4.2. SR 07-26-1993
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ITEM 4.2.
TO:
MAYOR & CITY COUNCIL
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LORI JOHNSON, FINANCE DIRECTOR~~
FROM:
DATE: JULY 22, 1993
SUBJECT: FIRE RELIEF ASSOCIATION BENEFIT
REQUEST
Members of the Fire Relief Association will be present on
Monday to make a second request for a City contribution to the
Elk River Fire Relief Association. They will also be
requesting an increase in their benefit amount for 1994. The
amount of increase will depend on the level of contribution
from the City in 1993. I will try to provide as much
information as possible in order for the Council to make an
informed decision. Because the laws regarding the Relief
Association and the City's responsibility as it relates to the
Relief Association are somewhat complex, there are numerous
items that need to be brought to the Council's attention.
First, I would like to address the questions Councilmembers had
last Monday. Councilmember Dietz questioned whether the Elk
River Relief Association was receiving a higher than normal
contribution from the City. I have attached a copy of the
report from Lawrence Martin, Executive Director of the
Legislative Commission on Pensions and Retirement which
addresses that question. This report was also distributed last
year when the Relief Association made its presentation to the
Council. At that time the Council was made aware that the City
of Elk River is listed in this report as a community making an
unusually large contribution to the Relief Association. There
were 43 Relief Associations listed whose municipal contribution
was very large in comparison to the amount of State fire aid
received and the amount of the Relief Association's computed
annual financial requirement.
Councilmember Dietz also questioned how much a pay increase to
$12 and $16 per hour would cost the City. Currently there have
been 128 fires through June and the firefighters have put in a
total of 2,022 hours on those fires. In addition, 612 training
hours have been logged. An increase to $12 per hour would cost
approximately $21,000 plus benefits, and an increase to $16 per
hour would cost approximately $42,000 per year plus benefits.
Currently the assistant chiefs are paid at $9 per hour, while
other firefighters are paid $8 per hour. Councilmember Dietz
further requested detail information on each employee including
the number of hours worked and the number responses. That
information is attached.
P.O. Box 490 · 13065 Orono Parkway · Elk River, MN 55330 · (612) 441-7420 · Fax: (612) 441-7425
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Next, I would like to make the Council aware of several issues
relating to the Council's responsibilities and obligations to
the Fire Relief Association. It is important that the Council
be aware of these prior to approving an increase in the benefit
amount. I have attached numerous articles from the League of
Minnesota Cities magazine and a recent article found in the
State Auditor's newsletter, each of which relates to the Fire
Relief Association. I will attempt to highlight the main
points of these articles. First, the Fire Relief Association
can ratify a benefit increase without City Council approval,
but only if the Relief Association has a surplus (i.e., is
totally funded) and no municipal contribution is required. It
is always in the Relief Association's best interest to have the
City Council approve any increase in the benefit amount;
however, it is not always a benefit to the City Council to
approve each benefit increase. The City Council is liable to
make up for any potential shortfall in Relief Association
assets in order to make payment for benefits at the level
approved by the City Council. For example, if the Relief
Association had approved a benefit amount of $3,000 and the
City Council had approved a benefit amount of $2,000 and there
were numerous retirements and a decrease in the market value of
the investments, the City would be responsible for making
payment to firefighters based on the $2,000 level. One way to
avoid the issue of holding the City responsible while still
allowing the firefighters to get the maximum amount from the
Relief Association assets is to change from a defined benefit
to defined contribution method of payment. The City has been
suggesting this for the last several years. Recently, the
Relief Association had a guest speaker from Anoka to explain
how Anoka changed from defined benefit to defined
contribution. Using the defined contribution benefit system,
the Association's assets are split among the firefighters based
on number of years of service and other factors. Using this
method, the fund is always totally funded and there is no need
for the City to provide sufficient funds. It is hopeful that
the Relief Association membership will consider changing to a
defined contribution benefit system.
The final attachment is a copy of the Schedule 2 from the
Relief Association. I did not receive a copy of Schedule 1
showing the liability for each firefighter. The schedules were
calculated by Gus Welter, the Relief Association's Consultant.
There are several things I want to point out on this schedule.
First, the Relief Association assets as of January 1, 1993, are
shown at a higher level than the number in the audit. The
audit states the assets at the lower of cost or market while
the Relief Association lists its assets at market value.
According to State Statute, the Relief Association may use the
market value of its assets for this calculation. The market
value of the assets is approximately $22,500 higher than the
investments valued at lower of cost or market. As you know,
the market value is subject to change on a daily basis.
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The second item I want to bring to your attention is the amount
of anticipated interest income. In 1993, the Relief
Association expects to receive approximately $54,500 in
interest income, which is a return of approximately eight
percent. This number may be a bit high; I did question this
and was assured by the Relief Association that they were
comfortable with an eight percent return. The 1992 schedules
for the 1993 benefit amount estimated interest at $44,600 while
the actual amount received was $28,390. The amount of
projected interest income of course affects the benefit level
and the associated surplus or deficit.
The attached schedule is calculated based on a benefit amount
of $2,240 per year. This is an increase of $140 per year.
This schedule also assumes that the City will make a
contribution in the amount of $19,000 in 1993. Using these
assumptions, this benefit level of $2,240 does not require a
City contribution. Past policy has been that the Council will
not approve a benefit level which requires a City
contribution. If the City Council decides not to contribute
$19,000 to the Fire Relief Association in 1993, a municipal
contribution of $1,819 will be required if the benefit is
increased to $2,240. Also keep in mind that the interest
earnings may not meet projections and although that would not
affect the contribution required in 1994, it would have an
effect on future requirements.
The following chart provides some historical data on benefit
amounts and City contributions to the Relief Association.
Per Year Percent
Year Benefit Increase
----- -------- --------
1994* $2,240 6.67%
1993 $2,100 10.53%
1992 $1,900 2.70%
1991 $1,850 19.35%
1990 $1,550 3.33%
1989 $1,500 7.14%
1988 $1,400 16.67%
1987 $1,200 20.00%
1986 $1,100
*Requested by Relief Association
City
Contribution
State
Aid
$19,000
$19,000
$18,100
$15,000
$15,000
$11,000
$ -0-
$38,590
$38,907
$38,221
$36,297
$33,507
$30,837
$26,997
According to State law, the Relief Association is to get
approval from the City Council for an increase in the benefit
amount prior to August 1. If the Council is to approve a
benefit increase it needs to be done at a City Council meeting
prior to August 1. It is my understanding that the Relief
Association has a supplemental Schedule 2 prepared in the event
that the City does not contribute $19,000 to the Relief
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Association in 1993. I have not seen a copy of that Schedule,
nor do I know the benefit amount being proposed if the $2,240
per year benefit level is not approved by the City Council.
The Relief Association Trustees approved a request for benefit
in the amount of $2,240 at the last Relief Association
meeting. Due to a League of Minnesota Cities meeting, neither
the Mayor nor I were able to attend that meeting so I am not
aware of other discussions pertaining to the requested per year
benefit.
If you have any questions on the information I have provided,
please feel free to contact me for further explanation. Also,
if there are other items you would like addressed or if you
need additional information, let me know so that information
can be gathered prior to Monday night's meeting.
, State of Minnesota \
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F RlJ/'l: C 1/ Y UF BKL YN PARK T - 33':1 P. 05
LEGISLATIVE COMMISSION ON PENSIONS AND RETIREMENT
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Members of the Volunteer Fire Subcomm'~e
Lawrence A. Marlin, Executive Direclo~ 4;
RE: Incomplete or Erroneous Date In State Auditor's 1989 Compilation of Volunteer
Firefighters Relief Association Reports . .
