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Home My WebLink About2013-02-20 PACKET 04.I.REQUEST OF CITY COUNCIL ACTION PREPARED BY: COUNCIL AGENDA MEETING ITEM # DATE 02/20/201 • /. Finance Robin Roland ORIGINATING DEPARTMENT DEPARTMENT HEAD ***************** * * * * * * * * * * * * * * * * * * * * * * * * * * * * * ** COUNCIL ACTION REQUEST: Consider increasing the Fire Relief Association pension benefit amount which is guarenteed by the City. STAFF RECOMMENDATI Increase the City guaranteed benefit level from $2,600 per year of service to $3,150 per year of service and that the City contribute 65% of the annual independent audit costs for the Cottage Grove Fire Relief Association in 2013. BUDGET IMPLICATION N/A BUDGETED AMOUNT N/A ACTUAL AMOUNT ADVISORY COMMISSION ACTION DATE REVIEWED APPROVED DENIED ❑ PLANNING ❑ ❑ ❑ ❑ PUBLIC SAFETY ❑ ❑ ❑ ❑ PUBLIC WORKS ❑ ❑ ❑ ❑ PARKS AND RECREATION ❑ ❑ ❑ ❑ HUMAN SERVICES /RIGHTS ❑ ❑ ❑ ❑ ECONOMIC DEV. AUTHORITY ❑ ❑ ❑ ❑ ❑ ❑ ❑ SUPPORTING DOCUMENTS ® MEMO /LETTER: Roland ® RESOLUTION: ❑ ORDINANCE: COUNCIL ACTION TAKEN: ❑ APPROVED ❑ DENIED ❑ OTHER H: \Council items \CC Action Form.doc T� r � • To: Mayor and City Council Members Ryan Schroeder, City Administrator From: Robin Roland, Finance Director Date: February 14, 2013 Subject: Pension Increase Request Introduction On August 27, 2012, the Cottage Grove Fire Relief Association notified the City Council that the members had voted to increase the yearly pension benefit level from $3,600 per year of service to $4,000 per year of service. Further, the request asked that the City increase the amount it guarantees from a current level of $2,600 per year of service to the $4,000 level as well. Discussion Minnesota Statutes grant a Fire Relief Association the authority to increase their benefit level without City approval if the plan is fully funded. This has been the option the CG Fire Relief Association has pursued. As was stated in the request, almost all other cities guarantee the same amount as their Fire Relief Association. In doing so, those Cities face exposure to significantly increased contributions funded by taxpayer dollars should the Association's plan fall below the fully funded level. Recommendations from the State Auditor's report include the following language: • To ensure the long -term health of a plan, relief association trustees and municipal officials should be cautious when considering benefit changes. Relief association trustees, members, municipalities, and independent nonprofit firefighting corporation boards must understand the effects that benefit changes have on the contribution requirements and long -term health of the plan before approving new benefit levels. Implementing smaller, but more frequent, benefit changes may provide more consistency to municipalities that are required to make contributions, and make benefit amounts more consistent over time. The attached analysis compares benefit levels and municipal contributions from 2008 and 2010 between 17 cities in our peer group. It shows that municipal contributions increased by $1,898,514 despite no increase in benefit level. Significant investment losses at December 31, 2008 were the instigating factor. In fact, the report from the Office of the State Auditor in 2010 identifies that Relief Associations statewide received 80% more in municipal contributions in 2010 than they did in 2008. Furthermore, in 2008 the required amount of municipal contributions totaled $1.5 million; in 2010 that total was $9.8 million, more than 6.5 times as much. Historically, the benefit levels of the Relief Association and the City's guaranteed level compare as follows: year Relief Assn City Funding % at Relief Assn level year Relief Assn City Funding % at Relief Assn level 1997 1,800 1,200 166,540 2005 2700 1200 114.46% 1998 2,200 1,200 2006 3000 2600 126.63% 1999 2,700 1,200 131.39% 2007 3600 2600 116.11% 2000 3,400 1,200 90.13% 2008 3600 2600 96.20% 2001 2,700 1,200 96.34% 2009 3600 2600 108.04% 2002 2,700 1,200 79.15% 2010 3600 2600 115.23% 2003 2,700 1,200 92.02% 2011 36001 26001 108749% 2004 2,700 1,200 1 101.10% 2012 1 36001 26001 125.03% Increases to the City guaranteed benefit level have been contemplated previously by the City Council in 1994, 2006, and 2009, with a change made in 2006. The City did increase its guaranteed level of support in 2006, along with an agreement to