERFRA recommended increasing the benefit level to $7,120 from the current benefit level of$6,285, an increase of 13% or $835. The new rate of$7,120 does not require a city contribution for 2019. The relief assets are managed by The Parr McKnight Wealth Management Group and the actual funding ratio was 112% as of 12/31/17. ERFRA projections indicate the funding ratio will remain over 100% even with the increased benefit level. The city representatives that serve as trustees of the ERFRA consist of the fire chief, the mayor, and the finance director. Financial Impact The annual voluntary contribution of$30,000 is planned to be budgeted in 2019 in the Fire Administration budget. Attachments ■ Memo from the Elk River Fire Relief Association The Elk River Vision A PehoMing community 2a itb revolutionary and spirited resourcefulness, exceptional POWERED By service, and community engagement that encourages and inspires prosperity INAMIRE1 July 10, 2018 To: Mayor and City Council From: Scott Schmitt, President of the Elk River Fire Department (ERFD) Relief Association Backgound 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 13.3% increase effective January 1 2019. The per year benefit level would go from $6,285 to $7,120. 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 13.3% increase for 2019 we are projecting a funding ratio over 100%. Action Requested Approve 13.3% benefit increase. This would change the yearly benefit level from $6,285 to $7,120. The Relief Association membership thanks the Council for its past and future support.