DATE: ~vember 22~
IntrocJuctiQO
During the November 18-19, 1991, Volunteer Fire Subcont..'lllUee hearing, the Subconuniuee
reviewed the compilation preparecJ by the Office of tho State Auditor of the annual Hnandaf
information reported by the various volunteer firefighter relief associations.
As the Commission staff examined that compilation report more closely durJng the course of
the Subcommittee hearing, it became clear that the compilation report contained a
considerable volume of incomplete or erroneous data and indicated substantial lack of
compliance with the requirements of state law for the funding of volunteer firefighter relief
associations.
J.nrompJet~ aDd ErroneQus Data
There are nine different categories of incomplete or erroneous data set forth in the State
Auditor's 1989 Compilation. Tb'e categories, matching the a~tached lists of volunteer firefjghter
relief associations, are as follows:
List A: Erron~ously Computed Actuarial Liabilities
(4 Relief Associations)
The reported actuarial liability calculation is such a nominal amount that it is
unlike"ty to have been a~curately computed.
List B: Identical Assets and Actuarial Liabilities
(7 Relief Associations)
The reported actuarialliabiJity calculation is ~dentlcal to the reported aSSet
figure, which is a sufficient coincidence to raise a suspicion that the actuarial
liability is miscomputed or that the assets are misreported.
Ust C: Normal Cost Unreporled
(135 ReHef Associations)
The reported figures omit a calculated normal cost (annual accruing liability)
figure, which occurs with every defined benefit plan (lump sum or monthly
benefit).
List D: Indicated Unfunded Accrued LfabHlty. But Amortization Requirement
Unreported .
(164 ReHer Associations)
The relief association indicates an unfunded aCluarialliabllity, which must be
amortized under state law, but fails to indicate any amortizatJon contribution,
thus understating the relief association's financial requirements.
List E: Improperly Calculated Amortization Requirement
(61 Relief Associations)
The rep()rted amortization requirement does not match the expected figure,
given the indicated unfunded accrued liability, with state law requiring an
amortization contribution of approximately one-tenth of the unfunded accrued
liability amount.
List F: Amortization Requirement Reported for Relief Association With no Unfunded
Accrued Liability
(30 Relief Associations)
The relief association does not indicate the presence of an unfunded accrued
liability, but inappropriately indicates an amortizatJon requirement.
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Jnvesll1Jent~ .\
a. Lack oC ComWlanc~..by VQ]luileer Flre(h~hter Relief J\c;soclBtJons In Reportil]g
Investment Performance. Since 1990, volunteer firefighter reHeC assocJatlons
with at least $SOO,Ooo in assets have been requIred to report quarterly and annual
Investment performance returns, but 40 of the 51 volunteer Chefighter reller
associations ~overed by the law (78.4 percent) Called to comply, mostly by Calling
to report any performance results or by CHing Incorrectly computed performance
rcsu Its.
J'Qlen!ia! E~c1ullon of a G~aler I'iUI11I!~ of ~OIQn!eer ~~eq~hter Belie!
AsSOclCJtlOns from Inv~~tm~.m P~tlQ.rm~G.~ RcmQt!iniJ~~qul[~IDeli1. Potential
draft legislation would Increase the asset threshold for the Investment
performance reporting requirement from $500,000 to $3,000,000, thereby
eliminating all but two currenf volunteer firefighter relief associations from the
reporting requirement.
c. R~Jier AssociatiQll Investmen{.c; in Fire Department EquipmenJ or Lo~nl
I;conomic Development. Although slale Jaw does not generally permit it, Some
volunteer firefighter relief associations reportedly have considered or actually
have directly or indirectly invested relief association special fund assets in fire
department equipment. such as fire trucks, or ill local ~conomic development
investments, such as local residential real estale or construction loans.
Insurance Products as AuthQr;zed Investments. Currenllaw limits volunteer
nrefighter relieC association investments in insurance products to single premium
annuity contracts on behalf of retiring firefighters fnlieu of a lump sum service
pension or In guaranteed investment conlracts through the State Board of
Investment's Supplemental Investment Fund, but some interested parties have
argued Cor also allowing life Insurance as a p'ermiued Investment.
6. Plan Administration
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Regulation of the General FlIud. The general fund ora volunteer firefighter
relief association can support a wide variety of potential activities without any
statutory regulation, although with the potential for sizeable proceeds from
lawful gambling or Jarge scale carnivals the eoeral fund acUvities l11a not any
longer constitute a re a lve U15 leant ort on 0 volunteer firefighters reli~f'
ass5CHUion ac IVltles. .
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Admfnl~tratfve Expenses R~I~lted to Lawful GambllOg. For volunteer firefighter
relief associations involved witb hiwful ga~bling, the administrative expense load
and time conunltment of relieC association trustees and officers arising out of the
lawful gambling activities may be considerable.
Federql Jncome Tax Oua1lf1~fl(iQu. Volunteer firefighter relief associations
potentially can be qualified for federal income tax exemption as an orgnnizalion
either under Internal Revenue Code Section 401(a) or Section SOI(c)(4), with
Internal Revenue Code Section 401(a) tax qualification bringing additional
individual taxpayer income tax deferral benefits, but it is unclear how many
volunteer firefighter relief associations have clarified theIr federal tnx status.
7. Other
a. Propriety of Invp]vem~nt with Lawful GambHnj. At least 186 volunteer
firefighter reHef associations are currently sponsoring lawful gambling, but,
because of the pension and benefit connection, additional specialized regulation
of this activity may be appropriate.
Approptiate Enforcement Measures for Statutory Noncompllanc~. The current
penalty for noncomplianc~ with statutory funding or related requirements, the
tlisquuliricallon from future (ire state aid receipt, is apparently not Imposed
regularly and may not be well designed to ensure compliance.
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20 years of selVice) 10 a maximum of $3,000 per year of serVice credit lump Sum
(or $60,000 wllh 20 years oC service) or frolll $2.00 per month per year of service
credil (or $40 per month with 20 years of service) to a maximum of $30.00 per
Olonl h per ye or of selV; ce credit (or $ 600.00 per .monlh with 20 ye ars of selV ice ),
although the disparity may not be well correlated with pension adequacy or other
related con.siderations. '
b.
Appropriate Maximum (or Lump Sum Service Pension Relief Alisodaliolts. The
current lump sum service pension flexible maximum limits lump Sum volunteer
firefighter service pensions to $3.000 per year of service credit. even though some
volunteer firefighter relief associations have the current financial capacity 10 .
support a higher service pension level and the monthly benefit service pension
flexible maximum limits were recently expanded, ID-ld some interested p-arties
110VC requested lis expansion..:. , ---..
Making Servlc~ Pension Incr~Qses Retroactive fQr Prior Servf~. The currenl
volunteer firefighter tellef assocJallon law allows. but does not require, service
pension Increases 10 be made retroactive (applying to prior service), which
practice rewards long service firefJghters and presumably induces them to
continue in firefighting service for a longer period than they would otherwise, and
some interested parties would like to mandate this practice.
c.
d.
CredIting Service on a Monthly Basili. The current praclice is to credit service on
an annual basis for completed years rather than on a monthly basis, and some
interested parties se'ek authority for this fractional service crediting.
J.O Year Service Credit M~lmum on Monthly Benefit Relief AssQciations. The
current law places a 30 year limit on creditable service for volunteer firefighter
relief associations providing monthly benefits. but not for volunteer fiJ efighting
relief associations providing lump sum benefits or defined contribution benefits,
and this maximum or lack of maximum has been criticized by interested parties.
Making ~ervice Pension Increases J!etroaclive to Include Deferred ~etirees.
