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A-1. Fire Relief PensionCITY OF CHANHASSEN 7700 Market Boulevard PC Box 147 Chanhassen, MN 55317 Administration Phone 952.227.1100 Fax 952.227.1110 Building Inspections Phone: 952.2271180 Fax 952.227.1190 Engineering Phone: 952.227.1160 Fax: 952.227.1170 Finance Phone: 952.227.1140 Fax: 952.227.1110 Park & Recreation Phone: 952.227.1120 Fax: 952.227.1110 Recreation Center 2310 Coulter Boulevard Phone: 952.227.1400 Fax: 952.227.1404 Planning & Natural Resources Phone: 952.227.1130 Fax 952.227.1110 Public Works 7901 Park Place Phone: 952.227.1300 Fax 952.227.1310 Senior Center Phone: 952.227.1125 Fax: 952.227.1110 Website www.ci.chanhassen.mn.us A -` MEMORANDUM TO: Mayor & City Council FROM: Greg Sticha, Finance Director DATE: November 24, 2014 & \ <�e SUBJ: Follow up Discussion on Potential Fire Relief Pension Increase BACKGROUND Only July 28, 2014 staff met with the city council in a work session to discuss the need for increasing the Fire Relief pension. Attached you will find all of the information from that meeting including the staff report. There has been no new information since the last meeting, staff would like to have city council discuss the item and provide direction. Staff is recommending increasing the lump sum pension from $5,050 to $6,000 per year of service on December 8, 2014 when staff amends other ordinances. RECOMMENDATION Staff recommends that the City Council proceed with increasing the lump sum Fire Relief pension amount from the current level of $5,050 per year of service to $6,000 per year of service. ATTACHMENT 1. Staff report and information from 7 -28 -14 City Council Work Session. f \gregsT-u•e pensionT;re relief pension increase follow up 11- 24- 14.docx Chanhassen is a Community for Life - Providing for Today and Planning for Tomorrow hm-WITil"t :.� I lillll TO: Mayor & City Council FROM: Greg Sticha, Finance Director DATE: July 28, 2014 SUBJ: Discuss Potential Fire Relief Pension Increase BACKGROUND Staff has been working with the Fire Relief Board discussing potential funding alternatives and increases to the fire relief pension for the past couple of years. The topic was addressed as part of the Fire Study last year, which indicated that the city's lump sum funding amount was slightly below the average of our KFS cities ($180 below average). One of the City Council's KFS strategic goals for 2014 was to research varied funding alternatives and funding levels of the current fire relief pension. The information in this memo addresses the research completed, a survey and history of funding levels, a recently completed actuarial report on the current funding level, and some assumptions used for a potential increase. FUNDING TYPES /ALTERNATIVES Staff began researching possible new approaches to funding volunteer firefighter pensions, which included a defined contribution rather than the existing defined benefit pension. A defined benefit pension simply is the benefit the member receives upon retirement and is a set amount determined by the local government authority. In the State of Minnesota, the most common type of defined benefit pensions are "lump sum" pensions. A lump sum pension is a set benefit amount ($5,050 currently in Chanhassen) for each year of service to be distributed upon retirement. There are a number of other provisions to receive the pension, but vesting begins at 5 years and firefighters are 100% vested at 20 years in the City of Chanhassen. A defined contribution pension differs from a defined benefit pension in that an annual contribution is made during each year of service from the local government authority. In most cases, the amount contributed to a defined contribution pension is less than a defined benefit pension plan and would limit future liabilities of the City to only the contribution made each year for the eligible active firefighters. In the State of Minnesota, nearly 90% of fire relief pensions are lump sum defined benefit pensions, with fewer than a handful of Twin Cities me_ tro communities having defined contribution pensions. Mayor & City Council July 28, 2014 Page 2 Staff began researching the possibility of implementing a new defined contribution plan for all new members eligible for pensions on the fire department. Staff sought the advice of legal counsel, Soren Mattick at Campbell Knutson. After discussions with Mr. Mattick, he indicated that Minnesota state law does not allow for the creation of two types of fire relief pensions, either a defined contribution or defined benefit plan must be chosen (see statutes below). Additional discussions were held with the State Auditor's office to see if two separate relief associations could be created, thus allowing for the establishment of one association that has a defined benefit pension and another with a defined contribution pension. At this time, it appears that special legislation would be required to do so. 424A.002 AUTHORIZATION OF NEW OR CONTINUING VOLUNTEER FHiEFIGHTERS' RELIEF ASSOCIATIONS. Subdivision 1.Authorization. A municipal fire department or an independent nonprofit firefighting corporation, with approval by the applicable municipality or municipalities, may establish a new volunteer firefighters' relief association or may retain an existing volunteer firefighters' relief association. Solid. 