8.1 SR 07-15-2024The Elk River Vision
A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community
engagement that encourages and inspires prosperity
Request for Action
To
City Council
Item Number
8.1
Meeting Date
July 15, 2024
Prepared By
Joe Stremcha, Business Services Director/Assistant
City Administrator
Item Description
2025 Benefit Level for Elk River Fire Relief
Association
Reviewed by
Lori Stich
Joe Stremcha
Cal Portner
Tina Allard
Action Requested
Approve, by motion, an increase for the Elk River Fire Relief Association (ERFRA) benefit level to $9,735 per
year of service effective January 1, 2025.
Background/Discussion
Before 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 12, the ERFRA recommended increasing the benefit level to $9,735 from the current benefit level of
$8,850 effective since January 1, 2022, an increase of $885 or 10%. The new benefit level of $9,735 is not
expected to require a city contribution for 2025.
Starting Rate
Amount of
Increase New Rate
Effective
Date
$5,091 $269 $5,360 1/1/2015
$5,360 $150 $5,510 1/1/2016
$5,510 $775 $6,285 1/1/2018
$6,285 $835 $7,120 1/1/2019
$7,120 $1,730 $8,850 1/1/2022
$8,850 $885 $9,735 1/1/2025
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The relief assets are managed by The Parr McKnight Wealth Management Group and 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
assistant city administrator.
Financial Impact
The annual voluntary contribution of $30,000 is planned to be budgeted in the 2025 Fire budget.
Mission/Policy/Goal
Responsible for every dollar - Good Stewards
Attachments
1. ERFD Relief Association - Council Request for 2024
Page 369 of 389
July 9, 2024
To: Mayor and City Council
From: Garrett Erdmann, 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 nine-member board of trustees govern a relief association. 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 9.7% increase effective January 1, 2025.
The per year benefit level would go from $8,850 to $9,735.
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Investments
One hundred 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 sixty-five 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 9.7% increase for
2024 we are projecting a funding ratio over 100% with a zero dollar increase come yearend
2024.
Action Requested
Approve 9.7% benefit increase. This would change the yearly benefit level from $8,850 to
$9,735.
The Relief Association membership thanks the Council for its past and future support.
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