TIJe current volunteer firefighter relief association law provides that the benefit
plan governing a deferred retiree Is the benefit plan In effect when the deferred
retiree terminated firellghtlng service. hence excluding the deferred retiree from
future service pension increases. but some iJllerested parties seek to change this
practice.
4. Funding
a. Disparity in Fire ~tate Aid Allocation~. There is a considerable disparity in the
amount of fire state aid allocations, from a low or $157 ($9.24 per active
firefighter) in Seaforth, Red Wood County, to a high of $177,971($4.340.76 per
active firefighter) In Edina, Hennepin County, and this disparity may impede
other policies. ' '
. b. ~=lancc lrilh SlatujolY Financl~1 Rellu/rement. QelerminalillD
:-rA,l'. PIo(fedur~. The 1989 Slate Auditor.s Compilation of Annual Financial Report
:> -(~ Information provides evidence of substantial noncompliance with the relief
'{ <1\>' ~ I .it "".ocla tI on Cinanclal requirements delennlnalion proce.s under lhe 1971
<11. dl!f; W ILk1l~ Volunteer Firefighter Relief AssociaUon Financing Guidelines Acl, Minnesola
\c.a"'~eS oIV 'dJ1l'Slalutes, Sections 69.771 ~ 69.775, and Iha. noncompliance aud Ibe slate's.currenl
i ~ P(\Q( ~ .-0(0 . enforcement structures may need to be revised.
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,~. Extent of Munl~lpJl1,COlllr!bl.JtiQ'!s. Approximately 55 percent of all volunteer *--
firefighter reHef associations receive municipal contributions, I allging from $1
(Hackensack) to $134,326 (Lakevllle), with interested parties contending Ihat
municipal contributions either should be mandatory or should be prohibited.
d. Funding From Lawful Gambling Pr9ceeds and Other Sources. Records from the
Department oC Public Safety indicate that 186 volunteer firefighter relief
associations currently have one or more lawful gambling licenses, thereby
producing additional revenue for the relief association that may be deposited in
the special fund to support Jts pension obligations or may be routed through the
muruclpality 10 be rechnrocterfzed as ,municipal contributions.
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Members of the Volunteer Fire Subconunitlee
Lawrence A. Martin, ExecUtive Director ~/11J
Issues Identified Concerrung Volunteer Fire P~nslons
December 11, 1991
. On November 18, 1991, lhe Volunteer Fire SubeomrnlUee began its eomideralion of Ihe topic
of volunteer fire benefit coverage, plan Cundlng, and plan administralion. The Subcommillee
reviewed the current laws goverrung volunteer fire benefits and volunteer firefighter relief
assoclaliolls, the funding condilions of Ihe various volunteer firefighter relief assoclalions, and
allocaUolls of flre state ald. The Subcoll1!Dluee also heard leslimony from various interested
parties on issues connected with volunteer fire benefits and volunteer firefighter relief
associations. The SubcommiUee was establiShed to conUnue the conslderalion of volunteer fire
Issues begun by the LegiSlative Commission on Penslom and Retir~me..t on July 1-2, 1991.
IdenlJ~d Volunteer Fire Pension Issue~
For purposes of groupjng Ole various issues identified by or on behalf of the Subcommittee
regarding volunteer Cire pensions, the Comm.ission staIl has orgaruzed lhe issues into seven
calegories. The categories and IdenUCied Issues. including some addIUu...llssues lIuted by the
CommissIon staer Cor potential Subcommittee attention, are as follows:
b. Fundraisini for the Benefit of the General Fund. The non-pension fund of a .........
volunteer Clrefighter relief association, the general fund, is apparently the
potenlial recipient of the pr.Qceec..ls of lawCut gambling acdvltJes, but regulation of
the general fund is largely nonexistent.
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Relief Association Membei'~hfR. . .
a. f.~~aLlndusfon ~;'&c'usion of Emeriehcy First Response and AllJbllJanc~
Per~onn~~gency first response personnel and ambulance personnel are 1101
required by law 10 be vol WI leer Orefighler I.elief llS5uclalioll members. but /IIay .
be &0 by local decision. either ~th or without being required to have specific
(lrefighting tralrung and duties, and this practice has been questioned by Some
. Interested par~i~s. . .,,' '; ... :," .' " "
Pptentla' E,~llJsJon of Non-Flre Suppression ~Ir~ Qepnrtment Personnel.
Volunteer firefighter relief associations apparenUy Jnclude certain fire
department personnel who ~ay not be directly eng8.ge~.ln fire suppression .../
activities, like Clre prevention personnel, fire persOlUlel trainlng persolUleJ, and
(ire equipment maintenance persormeJ, and this Inclusion also has been
questioned by Some interested parties. .t-~W7LV~ I'V fYldld
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Defjnition of Volunteer fir~Qehter. "Ole speciflcaUon 0 W 0 J a volunteer <,,:.____....__
firefighter and what level of ongoing flrefightfng activities are needed to remain
so classified 1s done locally, without any statutory direction, apparently differs
considerably statewide, and may bene{Jt Crom legh:lative reconsideration.
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LegQI StrQcl4rc ~o.d Governance
a.. Non-aUentlini Municip~J Representative~. The board oC trustees oC each
volullteer firefighter relicf association Includes three munlcipal officials, who
possess full powers as trustees, but who, in tbe case oC a number of relief
associations, reportedly do nol Bttend trustee meeting! or do not give their
trustee duties their full attention. '
3. Benefit Coy~ra2~
a. Dispa(ity In Volunteer Fire Service Pension Amopnts. nlere 1s a considerable
disparity In the level oC volunteer firefighter relief association service pensions,
Crom less than $50 per year or service credit lump Sum (or less than $ ),000 with
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DEC 30 '91 12:44 TO: 95373279
FROM:CITY OF BKLYN PARK T-339 P.06
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List G: No Reported Fire State;Nd
(3 Relief Associations) .. . . .
The relief association omits reporting the amount of fire state aid received by the
relief association.
~ List H: Unusually Large Reported Municipal Contribution
1\. (43 Relief Associations) .. . .
The reported municipal contributIOn IS very largc~ I.n compa,ns?n ~llh the amount
of fire state aid received and the amount of the rdtef aSSOCiation s computed
annual financial requirement.
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Ust I: Unusually Large Administrative Expenses
.. (32 Relief. Associations) .' '"
The reported level of admlmstrative expenses is very large In compan::ion with
the amount of fire state aid received and the amount of the relief association's
computed annual financial requirement and ll:nnIJul benefit p~yout.
The problems underlying lists A through F indicate both a misunderstanding of the .
requirements of the 1971 Volunteer Firefighters ReHef Association Financing Guidelines Act,
Minnesota Statutes, Sections 69.771 through 69.775, and a misstatement of the funding
requirements of the various volunteer firefighter relief associations involved. After about 20
years of stale regulation of volunteer firefighter relief association funding. there should be a
better level of understanding of their statutory duties by volunt<eer firefighter relief association
officials and municipal officials and better monitoring and enforcement by the State Auditor.
Other Noncompliance Issues I/l~Hcated by the 196~ ~o[]1pilation Report
There are five additional state Jaw compliance - noncompJjanc(~ issues indicated by the 1989
State Auditor's Compilation Report. These issues are:
1. J&1c;k of S~(Yice PensioQ Leyelloformatlun
A number of lump sum volunteer firefighter relief associations and all monthly benefit
volunteer firefighter relief associations fall to indicate the level of the service pension
. that the relief associations provide. Examples include Cannon Falls, Danube. and
Madelia. Without information on the level of service pe:nsion promised, it is impossible
to galn a sense of compliance with tbe statutory flexible service pension maximums,
thereby limiting the statutory compliance determination function of the State Auditor.
