7.2. SR 07-17-2006
City of Elk River
REQUEST FOR COUNCIL ACTION
Agenda Section Meeting Date
Achninistration ul T 17, 2006
Item Description
Consider Z007 Benefit Le\Tel for Elk Ri\Ter Fire Relief
.i\ssociation
Item Number
7.2.
Prepared by
Lori ohnson, Ci T Administrator
Reviewed by
Introduction
Before .i\ugust 1 of eacll year the Elk River Fire Relief .L\ssociation is required to certify to tlle
City tlle required municipal contribution to the Relief Association for the follo~ving year. A
request for an increase in dle per year of service pension amount for the next year must also be
acted on by the Council before _August 1.
Discussion
The Relief Association is requesting an increase of $275 in the per year benefit le,\Tel to $4,450 for
2007. -L\ttaclled is a letter from Relief i\ssociation President Robert Dreissig regarding tile
requested increase. Tlus increase does not require any city contribution. It assumes a return on
in"1\lestments of three percent and 100 percent funding of tlle pension fund.
Furtller, tlle 2006 budget includes a \Toluntary pension contribution to the Relief Association of
$28,950. _Authorization to make this payment is requested at this time.
Finally, it is important to again mention that by ratifying an increase in tlle benefit amount, the
City must pro\Tide the funds needed to support tllose benefits. As I stated earlier, Relief
Association projections indicate that tlle fund ~vill be fully funded if this increase is appro\Ted.
Tllerefore, based on tllose projections, tlle need for an additional City contribution is extremely
relnote. BOtll Ivlayor I<linzing and I serve as trustees of tlle .L\ssociation, and \ve ,vill be available
to ans\ver questions you may ha\Te on this request. Relief .L\ssociation representatives \vill also be
at tlle meeting to ans\\rer questions.
Attachments
· Ivfemo from Fire Relief President Robert Dreissig
· Excerpt from 2005 Fire Relief .L"\udit
Action Requested
TIle City Council is asked to consider increasing the Elk River Fire Relief Association per year of
sel\lice benefit le,\Tel to $4,450 per year for 2007. The Council is further requested to authorize
payment of the budgeted 2006 pension contribution to the .L"\ssociation in the amount of $28,950.
s: \ Council \Lori \ 2006 \ FircRclie fCon tribu tion.doc
Council Action
Follow Up
rvIotion by _
Second by _
\Tote
s: \ Council \Lori \ 2006 \ FireRelie fCon tribu Don. doc
July 12, 2006
To: 1:1ayor and City Council
From: Rob Dreissig, President of tlle Elk Ri,Ter Fire Departtnent (ERFD) Relief ..L"\ssociation
Backgound of the Association
Tile ERFD Relief J\ssociation is made up of dle acti\Te paid-on-calllnelnbers of tlle ERFD.
Tile purpose of tIle association is to pro\ride retirement, disability and deatll benefits to tlle
melnbers or beneficiaries of lnelnbers of tile departtnent.
TIle State of ivlinnesota Ilas pro\Tided tlle major sllare of funding for the association dltough
distribution of tlle lnoney collected from a gross earnings tax on fue insurance premiums
sold in the state. TIle funds are allocated to tlle departlnents based on tlle population and
property \Talues in tile area served by tllat department. TIle Relief fund I1as benefited frorn
the grO\\;.th in the Elk Ri,Ter area as e'\lidence by a contribution of $136,429 in 2005.
Tile City has also SllO\Vn continued support of tlle Relief ..L~ssociation as exampled by the
2005 cont11.bution of $28,100, resulting from an annual increase rate of tluee percent and
recognition of tlle grO"ltll in tlle nmTIber of fuefigIlters.
TIle ERFD Relief Association is directed by si~ t1~stees elected by lnelnbers of tile ERFD,
tlle fire chief, tlle city Finance Director, and tlle IVlayor. 1.\ lninimum of four meetings are
Ileld eacIl year to ov'ersee the lnanagement of tlle ..L\ssociation's funds.
One cIlange implemented by tlle Relief .L\ssociation Board tllls year Ilas been tlle creation of
an In'vestment Cormnittee. TIle purpose of tlle In,Testment COlllinittee is to take a lTIOre
acti,Te role in assuring the correct balance of risk and return tllrougll asset allocation. One
lnember of tlle Inv'estment COlnmittee is an outside lllvesttnent professional 'VilO can
pro'vide us \Vitll non-bias ad\Tice on tlle State Board of In\Testtnent funds.