contribute 50% towards the cost of the Relief Association's annual required financial audit. In 2009, that agreement was increased to 60% of the annual audit cost, but no increase to the guaranteed benefit level was made by the City. The Finance Department has reviewed assets, investment earnings, and benefits payouts from 1999 forward. We have found that the fund has experienced investment losses in 36% of the investment years as follows: 2000 $314,001 2001 189,554 2002 227,674 2008 354,150 2011 20,563 The Association has also experienced benefit payouts in excess of $100,000 in 64% of the years since 1999 as follows: 2000 $127,275 2007 $114,302 2001 122,636 2008 198,570 2002 286,746 2009 166,540 2004 253,697 2011 127,848 2005 268,137 Investment losses and benefit payouts are outside the control of the City. As we evaluate projections of future exposure, we use both average (or likely) scenarios as well as `worst case' scenarios to assess the impact on future funding requirements, using the 130% funding policy as a performance standard. The City has chosen the 130% level so as to minimize potential exposure to an increased required municipal contribution brought on by the adverse affects of a significant market adjustment combined with a significant payout in a single year. Recommendation The City has consistently followed a policy of guaranteed level of benefit which is supported by a funding level of 130 %. With current Association assets /liabilities that funding policy supports a guarantee not to exceed $3,150 for 2013. Five year projections at the requested $4,000 benefit level are not supported by the 130% funding factor. Staff recommends that the City Council increase the City guaranteed benefit level from $2,600 per year of service to $3,150 per year of service and that the City contribute 65% of the annual independent audit costs for the Cottage Grove Fire Relief Association in 2013. Fire Relief Benefit and State Aid Comparisons Lump -Sum plans Shakopee Rosemount Woodbury Golden Valley Prior Lake Lakeville Maplewood New Brighton Inver Grove Heights Oakdale Hastings Cottage Grove Other plans 2008 2008 to 2010 2008 Benefit 2008 State aid municipal change in level received contribution state aid 7,500 123,647 339,752 7,500 141,345 6,900 73,399 161,200 6,900 85,086 6,720 227,400 202,634 6,720 258,251 6,700 102,819 152,825 6,700 118,200 6,500 125,482 102,372 6,500 140,284 6,230 196,224 178,380 6,000 224,674 5,500 146,924 263,007 5,500 170,702 5,400 84,146 46,200 5,300 96,380 5,000 121,119 - 5,000 140,506 4,900 103,052 48,532 4,650 117,193 4,500 109,467 58,835 4,500 124,677 3,600 119,098 4,346 3,600 134,771 Brooklyn Center 7,500 98,752 65,945 7,500 115,983 Apple Valley 6,300 182,389 292,161 6,000 212,542 Eden Prairie 5,600 292,384 1,129,002 5,400 335,779 Chanhassen 5,050 104,474 94,032 5,050 115,928 Savage 5,021 92,440 184,514 4,827 104,592 Roseville 3,000 148,002 216,500 3,000 171,025 2010 2010 Benefit 2010 State aid municipal level received contribution 187,451 152,000 20,000 92,071 117,600 46,200 28,000 3,551 258,000 411,221 12,500 184,514 128,975 2008 to 2010 change in municipal contribution (17,698) (11,687) (30, 851) (15,381) (14, 802) (28,450) (23, 778) (12,234) (19,387) (14,141) (15,210) (15,673) (17,231) (30,153) (43, 395) (11,454) (12,152) (23,023) 152,301 9,200 202,634 152,825 82,372 86,309 145,407 (28, 000) 48,532 58,835 795 65,945 34,161 717,781 81,532 87,525 RESOLUTION NO. 2013 -xxx APPROVING A CHANGE TO THE COTTAGE GROVE FIREFIGHTER RELIEF ASSOCIATION BYLAWS WHEREAS, the paid on call firefighters employed by the City of Cottage Grove are members of the Cottage Grove Firefighter Relief Association; and WHEREAS, The City Council of the City of Cottage Grove does not have control over the financial and investing activities for the Cottage Grove Firefighter Relief Association; and WHEREAS, The City Council of the City of Cottage Grove has a responsibility to the taxpayers of the City to effectively manage the City's financial obligations. NOW, THEREFORE, BE IT RESOLVED, by the City Council of the City of Cottage Grove, County of Washington, State of Minnesota, approves a change to the bylaws of the Cottage Grove Firefighter Relief Association at a lump sum benefit amount of $3150 provided in appendix C of the bylaws. Passed this 20th day of February, 2013. Myron Bailey, Mayor Attest: Caron M. Stransky, City Clerk