2.
Service P~nsfon In Excess of Amount permitted for Lev~~l of Financing
A number of volunteer firefighter relief associations appear to provide a service pension
level greater than is permitted with the current level of financial resources of the relief
association. Examples include:
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Bethel, which promised $400 per year of service lump sum service pension with
financial resources limited to fire state aid of $548 ($27.40 per firefighter);
Emily, which promised $535 per year of service lump sum service pension with
financial resources lim1ted to fire state aid of $2.493 ($124.65 perfirefjght~~);
Hamburg, which promised $350 per year of service lump sum service pension with
financial resources limited to fire slale aid of $2,182 ($75.24 per firefighter).
If the current financiaf resources of the relief association are representative of ils
funding amounts for the prior three years, the service pension levels under the statutory
flexible service pension maximums would be $50 per year of service for Bethel, $240 per
year of service {or Emily, and S 140 per year of service for Hamburg.
3. ~~rv/ce Pension Ampunt Beyon(j Largest Flexible Servlcl~ Pension Maximum Amount
The Anoka Volunteer Firefighter Relief Association is listed as providing .\lump SUIIl
service pension of $3,805 per year of service, while the flexible service pension
ill
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151191LM
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maximums In Minnesota Statute, Secllon 424A.02, Subdivision 3, set Ihe largest service
pensIon amount avalJable at $3,009. .
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4. Ancil/aty Benefits Beyond Statutory Limits
A number of voiunleer firefighter relief associations appear to provide ancillary .
(casu al ty) benefi Is in excess of the '.1 a I u tory maximum. M innesola Slat u I es. Sectio n
424A.02, Subdivision 9, provides that ancillary benefils may nOI exceed Ihe amOunt of
the accrued service pension, exceptthal,urvlyor benefits can be based on five years of
service if the firefighler had less service as of Ihe dale of death. Examples include:
Argyle, wllh a survivor beuefit of S4,8oo, compared to a service peusiou of $312 per
year of service credit, Or Ihe accrued benefit for 15.4 years of service.
Foley, wilh a survivor beneflt of $6.500, compared to a service pension of SI.oo0 per
year oC service credit, Or the accrued benefit for 6.5 years of service.
Milaca, wllh a surviyor benefit of SIO,OOO, compared to a service pension of S800 per
year of service credit, or the accrued benefit for 12.5 years.
5. failure to Make Required MuniciDlll Contributions
e
A number of volunteer firefighler relief associations reporl a substanllal financial
requirement iu au amount greater than Ihe fire Slate aid, but uO municipal conlribUlioll
In addition to fire state aid was received. Examples include:
Golden Valley,Wilh an indicated total requiremem of $148.991, fire slale aid of
S79,436, and no municipal contribuliou to meellhe balance as required by law.
Grygla, with an indica led 10lal requirement of $14,580, fire state aid of $2,829. and 110
municipal contribution Lo meelthe balance as ~equired by law.
Two Harbors. with an ludicated tolal requirement of $31.593, fire stale aid of S14,225,
and no munJcipal contribution to meel the balance as required by law.
.conclusiQU
These dala problems and compliance issues deserve to be raised with the Slale Audilor's Office
for a resolution and for future compilation report improvements.
e
,.
ill
I" \. _
~...
/'.
.
.
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... '- ...IV
FRCt1:CITY (F BKLYN PffiK T-339 P.07
.,
AJexandria
Apple Valley
Brainerd
BuhJ
Carver
Centennial
Chaska
Cokato
Cromwell
Crystal
Dassel
Detroit Lakes
Eagan
Eagle Lake
* Elk River
Evansville
Fairmont
Hermantown
Hutchinson
Keewatin.
Lakeville
- Anoka
Belle Plalne
BemldJI PIoneer
.....-. Brooklyn Park
Claremont
Cold Spring
-. Coon ~apids
Crosby ,
Eiigan
Eden Prairie
--"" Edina
Evansville
Excelsior
Fairmanl
.- Fridley
Glencoe
,'List G
No Reported Fire Slate Aid
.
.~ Columbia Heights
Fertile
Shevlin
List Ii
Unusually Large Municipal ContrIbution
Lexington
LindSfrom
Utlle Canada
Lorello
Minnetonka
Montgomery \
Mountain Iron
. New Scandia \.
New DIm
Newport
North Mankato
Oakdale
Osseo
Pike Sandy Britt
Pipestone
-- Robbinsdale
Rockford
Roseville
Savage
VadnaIs Heights
White Bear Lake
Worthington
List I
Unusually Large Administrallve
Expenses Reported
-- Golden Valley
Hugo
lnver Grove Heights
Lindstrom .
Minnelonka
Mound
Newport
North SI. Paul
- Plymouth
Rice Lake
RosevIlle
Savage
Spring Lake Park
S1. Stephen
Waconia
White Bear Lake
,
AIIl191
FIREFIGHTER HOURS AND CALL RESPONSES
e FOR JAN. 1, 1993 TO JUNE 30, 1993
FIRE TRAINING NO. OF % OF CALL
FIREFIGHTER HOURS HOURS CALLS RESPONSES* COMMENTS
NYSTROM 61 16 58 45.31 % RETIRE ELIGIBLE
TRUNNEL 85 28 80 62.50%
MCCARTNEY 83 12 78 60.94% RETIRE ELIGIBLE
ANDERSON, C. 87 56 81 63.28%
PLUDE 23 3 21 1 6.41 %
DREISSIG 83 44 74 57.81 %
MORRELL, L. 55 4 52 40.63% RETIRE ELIGIBLE
DREISSIG 45 10 45 35.16% RETIRE ELIGIBLE
KREUSER, J. 101 18 96 75.00% RETIRE ELIGIBLE
OSCARSON 60 10 58 45.31 %
DITTBENNER 43 9 37 28.91 %
MORRELL, R. 58 9 53 41.41%
DEHN 38 4 36 28.13%
BARSODY 81 29 78 60.94%
SYKES 33 17 33 25.78%
LEFEBVRE 0 1 0 0.00% MEDICAL LEAVE
FOLLM ER 65 2 62 48.44%
KREUSER 4 6 4 3.13% MEDICAL LEAVE
PEARSON 72 15 68 53.13%
ANDERSON, D. 62 14 56 43.75%
ADERMAN 75 37 68 53.13%
ANDERSON, G. 74 43 67 52.34%
COLLINS 84 44 70 54.69%
e SMITH, J. 59 14 52 40.63 %
BORNTRAGER 45 24 39 30.47%
CREPEAU 56 36 51 39.84%
SKOGSTAD 77 16 72 56.25%
SMITH, D. 59 9 47 36.72%
DILLON 63 15 56 43.75%
OLSON 70 15 66 51.56%
POCHMAN 78 17 71 55.47%
GREENE 82 18 77 60.16%
ELLIOTT 61 17 56 43.75%
TOTAL 2022 612 1862
ANNUAL INCREASE
PAY AT $8/HR $21,072
PAY AT $12/HR $31,608 $21,000
PAYAT$16/HR $42,144 $42,000
* NOTE: FIREFIGHTERS ARE ALLOWED TO MISS FIRES IF THEY ARE ON
AMBULANCE DUTY, AT FIRE TRAINING, OR ARE USING THEIR ALLOWED
VACATION TIME. BECAUSE THE RECORDS FOR VACATIONS AND ETC.
ARE NOT KEPT AT CITY HALL, THESE ALLOWABLE ABSENCES HAVE
NOT BEEN TAKEN IN TO CONSIDERATION IN THE ABOVE CALCULATION.