Type of Pension Plan
TIle lnelnbers of tile Relief ..L\ssociation are cO\Tered by a defmed benefit plan. TIle yearly
benefit le\Tel of tlle plan is deterlnined by tlle nUlnber of melnbers, tlleir lengtll of service,
and tlle 'value of tlle relief fund. The actuarial studies are perforlued on an annual basis and
presented to members of tlle ..L\ssociation and tlle City Council for tlleir appro'val, and tllen
sublnitted to tlle State Auditor.
Investments
TIle Relief .L\ssociation's state-aid allocation and city's contribution are inv"ested in tlle
J\ssociation's Special Fund. Tile Relief .L~ssociation l1as dev"eIoped an in,Test1nent policy
pro\Tiding maximrun return consistent \Vitll State Statutes. \\1e lla\Te lno\Ted o'vet 950/0 of tlle
Special Fund to in,Testments lnanaged by tlle State Board of In'Testment.
Funding Ratios
Funding ratios explain 110\V "Tell funded a plan is by sllo\v~ing tlle relationship bet\veen its
assets and liabilities. Higll ratios can reflect lo\v benefit lev.els in cOlnparison to pension plan
surpluses. La\v ratios may signal tlle need for greater contributions. The ERFD relief Board
belie.v.es dlat it has fiduciary responsibilities to bodl tlle lnelnbership and to tlle Council. Tile
responsibility to tlle membership is to seek tlle hig1lest financially sound benefit le"vel. TIle
responsibility to tlle Council is to not expose tlle city to any financial risk associated "Tidl
mandatory contributions. TIle board believes tllat a funding ratio around one Ilundred
percent represents tllat unportant balance.' One hundred percent means tllat tllere exists an
asset dollar for e\Te11T dollar of liability.
Action Requested
TIle .L'\ssociation is requesting tllat tlle Council appro've an increase in the benefit le\Tel for
2007 to $4,450 per eacll year of service. LTsing tlle State schedules ,ve project tlle 2007
increase to be 1000/0 funded.
Since tlle State of rvlinnesota pro'vides tlle basic funding for relief association, t1le State
.l~uditor lnaintains strict o'versight of tile lnanagelnent of funds tlltougll reporting and
statutes. By ..A..ugust 1 st eacIl year, all.i\ssociations lnust file reports dlat estimate dle llCOlne
for tlle prior year and cOlnpare tlle income to tlle acclued liability of tlle fund.
TIle Relief .L~ssociation luelubership tllanks tlle Council for its past and future support.
ELK RIVER FIRE DEP ARTME1\7 RELIEF ASSOCIATION
ELK ~R, 1ffi\TN"bSOT A
REQlJlRED S1JPPLE1vfEl\TTARY ll\ifOR1vfATION
DECEMBER 31, 2005 ,A.:N1) 2004
A. Schedule of Funding Progress
Assets in
Excess of
Actuarial Actuarial Actuarial (Unfunded) Benefit
Valuation Value of Accrued Accrued Funded per Year
Date Assets Liability Liability Rate of Service
12/31/05 $ 1,886,585 $ 1,781,082 $ 105,503 105.9 % $ 4,000
12/31/04 1,646,533 1,664,129 (17,596) 98.9 4,000
12/31/03 1,354,326 1,378,916 (24,590) 98.2 3,575
12/31/02 1,037,180 1,267,510 (230,330) 81.8 3,575
12/31/01 1,093,828 1,223,881 (130,053) 89.4 3,575
12/31/00 1,273,996 .1,305,344 (31,348) 97.6 3,370
12/31/99 1,309,219 1,134,930 174,289 115.4 2,900
12/31/98 1,390,291 1,155,967 234,324 120.3 2,674
12/31/97 1,192,103 1,088,123 103,980 109.6 2,500
B. Schedule of Employer Contributions
Year
Ending
Annual Percentage
Required of APC
Contribution Contributed
$ 136,429 120.6 %
147,589 117.0
112,146 123.0
88,790 126.0
75,947 131.0
64,092 139.0
61,600 135.0
59,352 134.0
55,308 163.0
12/31/05
12/3 1/04
12/31/03
12/31/02
12/31/01
12/3 1/00
12/31/99
12/31/98
12/31/97
c. Notes to Supplementary Information
Valuation date
12/31/05
Actuarial cost method
Entry age normal
. Amortization method
Level dollar closed
Remaining amortization period
Normal cost
Prior service cost
20 years
5 years
Asset valuation method
Market
Actuarial assumptions
Investment rate of return
Proj ected salary increases
Inflation rate
Cost of living adjustments
5%
N/A
N/A
None
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