6.4. SR 07-18-2005
Item # 6.4.
MEMORANDUM
TO: Mayor and Council
FROM: Lori johnson, Finance Director
DATE: july 18, 2005
SUBJECT: Consider 2006 Benefit Level for Elk River Fire Relief Association
By August 1 of each year the Elk River Fire Relief Association is required to certify to the
City the minimum required municipal contribution to the Relief Association for the
following year. In addition, if the Relief Association is requesting an increase in the per year
of service pension amount for the next year, that request must also be presented to the
Council for consideration prior to August 1.
The Relief Association is requesting an increase in the benefit level for 2006 to $4,175 from
$4,000. Attached is a letter from Relief Association President Robert Dreissig regarding the
requested increase. There is no required municipal contribution associated with the
requested increase. As Mr. Dreissig's memo states, the funding percentage is expected to
increase to 99.2 percent, essentially fully funded, in 2005 which is an improvement over the
98.9 percent funding level for 2004.
Further, the 2005 budget includes a voluntary pension contribution to the Relief Association
of $28,100. The voluntary payment is reviewed annually during budget discussions; typically
an inflationary increase is usually applied so the City's pension contribution increases for the
following year. Authorization to make this payment is also requested at this time.
Finally, as we have discussed in previous years, by ratifying an increase in the benefit
amount, the City must provide the funds needed to support those benefits. Relief
Association projections state that the fund will be almost fully funded if this increase is
approved so, based on those projections, the need for an additional City contribution is
extremely remote. Both Mayor Klinizing and I serve as trustees of the Association and we
will be available to answer questions you may have on this request. Also, Relief Association
representatives will be present at the meeting to answer questions.
Action Requested
The City Council is asked to consider increasing the Elk River Fire Relief Association per
year of service benefit level to $4,175 per year for 2006. The Council is further requested to
authorize payment of the budgeted 2005 pension contribution to the Association in the
amount of $28,100.
s: \ Council \Lori\2005\FireReliefContribution.doc
July 12, 2005
To: Mayor and City Council
From: Rob Dreissig, 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 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 to the departments based on the population and
property values in the area served by that department. The Relief fund has benefited from
the growth in the Elk River area as evidence by an increase in contribution from $112,150 in
2003 to $147,589 for 2004.
The City has also shown continued support of the Relief Association as exampled by the
2004 contribution of $24,800, resulting from an annual increase rate of three percent.
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 yearly
benefit level of the plan is determined by the number of members, 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 and the City Council for their approval, and then
submitted to the State Auditor.
Investments
The Relief Association's state-aid allocation and city's contribution are invested in the
Association's Special Fund. The Relief Association has developed an investment policy
providing maximum return consistent with State Statutes. We have moved over 95% of the
Special Fund to investments managed by the State Board of Investing.
Funding Ratios
Funding ratios explain how well funded a plan is by showing the relationship between its
assets and liabilities. High ratios can reflect low benefit levels in comparison to pension plan
surpluses. Low ratios may signal the need for greater contributions. 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 associated with
mandatory contributions. The board believes that a funding ratio around one hundred
percent represents that important balance. One hundred percent means that there exists an
asset dollar for every dollar of liability. The Relief Association was 98.9% funded for 2004.
We project the benefit level of $4,000 being 99.2% funded for 2005.
Action Requested
The Association is requesting that the Council approve an increase in the benefit level for
2006 to $4,175 per each year of service. Using the State schedules we project the 2006
increase to be 101.2% funded.
Since the State of Minnesota provides the basic funding for relief association, the State
Auditor maintains strict oversight of the management of funds through reporting and
statutes. By August 1 st each year, all Associations must file reports that estimate the income
for the prior year and compare the income to the accrued liability of the fund.
The Relief Association membership thanks the Council for its past and future support.
Sincerely,
" \
Data Entry
Data entered here will populate the 2005 Schedule form. Please use only Special Fund data.