FOR THAT REASON THESE PERCENTAGES ARE ESTIMATES ONLY
AND NEED TO BE ADJUSTED BY THE ALLOWABLE ABSENCES.
e
e
".,.........
~
Did you know?
Stan Peskar
Investment of firefighters' relief association funds
Do city clerks, administrators, or
managers and councils need to con-
cern themselves about the invest-
ment of "special funds" of
volunteer firefighters' relief asso-
ciations?
Yes. The relief association trustees,
including the city clerk or clerk-treas-
urer, mayor, and fire chief, have a
fiduciary obligation to see to it that
association investments are prudent.l
~Additiona1lY' the city and its taxpayers,
as well as the association members,
could face financial losses if trustees
don't handle investments carefully.
Volunteer fire relief associations
have a wider range of investment
options than cities do.2 The range of
permitted investments for relief asso-
ciations is quite broad, and includes a
number of equity-type investments
such as corporate stocks, mutual funds,
limited partnerships in venture capital
investment business, and real-estate
limited partnerships. The statute pur-
ports to authorize use of put-and-call
options as well as futures contracts on
various securities, all of which might be
regarded as purely speculative unless
used for hedging purposes.
Examination of market data seems
to indicate that over extended periods,
equity and other alternative invest-
ments may produce a better overall
return than fixed-income securities like
certificates of deposit or U.S. govern-
ment securities. But expectations of
&;reat:r };elds assume adequate diver-
sification and otherwise competent and
professional investments. An unfortun-
ate. plunge with a large portion of
available assets can reduce the principal
so drastically that it is difficult to
recover, even with excellent subse-
quent returns.
. . Therefore, direct investment in equ-
Ities and other volatile securities may
not. be wise for most volunteer fire
re.he~ associations. Conservation of
~nnClpal has to be a prime considera-
bon when deciding on investments for
any pension fund.
The relief association needs to con-
November 1986
sider several factors in investments.
The first and most obvious question is
whether it's appropriate to make
investments which place the principal
at risk. Recent experience with long-
term, fixed-return instruments like
bonds demonstrates that in times of
rising interest rates, market value can
decline dramatically. Thus, unless
maturities are timed so that it's not
necessary to sell investments to pay
ongoing obligations, some principal can
be lost, even in fixed-return invest-
ments. Exact timing of maturities to all
The law firm of
O'Connor I & Hannan
is pleased to <lnnounce that
RANDOIPfIJ. MAYER
has joined the firm's Munifipal Finance Department
resident in the ~inneapo1is office
Mr. Mayer returns to O'Cornior & Hannan after five years
with the Willkie Farr &t Gallagher law .firm in
New York City where he ~rved as bond counsel and
underwriter's counsel fot the issuance of general
obligation bonds and indust:r4u development bonds. Prior
to joining Willkie Farr, he ~d been with O'Connor &
Hannan for !two years.
i
Mr. Mayer joins W41iam R McGrann,
Andrew). Shea, William E.I Flynn,]ames P. O'Meara,
Thomas D. Creighton, Nic,\<: Hay,]ule M. Hannaford,
Mark). Ayotte and Deb~ G. Strehlow in serving
over 100 municip~ clients at O&H.
O'CONNOR So HANNAN
QaH
3800 IDS CENTER. 80 SqUTH EIGHTH STREET
MINNEAPOLIS. MN 55402-?254 16121343-1200
WASHINGTON. D.C.
DENVER
MADRID
31
needs for funds is difficult or impossi-
ble, and may result in lost opportunities
for returns.
Further, in times of substantial infla-
e tion, an. association needs to make
preservation of the special-fund assets
in terms of constant dollars or purchas-
ing power a major consideration, if it
hopes to accomplish its objectives in an
economical manner. Thus some expo-
sure to loss is almost inevitable; how-
ever, it's likely to be substantially less
than for alternative investments.
Stocks and other equity investments
are subject to substantial fluctuations in
value over the short term. A relatively
small fund such as the typical volunteer
fire relief association needs to consider
carefully whether it's appropriate to
subject the fund to fluctuations in
investment value that are likely if a
large percentage of fund investments
are in equities or other even more
volatile investments.
This would be particularly important
to the individual firefighter if the relief
association's bylaws specify a "defined
contribution" benefit system. Under
this approach (also known as "split-
the-pie"), the pension a retiree
receives is calculated as a percentage
of the association's assets at the time
the firefighter retires, based on the
retiree's total years of service com-
pared with the total years of service of
all the association members. If the
relief association were using heavy
equity investments, a retiree could be
disadvantaged if he or she happened to
retire at a time when the stock market
was down.
Equity investments could also create
a problem for the city if the relief
association uses a "defined benefit"
system, where the association's bylaws
spell out the actual number of dollars of
pension it pays per year of service.
The financial support the city must
contribute each year depends on the
comparison of the association's accrued
liability for pensions with its assets.
The city's contribution is defined as a
specified percentage of any deficit.
If the association's funds are in
equity investments, a slump in the
value of those investments could create
an actuarial deficit. This in turn would
trigger a requirement for increased
funding from the city. In short, invest-
ing the relief association's funds in
equities could make the city's annual
financial contribution fluctuate, possibly
substantially, and thus complicate the
city's budgeting problems.
This problem could be compounded
because of a change in the law several
years ago regarding the procedures for
increasing benefits. Formerly, the city
needed to approve any relief associa-
tion benefit increases. Now, however,
if an actuarial surplus exists in the relief
association, the association can
increase benefits without city approval,
up to a specified percentage of the
surplus.3 Thus, if a relief association's
funds were invested heavily in stocks,
for example, and the stock market rose
dramatically (as it has over the past 18
months), the association would be able
to increase its benefit, based on the
existing surplus. However, if the stock
market then took a dive, it could create
an actuarial deficit. Because the city
has a statutory obligation to provide
funding for actuarial deficits, the city
would be left paying for the cost of
those increased benefits.
This peculiarity in the law as it
applies to defined benefit plans would
seem to encourage a relief association
to engage in risky investment. After
all, it would seem big gains can increase
benefits, but big losses won't decrease
them. But that's not the whole story.
Possible personal liability of those who
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32
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*
I. .
speculate and lose is discussed later.
If the association decides that equi-
ties and other even riskier and more
volatile investments have a place in the
association's portfolio, the mechanism
by which it selects and executes the
investment becomes very important.
Few treasurers or other officers of
associations, nor even most city finance
officers, are qualified to handle a
sophisticated investment program
appropriate for a pension fund. Even if
such investing talent is available locally,
when small dollar amounts are
involved, the time spent in selecting
appropriate investments, and high
transaction costs for small-lot traders,
may still make the rates for certificates
of deposit more attractive.
~ The State Board of Investment
offers a very economical way to get
professional investment management of
some or all of these funds, through the
Minnesota Supplemental Investment
Fund. State law allows relief associa-
tions to certify monies for investment
in anyone of four accounts offering
varying advantages and degrees of
risk.4 However, in addition to timing
the purchases and redemptions, the
association would still need to decide
what portion of its assets to put with
the state board and which of the four
funds to buy shares in.
The 1986 Legislature amended the
statutes governing relief associations to
provide that each officer and member
of the board of the relief association is
a fiduciary. 5 Each member " . . . shall
act in good faith and shall exercise that
degree of judgment and care, under
circumstances then prevailing, which
persons of prudence, discretion and
intelligence exercise in the manage-
ment of their own affairs, not for
speculation, but for investment, consid-
ering the probable safety of their capital
as well as the probable income to be
derived therefrom." This responsibility
means that the association officer could
be answerable personally for failure to
exercise reasonable control over the
investment process.
