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Home My WebLink About2014-10-15 PACKET 04.J. REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM # � � DATE 10/15/14 > . PREPARED BY Finance Robin Roland ORIGINATING DEPARTMENT DEPARTMENT HEAD ***********�******************************:��***� COUNCIL ACTION REQUEST Consider Fire Relief Pension increase request STAFF RECOMMENDATION Adopt resolution approving a change to the bylaws of the Cottage Grove Firefighter Relief Association for the lump sum benefit amount increase to $3,700 per year of service. BUDGET IMPLICATION BUDGETED AMOUNT 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: ❑ ENGINEERING RECOMMENDATION: ❑ �EGAL RECOMMENDATION: � OTHER: Request from Fire Relief Assn. ADMINISTRATORS COMMENTS r l i 0 ,� .-____._... '�'� � �� .� 1� ,/C✓ A63 f � ' y City Administrator Date �********************��**************�***�****** H:\Council items\council-action template.docx Cottage � �rove � Pride an84rosperity Meet To: Mayor and City Council Members Ryan Schroeder, City Administrator From: Robin Roland, Finance Director Date: October 10, 2014 Subject: Fire Relief Pension Increase Request Introduction On April 29, 2014, the Cottage Grove Fire Relief Association members approved an increase to the yearly pension benefit level from $4,300 per year of service to $4,700 per year of service. ' The City currently guarantees a benefit level of $3,150 per year of service. Discussion Minnesota Statutes grant a Fire Relief Association the authority to increase their benefit level without City approval if the plan is fully funded. The Cottage Grove Fire Relief Association has chosen to pursue this option since at least 1997. Cities who guarantee the same pension benefit amount as their Fire Relief Association face exposure to significantly increased contributions funded by taxpayer dollars should the Association's plan fall below the fully funded level. This situation played out in 2010, when, due to significant investment losses incurred by Relief Associations at December 31, 2008, required municipal contributions statewide increased by 650%. Recommendations from the State Auditor's report include the following language: • To ensur^e the long-te�°m health of a plan, Nelief association t�ustees and municzpal officials should be cautious when considerzng benefit changes. Relzef association tr^ustees, members, municipalities, and independent nonp�ofit fi�efzghting coNporation boa�^ds must unde�stand the effects that benefit changes have on the contNibution �equirements and long-term health of theplan befo�e app�oving new benefit levels. Implementing smalle�, but moNe f�equent, benefit changes may provide mo�e consistency to municipalities that are Nequi�ed to make contr�ibutions, and make benefit amounts moNe consistent over time. Historically, the benefit levels of the Relief Association and the City's guaranteed level compare as follows: Funding % Funding % at Relief at Relief year Relief Assn City Assn le�l year Relief Assn City Assn level 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 3600 2600 115.47% 2004 2, 700 1, 200 101.10% 2012 4000 2700 115. 86% 2005 2, 700 1, 200 114.46% 2013 4300 3150 124.68% Each year the Relief Association is required to compute their "accrued pension liability" in relation to the total of the association's assets (investments). The Relief Association target has been that the assets support a benefit level (pension liability) at 110%. In a review of assets, investment earnings, and benefits payouts since 1999, stafffound the fund has experienced investment losses in 33% of the years. The Association has also paid out benefits in excess of $100,000 in 73% of the years since 1999 as follows: Year Investment Benefit loss Payout 2000 $314,001 $127,275 2001 189,554 122,636 2002 227,674 286,746 2004 253,697 2005 268,137 2007 114,302 2008 354,150 198,570 2009 166,540 2011 20,563 127,848 2012 135,684 2013 108,150 It is notable tha4 there have been eight significan� corrections in the stock market since 1970. The DOW (as one measure of stock market performance) has experienced �n average correction of 30.75% over those eight instances. Investment losses and benefit payouts are outside the control of the C.ity. Staff evaluates projections of future exposure, using 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 since 2006. Prior to that date the City had not considered a change in funding guarantee in over ten years. The 130% level was chosen to minimize potential exposure to an increased required municipal contribution brought on by the adverse effects of a significant market adjustment combined with a significant payout in a single year. Starting in 2015 the Relief Association is compelled under GASB Statement 68 (Accounting and Financial Reporting for Pensions) to conduct an actuarial of their assets and benefit level support. Failure to do so could result in a negative impact to the City Audit. Given that, it is management's intent to work with, and contribute toward, the Fire Relief Board to assure timely compliance with this requirement. In 1997 the Relief Association contracted with their audit firm to complete a ten year plan that projected estimated benefit levels with 8% and 10% investment return assumptions of their portfolio. Management is in agreement with the Relief Board that a similar plan, albeit with more modest investment return assumptions, should be considered as part of the work plan for 2015. Action requested Consistent with our policy of a guaranteed level of benefit supported by a funding level of 130%, staff recommends that the City Council increase the City guaranteed benefit level from $3,150 per year of service to $3,700 per year of service for 2014 by adopting the attached resolution. RESOLUTION NO. 2014-xxu 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 $3,700 provided in appendix C of the bylaws. Passed this 15th day of October, 2014. Myron Bailey, Mayor Attest: Caron M. Stransky, City Clerk �; � :.,�� : , � Cottage Grove Fire Department Re.lief Association By- Law Change 2014 Years of Service Increase On April 29 2014 the Cottage Grove Fire Department Relief Association voted at its second meeting to increase its yearly service award from 4300.00 per year of service to 4700.00 per year of service for all members in Good Standing that are currently enrolled and employed as a part time firefighter. This By— Law change will replace the current By-law of 4300.00 per year of service for each member. The motion passed by its members in attendance. Randy Gerlach: President Robert Bray: Secretary Recorder Albert Beaslev: Treasueer