2. Defined benefit or defined contribution relief association. The articles of incorporation or the bylaws of the volunteer firefighters' relief association must specify that the relief association is either a defined benefit relief association subject to sections 424A.015, 424A.02, and 424A.091 to 424A.094 or is a defined contribution relief association subject to sections 424A.015 and 424A.016. Staff may continue to pursue the idea of getting special legislation in order to adopt a defined contribution pension for all new firefighters, if directed by council to do so. iR"05I goal R7I1C17tyffl011701199 `Y_ /81/110614 Attached are documents that show the history of the Chanhassen Fire Relief pension as well as the current status of pensions in KFS cities. The last pension increase to the lump sum benefit took place in 2008. The current lump sum of $5,050 has been in place since that point. Staff researched city employee compensation increases since 2008, including a possible increase effective January 1, 2015, and the total percentage increase is 17.5% (see attached). This equates to an approximate $884 increase in the lump sum pension amount, bringing it to just under $6,000. Staff also surveyed KFS cities for current funding levels and when the last increase was adopted (see attached). Increasing the current lump sum pension to $6,000 would put the city in approximately the 66th percentile, with three cities having higher pension amounts and six with lower amounts. fAgregs\fire pensiondire relief pension funding alternatives 7- 28- 14.docx Mayor & City Council July 28, 2014 Page 3 RECENTLY COMPLETED ACTURIAL In June of 2014, staff hired the actuarial firm of Duane Hanf to conduct an analysis of the pension funding level as well as incorporate some assumptions into a possible funding increase for later this year. The study found the following results: The funded percentage of the relief association was at 89% as of December 31, 2013. The estimated additional required contribution of the city for 2014 (based on the current funding level of $5,050 /year of service and assuming a similar state aid amount to the previous year) will be zero. Staff also asked Mr. Hanf to make projections, using the assumption of raising the benefit level to $6,000 per year of service with either a 5% or 7% rate of return on investments. Under either assumption, increasing the benefit level to $6,000 will keep the city's required additional contribution at zero for 2014. Increasing the benefit level to $6,000 shaves the funding percentage to 78-8 1 % funded. Based on Mr. Hanf s analysis using a funding level of $6,000 lump sum benefit, the future years (beyond 2014) may require an annual contribution from the City. This would range from as low as $12,000 to $30,000 thru 2017. Based on this actuarial analysis, staff believes a lump sum benefit of $6,000 per year of service could be realized in 2014: • without increasing the city's required annual contribution above currently budgeted amounts; • keeps this year's required contribution at zero; and • keeps the funding percentage above 75 %. (See attachment, history of funding percentage in Fire Relief.) RECOMMENDATION Staff recommends that the City Council proceed with increasing the lump sum Fire Relief pension amount from the current level of $5,050 per year of service to $6,000 per year of service. In addition, staff looks for direction from council on whether to pursue special legislation to achieve the possibility of having new firefighters be a part of a defined contribution pension system rather than a defined benefit pension system. ATTACHMENT 1. Fire department wage and pension historical information as compared to city employee wage compensation. 2. Survey of KFS cities Fire Relief pension funding levels. 3. Actuarial report from Hanf Actuarial dated July 2014. 4. Fire Relief Funding Percentage History. fAgregs\fire pension\tire relief pension funding alternatives 7- 28- 14.docx City of Chanhassen Fire Department Wage & Pension History On Call Pay /Hourly Wage 1997 7.00 1999 8.00 2007 9.00 2012 10.00 2012 1.50% Pension History 2006 4350 2007 4700 2008 5050 2015 ? 2012 1.50% City Employee Wage History 2008 3.50 2009 3.50% 2010 0.00 2011 1.00% 2012 1.50% 2013 2.00% 2014 3.00 2015 EST 3.00% Total 17.50% KFS Cities Comaprison City Current Lump Sum Date of Last Increase Previous Lump Sum Current Funding Ratio ** Chanhassen $ 5,050 1/1/2008 $ 4,700 82% Andover N/A N/A N/A 100% Chaska 6,255 5/5/2014 6,000 79% Cottage Grove 3,150 Unknown Unknown 115% Elk River 5,167 1/1/2014 5,091 96% Farmington 4,575 1/1/2009 4,200 83% Lino Lakes (Centennial Fire Dist till 2016) 4,200 4/26/2012 4,000 109% Prior Lake 6,800 2/24/2014 6,500 100% Rosemount 6,900 1/1/2007 6,100 101% Savage 5,329 1/1/2014 5,225 85% Stillwater 5,000 Unknown Unknown 121% Average 5,264 Top of Range 6,900 Bottom of Range 3,150 ** - Current funding ratio is based on Minnesota State Auditors FF Pension report as of December 31, 2012 N/A - Andover has a defined contribution plan. Surrounding Cities Comparison City Current Lump Sum Eden Prairie $ 10,000 Excelsior 6,700 Minnetonka 6,910 Shakopee 7,600 Victoria 2,300 AVG 6,702 City Of Chanhassen Fire Relief Funding Percentage History Year Percent Funded 12/31/2003 69.0% 12/31/2004 82.8% 12/31/2005 88.4% 12/31/2006 91.5% 12/31/2007 95.5% 12/31/2008 65.6% 12/31/2009 77.9% 12/31/2010 81.8% 12/31/2011 77.7% 12/31/2012 80.3% 12/31/2013 89.0% AVG 81.8% Year Required City Contribution Funded Percentage 12/31/2014 $ - 81% 12/31/2015 12,065 81% 12/31/2016 13,928 82% 12/31/2017 15,467 83% O Q� 4— ry i n� W V) tV) V U 0 r I . 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