Another 1986 change in the law is an
apparent attempt to shield relief funds
and association officers from invest-
ment losses through mismanagement
and dishonesty. The statutes now
require the treasurer of each relief
association to furnish the association
~th a bond for the faithful discharge of
his or her duty. 6 This faithful perfor-
mance bond is likely to be about 25
November 1986
percent more expensive than the usual
surety or honesty bond, but presum-
ably would protect the fund against the
treasurer's failure to perform his or
her fiduciary duty.
The amount of the performance bond
must be acceptable to the city council
in cities that offer a monthly payment
for retired firefighters. In those cities
with lump-sum benefits, the bond must
be at least 10 percent of the assets of
the association. In cases where it could
be proved that the treasurer failed to
meet the fiduciary standard and a loss
resulted, the bond might provide a
source to make the fund whole again.
-
However, in such a case the bonding
company could seek to recover its loss
from the treasurer.
The many recent changes in laws
dealing with relief association invest-
ments mean that cities must now give
this subject some thoughtful attention.
Footnotes
I M.S. 424A.04
2 M.S. 424A.05, Subd. 4
3 M.S. 424A.02, Subd. 10
4 M.S. llA.17, Subd. 5
5 M.S. llA.09
6 M.S. 69.051, Subd. 2 .
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33
Did you know?
e
Thomas M. Gilbertson
Financial responsibility of fire departments
At many city clerk meetings, League
staff encountered questions regarding
financial responsibility in fire depart-
ments. We asked Thomas M. Gilbert-
son, general counsel, Office of the
State Auditor, to provide insight into a
few of these queries.
Q. What is the fire department fiscal
responsibility of a city clerk concerning
the investments made by the fire relief
association?
A. The fire department and fire relief
association are two separate entities.
The permissible investments for a
relief association are much broader
under Minnesota Statutes Section
llA.24, than those investments
allowed for municipal investment.
Relief associations must prepare an
annual financial report countersigned by
the city clerk (M.S. 69.051). The
clerk's signature attests to the accu-
racy of the statement, not the full
compliance with the relief association
investment laws.
It is the duty of the board of trus-
tees, along with the treasurer of the
relief association, to determine invest-
ment policy for the association. Invest-
ment agents may be appointed. The
city clerk or (clerk-treasurer or finance
director) is an ex-officio member of the
board of trustees under M.S. 424A.04.
As a trustee, the clerk has a fiduciary
.
obligation to act in good faith and to
exercise the judgment and care in
making investment decisions for the
relief association that prudent people
would exercise in managing their own
affairs. (M.S. 11.09A.) The mayor has
a similar responsibility.
In cities with paid fire departments,
the clerk may have responsibility for
countersigning disbursements, if the
clerk is designated as the municipal
representative under M.S. 423A.22.
Q. Our fire department has fund rais-
ers they use for departmental social
activities. Are these funds supposed to
be channeled through the city office?
A. If these are monies received by the
fire department which are intended for
the fire department, then they should
be turned over to the city treasurer.
The fire department is a subordinate
department of the city. It is created
and funded by the city. A fire depart-
ment has no power to receive contri-
butions except through statutory
authority given to the city (M.S.
465.03).
Funds received by the fire depart-
ment are subject to the control of the
city council and should be turned over
to the city treasurer and are subject to
regular city controls and disbursement
procedures.
GARY FORD
Ehlers and Associates, Inc.
LEADERS IN PUBLIC FINANCE
If the question addresses those situ-
ations where firefighters, as members
of a relief association, engage in fund
raising (which is a common practice),
monies should be received by the relief
association, placed in the association's
general fund, and disbursed according
to bylaws. These monies are subject to
the regular relief association audit.
Q. Does the fire chief have authority
to spend money for the fire department
without consent of council? In one case
a fire chief ordered $7,000 in detached
fire equipment.
A. In statutory cities, the city council
creates the fire department (M.S.
412.221, subd. 17.) The city council
defines the powers of both the depart-
ment and the fire chief. The state law
gives no statutory powers to fire
chiefs.
If the council has given specific prior
approval to the fire chief to make a
particular purchase, the council would
be bound by the purchase. If there was
no such approval, then the purchase
would be beyond the fire chief's
authority. If the city has accepted the
equipment and made payments for the
same, it may have legally waived its
right to claim the fire chief was without
authority to make the purchase.
~
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~7 Marquette Avenue. Minneapolis. MN 55402 . 612.339.8291
October 1987
33
Q. Every four years fire relief associa-
.. tions paying monthly retirement bene-
W fits must have an actuarial study
performed. Is it appropriate for the city
to reduce the amount levied if the
accrued interest is adequate to buy the
current benefit provisions?
A. M.S. 69.773, subd. 5 provides that
the minimum municipal obligation must
be certified to the city by August 1 to
be levied in October for the subsequent
year. The minimum municipal obligation
is derived from the financial require-
~ ments of the special fund as calculated
according to M.S. 69.773, subd. 4.
Part of this calculation includes a pre-
scribed interest earnings assumption
applied to assets of the special fund.
Annually, this calculation will be
affected by actual earnings. Earnings in
excess of the assumption increase
assets and can reduce required city
contnbutions in future years, while
actual earnings less than the assump-
tion will require an increased municipal
contribution or contributions from other
e
II
sources.
The requirement of the statute is
that the entire municipal obligation be
levied. Assuming statutory time
periods are followed, variances
between actual interest earnings and
interest assumptions are adjusted in
the subsequent years.
In the same way, good or poor yields
on investments can lower or increase
requirements for city contributions to
the plans which pay lump sums.
Q. Requests for up to $350 each, limit
of five, are made each year for depart-
ment members to attend the annual
convention. These checks, made paya-
ble to individuals, are to be supported
by return vouchers, showing break-
downs for lodging, meals, travel, etc.
The department is reluctant to do this.
How should the city handle these
requests since no other employees
receive such "liberal" freedom?
A. M.S. 438.11 grants the council dis-
cretion to "appropriate reasonable sums
of money as it deems proper" to defray
expenses of fire department employees
attending the annual convention. Clearly
the city council determines what
expenses are reimburseable, and in what
amounts. In providing for expenses, the
council must provide for a per diem in an
amount it determines appropriate. If the
fire department fails to give the city
sufficient information to make such a
determination in conformance with its
policy, payment cannot be made.
The city should set a travel policy
for all city employees. The policy
should include reimbursable expenses,
the amounts, and conditions under
which they are reimbursable, and the
amount of any per diem payable to
firefighters. An expense reimburse-
ment system may be administered by
establishing an imprest fund for travel
advances. When an advance is
obtained, upon return, the employee
settles with the city by submitting a
claim in writing, detailing all claimed
expenses for audit and allowance by
the council. .
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Contact:
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William E. FI)nn Andrew). Shea
William R. McGrann
3800 IDS CENTER
MINNEAPOLIS. MINNESOTA 55402-2254
16121 341-3800
34
Kinko s has opened a seventh store in the
Twin Cities, at 708 W. 66th Street. There
is a spacious parking lot in front of the
store.
Good news for all our Twin Cities
customers, and especially those who live or
work South of the Crosstown Highway. We
have opened a store in Market Plaza, a new
shopping mall at 66th Street and Lyndale
Avenue South. This store will feature many
of our regular services, while emphasizing
fast, cooperative service to our customers.
Like all our Twin Cities stores, the
new location will offer free pick-up and
delivery. Unlike most of them it provides
plenty of parking for customers who want to
do their own driving.
kinko.s. copies
708 w. 66th Street
866.1900
Minnesota Cities
e
member; nor a vote by telephone; nor
a vote by a prm.:y could be a valid vote
on a statutory city council issue.