Choose your relief association name: IELK RIVER I
Annual benefit level (effective 12/31/2005): I 4,1751
2004 Reportine: Form (RF -04) Data
Ending Assets (12/31/04) 1,646,533
State Aid Received or Receivable (2004 aid may be increased by up to 3.5%) 152,755
Administrative Expense 3,251
2005 Actual and/or Projections
Revenues
Municipal/Independent Fire Dept. Contributions I 25,554 I
(must be at least the Required Contribution shown on the SC-04)
Interest / Dividends 2,260
Appreciation / (Depreciation) 48,000
Member Dues 40
Other Revenues 0
Expenses
Service Pensions 0
Other Benefits 0
Administrative Expenses 3,550
Deficit Section - If there was deficit information on the SC-04, enter that information here.
Original Amount Amount Retired Amount Left
I Year Incurred I (from SC-04) (from SC-04 + 10%) Before Adjusting
(1) (2) (3)
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Totals
Form SC-05
ELK RIVER / Page 3
Unpaid Installments
Calculation of Normal Cost
Total Active Member Liabilities
Total Deferred Member Liabilities and Unpaid Installments
Grand Total Special Fund Liability
Normal Cost (Cell B minus Cell A)
2005
1,619,656
229,322
1,848,978 B
2006
1,774,129
237,403
2,011,532
C
162,554
Projection of Net Assets for Year Ending December 31,2005
Special Fund Assets at December 31, 2004 (RF-04 ending assets)
1 I
1,646,533 I
Projected Income for 2005
State Fire Aid (2004 aid may be increased by up to 3.5%)
Municipal/Independent Fire Dept. Contributions
Interest / Dividends
Appreciation / (Depreciation)
Member Dues
Other Revenues
Total Projected Income for 2005 (Add Lines D through I)
D
E
F
G
H
I
152,755
25,554
2,260
48,000
40
0
2 I
0
0
3,550
3
4
228,609 I
Projected Expenses for 2005
Service Pensions
Other Benefits
Administrative Expenses
Total Projected Expenses for 2005 (Add Lines J through L)
]
K
L
Projected Net Assets at December 31, 2005 (Add Lines 1 and 2, subtract Line 3)
3,550 I
1,871,5921
Form SC-05
Projection of Surplus or (Deficit) as of December 31, 2005
Projected Assets (Line 4)
2005 Accrued Liability (Page 3, cell A)
Surplus or (Deficit) (Line 5 minus Line 6)
Complete Section I below.
5
6
7
1,871,592
1,848,978
22,614
Calculation of Municipal Contribution
A. If Line 7 is positive, complete this section:
Normal Cost (Page 3, cell C)
Projected Administrative Expense (3251 x 1.035 )
State Fire Aid (2004 aid may be increased by up to 3.5%)
Member Dues
5% of Projected Assets at December 31,2005 (Line 4 x 0.05)
10% of Surplus (Line7xO.l0)
Municipal Contribution (Add Lines 8 and 9, subtract Lines 10, 11, 12 and 13)
No municipal contribution due in 2005.
B. If Line 7 is negative, complete this section:
Deficit Table
I Year Incurred II Original Amount II Amt Retired 12/31/05 II Left to Retire 1/1/061
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
ELK RIVER I Page 4
8 162,554
9 3,365
10 152,755
11 40
12 93,580
13 . 2,261
14 (82,717)
Totals
If line C is positive, this is the new additional deficit for 2005. Enter the amount in Original Amount and Left
to Retire Columns. If line C is negative, reduce prior deficits according to the separate Schedule instructions.
Amortization of Deficit (Total of Original Amount column x 0.10)
Normal Cost (Page 3, cell C)
Projected Administrative Expense (3251 x 1.035 )
State Fire Aid (2004 aid may be increased by up to 3.5%)
Member Dues
5% of Projected Assets at December 31, 2005 (Line 4 x 0.05)
Municipal Contribution (Add Lines 15, 16 and 17, subtract Lines 18, 19 and 20)
15
16
17
18
19
20
21