5.2. SR 07-16-2007
REQUEST FOR ACTION
To Item Number
City Council 5.2.
Agenda Section Meeting Date Prepared by
Administration July 16, 2007 Tim Simon, Finance Director
Item Description Reviewed by
Consider 2008 Benefit Level for Elk River Fire Relief Lori Johnson, City Administrator
Association Reviewed by
Action Requested
The City Council is asked to consider increasing the Elk River Fire Relief Association benefit level per
year of service to $5,091 per year for 2008. The Council is further requested to authorize payment of the
budgeted 2007 pension contribution to the Association in the amount of $29,800.
Backiround/Discussion
The Elk River Fire Relief Association prior to August 1 of each year 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 for the next year must also be acted on by the Council before August 1.
The Elk River Fire Relief Association is requesting an increase of $641 in the per year benefit level to
$5,091 for 2008. This increase does not require any city contribution. It assumes a return on investments
of six percent and 100 percent funding of the pension fund. If the benefit level for 2008 increased to
$5,975 that would cause the funding ratio to decrease to 85 percent and initiate a mandatory funding
obligation from the City of less than $100.
The Relief Association projections indicate that the fund will be fully funded (100%) if this increase is
approved. The need for a City mandatory contribution as stated above is remote and the funding level
would have to decrease to an estimated 85 percent for a mandatory contribution. Mayor Klinzing, Bruce
West and I serve as trustees of the Association, and we will be available to answer questions you may
have on this request. Relief Association representatives will also be at the meeting to answer questions.
Year 12/31/2006 12/31/2005 12/31/2004 12/31/2003 12/31/2002
Funded 114.8% 105.9% 98.9% 98.2% 81.8%
Rate
Financial Impact
The voluntary contribution of $29,800 was budgeted in 2007 in the Fire Administration budget.
Attachments
Memo from Fire Relief President Robert Dreissig
I Action
Motion by _
Second by _
Vote _
s: \Council\ Tim \Firereliefbenefitlevels.doc
I Follow Up
s: \ Council \ Tim \Firereliefbenefitlevels.doc
City of
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Fire Department
July 09, 2007
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 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 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
Relief fund has benefited from the growth in the Elk River area as evidenced by a 7.3
percent increase for 2006 from the state fire aid.
The City has also shown continued support of the Relief Association as exampled by the
2006 contribution of $28,950.
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 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
One change implemented by the Relief Association Board this year has been to diversify its
asset allocation by investing about thirty-two percent of its assets in funds from Vanguard
and American. Approximately 68% of the fund remains with the State Board of Investment.
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 fmancially sound benefit level. The
responsibility to the Council is to not expose the city to any fmancial 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.
Careful Approach
The Board of Trustee's takes great care in making sure that all the assumptions used in
calculating future benefit increases are conservative and easily obtainable. Please note the
following:
. Over seventy-five percent of the increase in liability is covered with state fire aid
which has been in place since 1885.
. We assumed a 1.5 percent increase in the state fire aid. (The form allows a projection
of up to 3.5 percent and last years was up 7.3 percent)
. We assumed a 6 percent appreciation in our investments for 2007. (The investments
had already appreciated 8.2 percent by the beginning of June.)
. We have had the City auditors at Abdo Eick & Meyers review our assumptions and
the accuracy in the use of the State schedules.
Action Requested
The Association is requesting that the Council approve an increase in the benefit level for
2008 to $5,091 per each year of service. Using the State schedules we project the 2008
increase to be 100% 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 151 each year, all Associations must ftie 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.
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