Some boards have authority to con-
du eetings by telephone. For exam-
ple, t tate municipal board can
conduct me's and hearings by elec-
tronic media, times councils and
other boards may ac 'thout meeting.
In certain circumstances, example,
statutory city councils can app e pay-
ment of bills before meeting by h 'g
a majority of the council members
endorse the bill for payment. *
A charter city probably could have
the charter provide for holding council
meetings via electronic media, The city
would have to devise procedures that
would comply with the open meeting
law. For example, it would have to be
easily possible for members of the
public to listen in on the meeting, to
hear all comments from all meeting
participants, to identify who is making
each comment, to identify how each
member votes, and so on.
In a situation where most memb
ere physically present and one em-
be's participating electro ' ally, a
fairly , Ie speaker-ph e arrange-
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e
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ment might be sufficient. If
members were participating ctroni-
cally, other arrangement might be
necessary to assure th the public is
aware of the meetin and can observe
the council's deli ations.
Procedure such as designating a
proxy to end the meeting and vote
on th absent member's behalf, or
pe tting an absent member to submit
s vote in writing, seem more ques-
tionable. By designating a proxy, the
elected official would be delegating dis-
cretionary duties to another person.
While that kind of delegation might be
legal if the charter authorized it, having
someone other than the person the
voters selected make discretionary
decisions seems questionable from a
public policy standpoint.
Similarly, permitting an absent mem-
er to submit a written vote seems
inc istent with the notion of the
counc' a deliberative body. The
absent me er would be making a
decision withou ving heard or partic-
ipated in the discus' of the issue.
We don't know of cities that
. have adopted charter pr . sions for
meeting by electronic media. your
city has done so or has consider it,
we'd appreciate hearing about yo
expenence.
Ratifying vOlunteer~.
firefighter benefit
increases
The January 1990 column discussed
increasing volunteer firefighter relief
association retirement benefits. A relief
association that has generated a lot of
income from other sources such as
charitable gambling may ask the council
to ratify an increase in retirement ben-
efits with support from gamblin
income. Bu~by'ratifying:'aberiefit
in~ease;'the. cOul1cilis cornn1ittingthe~]\
tcitjrto pi-ovid~;si1f:fic:ienffundsftomtax ~
~re"eriu~sto support that level of bene- ,-,..
fits even if the' relief association's other
\revenue sourcescIiYup ;,,'>';
The statutes allow a relief associa-
tion to increase benefits unilaterally
without council ratification if the asso-
ciation has sufficient funds. But if in the \
future the funding is no longer suffi- ~
cient, benefits then revert back to the .IJ:'
previous level that . the council had
ratified. The article suggested that
cities consider this alternative as a way
to permit firefighters to benefit from
--~",...".......,,,,,,.,,~:~,,,,,,, ..."-....::O'.:.'.T..'...,.>~._,_~>.y.~..~...___.___
34 Minnesota Cities
the revenues that gambling now gen- in the future to raise taxes to support
erates, but without committing the city the relief association because other
to using tax money to replace those revenue sources have decreased.
revenues if they dry up. City councils who have been asked
The January article didn't make it to ratify benefit increases for the relief
clear that this issue only comes up if association based on the association's
the relief association uses the t.'rlf"firy~ increased revenues from other sources
fbenefit". approach to pensions. In a might want to suggest amending the
defined benefit plan, the relief associa- relief association's bylaws to change to
tion bylaws spell out exactly how many a defined contribution benefit system.
dollars in pension benefits a retirin~1t is a good way to let the firefighters
firefighter will receive. For example benefit from the association's increased
the bylaws might provide that each revenues from other sources. Yet, it
retiree will receive a lump sum of $500
for each year of service. Or a defined
benefit plan might provide for a monthly
pension of say $10 per month for each
year of service.
In a defined benefit system, you owe
a definite amount at a definite future
time. To stay solvent, you have to
calculate that amount and make sure
you're accumulating enough money
now to be able to pay those pensions
when they're due. The statutes require
the city to provide sufficient funds to
support those benefits and keep the
association solvent.
Since 1979 the statutes have allowed
volunteer firefighter relief associations
~.. . to adopt instead a ".defined ~COI1tril>U-
. ~tion!.;'- benefit system. In a detm'W
contribution system, the bylaws don't
spell out a specific amount which the
retiree will receive. Instead, the reti-
ree's benefit is equal to a pro-rata
share of whatever funds are available.
That is, a retiree's benefit would equal
his or her total years of service divided
by the total number of person-years of
service for all of the association mem-
bers times the total funds the relief
association has.
This "split-the-pie" system has
some advantages for both the city and
the firefighters. For the firefighter, it
means that if the association's assets
are up-because of charitable gambling
revenues, higher two percent aid, bete
ter investment income, more city sup-
port, or whatever-the individual's
retirement benefit automatically
. creases proportionate to the assets.
Si:' From' the' city' sstandpoint- a.... big
'advantage, is that a.relief assoCiation
.with a defined contribution benefifplan
is\alwaysautomatically' solvent. The
r~tiringindividual . isn't guaranteed a
specific .' dollar amount, but rather a
specific share of whatever funds are
,available. You don't have to worry that
the city will be legally forced sometime
-
.J1~........,_
...-
avoids committing the city to provide ai
higher level of financial support if the
association's other revenue sources
dry up.
(Thanks to Hallock city Clerk Henry
Noel for his suggestion that we elabo-
rate on this point.) .
* Authority for conducting municipal
board hearings by electronic media is
in M.S. 444.011, subd. 8; for councils
approving payment of bills, M.S.
412.271, subd. 4.
-.:::J
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April 1990 35
GENERAL COUNSEL
.CLERK ALERT
Municipal financial
responsibility
related to fire relief
associations
There are 694 volunteer fire relief asso-
ciations in Minnesota. The majority of these
associations are non-profit corporations that
pay pensions to volunteers in the form oflump
sum payments rather than monthly payments.
The associations annually receive state aid
to partially, and in some cases fully, cover the
cost of pension benefits. These associations
are subject to financial reporting requirements
to both the municipality and our office. A
failure to properly make reports and comply
with various state law requirements can cause.
_ a relief association to lose state fire aid, thus
_ potentially increasing the municipal cost to
fund the association.
We have noted an alarming error rate in
the financial reports filed with municipal clerks
on or before August 1 of each year. This report
is used by the clerk and council to budget for
and pay the municipal contribution to the asso-
ciation. Errors have resulted in excess certifi-
cation for municipal funds when no municipal
contribution was due. More problematic are
the errors that result in the under-certification
for funding which must then be paid by the
municipality when our office reviews the forms
the following year as part of the certification
process for state aid payments. More than 50
percent of the reports filed with municipal
clerks have contained errors which impact the
municipal contribution. (The report filed is
commonly known as Schedule I, II & III.)
Beginning in 1993, our office has re-
turned the reports to the association with in-
structions to correct the errors and refile with
the municipal clerk. State aid certification is
withheld until the association has refiled. If
_ additional funding is due, the deficiency is
_ certified to the county auditor for a property
tax levy. A copy of the official notice of error
from our office is sent to the municipal clerk.
During the course of discussion with sev-
eral clerks, it became apparent that a number
of relief associations either do not file Sched-
ule I, II & III at all or file well past the deadline
of August I of each year. To remedy the
obvious municipal budgeting problems that
are created by late ornon-filing, we redesigned
the forms to include a Clerk's Certification,
effecti ve for forms to be filed with clerks on or
before August I of this year.
