The URL can be used to link to this page

Home My WebLink About07G Fire Relief Proposal City Council Action Request Form Meeting Date 8/10/2016 Department Finance Agenda Category Consent Agenda Title Fire Relief Proposal Staff Recommendation Staff recommends the City Council preliminarily approve joining the statewide volunteer firefighter retirement plan administered by PERA. Budget Implication Brief description of whether this is a budgeted item, the budget amount, and the actual cost. Attachments Memo-Roland, PERA cost analysis To: Mayor and City Council members Charlene Stevens, City Administrator From: Robin Roland, Finance Director Date: August 4, 2016 Subject: Fire Relief Proposal Introduction Since December 2014, the Relief Association Board of Trustees and City staff have been researching the statewide volunteer firefighter retirement plan administered by PERA. This 18 month discussion has explored various pros and cons to determine whether participation in the plan would be of benefit to the Association and the City. Discussion History Minnesota Statutes grant a Fire Relief Association the authority to increase their benefit level without City approval if the plan is fully funded. Historically, this has been the option the CG Fire Relief Association has pursued. The City of Cottage Grove is one of three cities in the state where the amount guaranteed by the Fire Relief Association differs from the amount guaranteed by the City. The State Auditor’s report includes 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. Administrative staff has consistently recommended a policy of guaranteed level of benefit which is supported by a funding level of 130%. Staff assumed that this funding level would significantly reduce the risk of an additional required contribution by the City (beyond the required 2% Fire Aid annually). Historically, the benefit levels of the Relief Association and the City’s guaranteed level compare as follows: Year Relief City Funding % at Relief Level 2010 $3,600 $2,600 115% 2011 $3,600 $2,600 115% 2012 $3,600 $2,700 116% 2013 $4,300 $3,150 125% 2014 $4,700 $3,700 144% 2015 $5,200 $3,700 116% As a result of a requirement under new GASB 67 and 68 pension reporting standards, an independent actuarial determination of the pension obligations of the Relief Association at December 31, 2015 was completed by Van Iwaarden Associates. The resulting report reflected that at the 2015 benefit level of $5,200 per year of service, the FNP was $2,327,613 or 145.67%. The report carries a disclaimer that the results are for pension accounting requirements only and that computations for purposes such as plan funding may differ from the reported results. However, the report does consider the impact of changes in benefit levels and investment returns. Challenge and opportunity The current differential between the benefit level guaranteed by the Relief ($5,200 per year) and that guaranteed by the City ($3,700 per year) is significant. It would be difficult to devise a strategy to gradually increase the City’s guarantee over a period of years without outright freezing the Relief’s guarantee until the City “caught up”. The statewide volunteer firefighter retirement plan administered by PERA could provide a solution which satisfies the Relief Association desire for the City’s support of their benefit level while providing the City with a way to moderate the potential financial risks. Ninety two fire relief associations belonged to the plan in 2015. Organizations participating in the statewide plan:  have their investments with the State Board of Investment (SBI) with a long term expected rate of return of 6%  incur no audit or actuarial fees,  pay a $30 per member fee ($1800 annually for CGFRA) instead of investment management fees ($24,000 on $2.4 million in investments at 12/31/14)  Benefit payouts are handled by PERA The decision to join the plan is made jointly by the municipality and the relief association, so there can be no difference between the benefit level supported by the City and the Relief Association. Once the Association joins the PERA plan, the benefit level is frozen for the first five years. After that, benefit levels may increase upon the determination of the sponsoring organization (the City) at a minimum level of $100. Attached with this memo is the cost analysis produced by PERA in May which identifies various benefit levels and the required municipal contribution if the Fire Relief were to become part of the statewide plan. Staff recommends a benefit level of $6,000 per year of service commencing January 1 2017 based on the current Relief benefit level and an average increase of $150 per year for the next five years. The benefit level will be frozen for the first five years of participation (until December 31, 2021). Recommendation Staff recommends the City Council 1) preliminarily approve joining the statewide volunteer firefighter retirement plan administered by PERA and 2) encourage the membership of the Cottage Grove Relief Association to vote to agree to the same. Once the Relief Association has agreed, a formal resolution will be presented to Council for final approval. This resolution must be submitted to PERA before the end of November for it to take effect January 1, 2017 � Pubiic Employees Retirement Association of Miimesota I 60 Empire Drive, Suite 200 St.Paul,MN 55103-2088 :;,� Phone: 651-296-7460 or1-800-652-9026 Z Website: www.iru�pera.org , May 17,2016 PERA ID 4038-00 Cottage Grove Firefighters Relief Association ' Cityof Cottage Grove I 12800 Ravine Parkway S. Cottage Grove MN 55016 ; II We received your t�equest for a cost analysis to estimate the cost of joining the statewide volunteer firefighter retirement plan administered by PERA. Based on the information you provided to us,we have developed this spreadsheet and a cost analysis , for the benefit levels you requested.The results are shown below. !, I A. Bene�t Level(per year of service): $ 5,200 $ 6,000 ' $ 7,000 $ 7,500' � B. Estimated yearly normal cost: 190,348 219,634 256,239 274,542 , C. Estimated yearly admin expenses: 1,770 1,770 1,770 1,770 ', D. Estimated beginning asset value: 2,100,000 2,100,000 2,100,000 2,100,000 �i E. Estimated beginning liability: 1,983,645 2,230,849 2,539,899 2,694,424 F. Estimated Deficit Amortization Payment((E-D)/10): 0 13,085 43,990 59,442 i G. Estimated Total Required Contribution(B+C+F): 192,118 234,489 301,999 335,754 H. Estimated Investment Income(D x 6%): 126,000 126,000 126,000 126,000 i I. Estimated Fire State Aid(2015 Amount): 189,183 189,183 189,183 189,183 J. �stimated Municipal Required Contribution(GH-I): $ - $ - $ - $ 20,571 � � Please note that these are estimates only. Should you choose to join the statewide plan on January 1,2017,the required ' municipal contribution you would pay in 2017 is the amount determined by the State Auditor's Office when the relief � association submits Form SG16. The figures shown above on Line J are estimates of required municipal contributions that � would be due in 2018 and beyond at the given benefit levels. I a I If you haven't yet heard fi�om the State Board of Investment,they are in the process of reviewing your assets and will be in ' contact with the relief association separately. � I In accordance with Minnesota Statute 353G.05,if you wish to join the statewide plan,we must receive a signed resolution � from the governing body of the municipality within 120 days of the receipt of this cost analysis.A sample resolution can be � found on our website,www.mnpera.org,under the Employers tab. The resolutions must be in our office by the end of , November to allow time to set up the account by Januaiy 1. I If you have any questions,please do not hesitate to contact me by phone(651-201-2648)or by email at david.andrews@mnpera.org. Sincerely, David Andrews ( Accounting Supervisor,PERA �I