The clerk must certify that the form was
filed on time. In addition, the clerk must
certify that if a contribution is due, the contri-
bution requirement is brought to the municipal
governing body for inclusion in the budget and
levy, if required. This new certification places
affirmative duties on the clerk to insure both
that the form is properly filed and that the
contribution due is paid prior to the end of the
following year.
The requirement to file with the clerk is
mandatory in all cases, even if a municipal
contribution has never been due in past filings.
The requirement that the municipality must
pay tR.e full amount certified is also manda-
tory.~ municipality may pay an additional
'amount beyond the mandatory contribution,
. but may not contribute less than the amount
'''certified.
If the relief association affiliated with
your fire department pays lump sum benefits
and the association does not file Schedule I &
II (formerly Schedule I, II & III) by August I,
please contact the treasurer of the association
regarding the late filing. If you are unable to
obtain the schedules from the association,
please contact Ben Pearce at (612) 297-3685
or Krista Boston at (612) 296-5985 for assis-
tance.
Our office annually provides detailed in-
structions for the completion of these sched-
ules. Please review the schedules thoroughly
prior to certifying them. Errors have, in some
cases, resulted in over or under payment in
five-figure amounts. These schedules deserve
a high level of scrutiny. Our office will con-
tinue to review these forms in a detailed man-
ner the following year and advise the associa-
tion and the clerk if errors which affect the
municipal contribution are discovered.
State Auditor's Report
Summer 1993
.
.
"
SCHKDULB II
======================================================================;======:;z====
Section 1. Calculation of Mina.. Municipal ContributiQll
PIlOJ'BCTION OF SPECIAL FUND ASSETS TO DKCBMBBR 31, 1993
ASSETS AT .JANUARY 1, 1993 (12/31/92)-- 1. .
BXPBC INC<JtK TO DBCBMBBR 31, 1993
A Minn. State Aid . 38,590
B City- Contribution 19,000
C Funaraisers, etc. 0
. D InterMt, Inv. Iocc.e 54.,491
E Realized Gains (losses) 0
F Unrealized " (losaefiJ) 0
G Other iDC~ 0
TOTAL LDBS A TBROUGB G
BEGINNING ASSBTS PLUS UPBCTBD INCaC--
Bxw.cro} ~o: TO DBCBMBBR 31. 19930
I Other benefits 0
.J Adainistrative 2.100
TOTAL OF LINBS B- 1-.1'
PROJBCTBD ASSBTS AT 12/31/93 (L.3 - L.4)
681,138
2. .
3. .
112,081
_---<17 .
793,219
4. .
6. .
2, 100
791,119
==============================================================================~~=:==
Section 2. Deteraination of projected SURPLUS orD.FICIT ... ~/3l/93.
Projected Assets (Line 6) 6. 79:t..119
Accrued Liability (Line S, Scheclule 1) 7:. 813,9'11
If L.6 > t.. 7, enter difference: SURPLUS Sa. $ 0
If L.7 > L.6, enter difference: DEFICIT 8b. $ 22,852
**Go to Sectioo 3 if SURPLUS *** To Section 4 if DEFICIT**
====================================================================================
Sect;ion 3. . Deterainatioo of 1994 Municipal Contribution (if SURPLUS)
IIoraa1 Coat (line C, Schedule 1) 9. . 0
AdIIiDi.trative Expense (1.035 X L. .J) 10. . 0
LefJa :
Xl M.inn. state Aid . 0
L 5* of Line 6 $ 0
M 10. of Line Sa . 0
Total Subtractions 11. $ 0
1994 Cit;y Contribution it SURPLUS extata (L. &l). " 12. . 0
===========================================================;=============..===~=====
Section .4. Deter'llination of Municipal Contribution
No~1 eo.t (Line C, Scb. 1) 13. .
~rtizatiOD of deficit(.) incurred
prior to en4 of 1993
YR ORIGIN. ANT RBT
INCUR. N<<>UMT PREY
19 (1) (2)
19
19
Totals . 0 0
TOT ORIG DBF 0
Deduct col (3) total froa L. Bb.
If col 3 < r..8b, difference is a
NEW DsrICIT. . 22,862 X .10 =----16. *
Calculated AdIIiDiatrative BxpeniJe 16. *
Total Coste
(if I)~ICIT)
73,606
IMl LIFT
'1'0 RETIRE
(36
o
o
o
14. *
o
X .10 =
.
2285
2:174
...--
78.066
LBSS:
N) Minn. State Aid
0) 6* of Line 6
Total Subtractions
:: 38,590
.-- 39,556
17. .
18. .
78,146
(81)
1994 Oit,. CoIltributioo. if DlrlOI! exiete (L.lIb)
AVERAGB SPECIAL FOND IRCa4B (DOII-invesbleDt) PER MBMBBR
FOR PREVIOUS THRBB YEAR PERIOD. .
tCI!f STATE LOCAL 1/10 ABNUAL 3 va
rr AID TAXES SURPWS TOTAL TOTAL
35 1992 38,590 19,000 57,590
30 1991 38,907 19,000 57,907
31 1990 38,221 18,100 56,321 171,818
32
3m TOT/3/IMBR 57,273 32 :::: $1, 790AVG PER MBR
Max pension (Avg. X 1.85) $3,311
======~=================================================:============~=======.======
CRRTlrIOA'rIOM or SPIfOIAL FUND RBQUIRDIRfTS
!his iDforaticm ...t be certified to the clerk of the -.mic~lityor
to the independent non-profit firefighting corporation by 08/01193.
We, the officers of the Elk Hi ver Firefighters' Relief
Association, state that the accOlllp8gyi~ schedules have beeb prepared
in accordaDCe with the provisions of the Min. Stat. Ch. 69.772. 8ubd 4.
The average .-owt of available fiD8D0W per active ~ for the P!l8t
three ~rs was .It 790. Further, benefit levels have beeb established
l!! accOrdBDce with the average .-ount of available fiD8DCing, _ required
u~ law.
~ iDm. city contributioo for 1994 is: ;0-,. J.... ($81)
"' LL . . President Date 7 ( L-""/73
;:':::r' ____
C ,/ Secretary Date 7/ ;J;o/9-3
u-v, Treasurer Date 7 L;;..o /9 ~
- T '
c=======:~===_ _:====:====:===========================~==============c==~=======:==~
1'heM SchedUles wre ~
frollll infol"ll8tion ~lctea by
Officers of the Belief Association.
Prepered by:
Gus Welter, consultant
1901 MeadoWiew Road
Bl~ington, MN 55425
(612) 864-8856
Oalculated_ 12/31193
======*================:::========2:================================================
CLBRI'S CERTIrIOATION
I _ the clerk (or other desi,gDated official) of the city of Ilk River.
I have received the ~leted OFFICI or TIll STAT! AUDITOR SCBIDULBS I & II
f~ the Elk River riref'~ters Relief Association 011 . 1.1993.
I have reviewed Section 2 linea 8, 12 and 18. It liiie 12 or 1 De 18
reflects a.required llUDiclpal contributionl I certify that I will
so advise the .lIUDici~l governing b9dY at ts next regularly scheduled
Meti~. . If the Certification of' the Officers discloses that the Bylaws
have hieD. .-ended to pr:ovide a bebefit increase, I certify that the
llUDic~1 governing bOdy has passed a resolution which ~roves the clumge
iD the byl...A copy of the resolution is attached (1 required)..
Date ,1993 Signature
Phone, ~itle
(Note: 'ailure to file this doct.ent in a tille1y 1IBDDer, whether or iJot
a -.micipal contribution is required, will result in 1088 of state aid.)
.