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B Consider Increase in Fire Relief Pension ~ - - MEMORANDUM CITY OF CHANHASSEN TO: Mayor & City Council 7700 Market Boulevard PO Box 147 Chanhassen, MN 55317 FROM: Todd Gerhardt, City Manager DA TE: January 12,2006 o~ Administration Phone: 952,227,1100 Fax: 952.227,1110 SUBJ: Consider Increase in Chanhassen Fire Department Relief Association Pension Building Inspections Phone: 952.227,1180 Fax 952,227.1190 BACKGROUND Engineering Phone: 952.227,1160 Fax: 952.227,1170 The City of Chanhassen has a 42-member on-call volunteer/paid Fire Department (established in 1966). Volunteer firefighters often receive payments due to the time commitment needed to perform the duties of a firefighter, such as training, 24-hour on-call for service, and weekly meetings. In Chanhassen, volunteers are compensated in two forms-an hourly rate of $8 for call-outs, training, meetings, etc., and the Fire Relief Association Pension. 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 Currently a firefighter would be fully vested after 5 years of service. As an example, a firefighter with 7 years of service would receive the following pension: 7 years of service x $4,000 = $28,000 lump sum payment. Planning & Natural Resources Phone: 952,227,1130 Fax: 952.227,1110 All current members are on a lump sum pay-out based upon their years of service; however, we do still have 12 retired members receiving a monthly annuity of $410 per month. The last time we increased the pension fund was in 2001 with a rate increase of 48.15% (see Attachment # 1). Public Works 1591 Park Road Phone: 952.227,1300 Fax: 952.227,1310 ACTION REQUIRED Senior Center Phone: 952.227,1125 Fax 952.227,1110 Staff has met with representatives of the Fire Relief Board and has negotiated a three year increase of 8.75% per year beginning in 2006, with the condition that the funding ratio remains above 75% (see Attachment #2). Additionally, the CUITent retirees receiving a monthly annuity will receive a lump sum payment of $430 per year for three years. These increases will help the Fire Department in recruiting new firefighters and also help to retain our more experienced firefighters. Web Site W\INI,cLchanhassen,mn, us One of the areas you need to pay attention to when considering a rate increase is the funded ratio. Attachment #3 shows two forecasts of the pension fund's assets and liabilities. In both cases, the funding level never dips below 75% The City of Chanhassen · A growing community with clean lakes, quality schools, a charming downtown, thriving businesses, winding trails, and beautiful parks A great place to live work, and play, Mayor & City Council January 12, 2006 Page 2 over the next three years. You will also notice that the City of Chanhassen does not have to make a contribution, based on these assumptions, over the next three year period. The funding source for the benefit increase would come from state fire aid and investment earnings derived from the pension fund assets (see Attachment #4 for the history of city contributions, state aid, and investment income). RECOMMENDATION Staff would recommend that the Mayor and City Council approve an 8.75% annual increase for 2006-2008 to the Chanhassen Fire Department Fire Relief Association with the condition that the funding ratio remains above 75%, and a lump sum payment of $430 per year for the years 2006-2008 to current retirees receiving a monthly annuity. This item will be placed on the February 13th agenda for action. A TT ACHMENTS 1. History of Chanhassen Pension Fund Increases. 2. Key Financial Cities Comparison and Proposed Rate Increases. 3. Forecasts of the Pension Funds with a 5% and 7% Return. 4. Revenues and Expenses by Source 1995-2004. 5. Chanhassen Fire Relief Association Investment Review. 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Revenue & Expenses by Source 1995-2004 Attachment #4 ~ . , ' CHANHASSEN FIRE DEPARTMENT RELIEF ASSOCIATION SPECIAL FUND ~ PENSION TRUST FUND REVENUES BY SOURCE AND EXPENSES BY TYPE Years 1995 through 2004 (Unaudited) Exhibit 4 Revenues by Source Fiscal City State Contributions Investment Year, Contn1mtions 2% Aid Supplemental . Income ' Total 1995 $ 14,789 $ 41,111 $ $' 128,762 $ 184,662 1996 17,614 56,262 39,162 113,038 1997 14,214 56,786 1,000 152,702 224,702 1998 10,574 61,426 2,000 135,936 209,936 1999 24,058 63,481 ' 2,000 179,603 269,142 2000 17,101 66,223 (46,313) 37,011 2001 99,315 82,921 (86,543) 95,693 2002 48,651 96,113 1,000 (137,301) 8,463 2003 12,227 118,745 2,000 331,012 463,984 2004 154,033 1,000 163,948 318,981 Expenses By Type Fiscal Benefit Administrative Year Payments Expenses Total 1995 $ 33,704 $ 2,913 $ 36,617 1996 54,020 3,115 57,135 1997 132,013 9,303 141 ;316 1998 42,914 6,806 49,720 1999 150,522 5,732 ' 156,254 2000 94,522 8,924 103,446 2001 59,256 5,788 65,044 2002 46,150 5,060 51,210 2003 208,150 7,670 215,820 2004 59,786 6,685 66,4 71 20 Chanhassen Fire Relief Association Investment Review Attachment #5 I j .-.... --=-. ..~j;.~ ~~\ \11. I J " ~ -:N;'j ,~ ~l \ , "_ ~ti;j~~""r,r', I.' -........ ~ """ II, ~ · 7.\; ~ tJ ~ Chanhassen Fire Relief Association Investment Review July 5, 2005 The Parr Financial Group of Wachovia Securities 80 South 8th Street, Suite 3400 Minneapolis, MN 55402 Anthony Parr First Vice President - Investments (612) 340-4553 anthony.parr@wachoviasec.com Brian McKnight Associate Vice President - Investments (612) 340-4555 brian.c.mcknight@wachoviasec.com - The Parr Financial Group Your Team at Wachovia Securities -.... r"\. Who We Are Collectively, the professionals of The Parr Financial Group of Wachovia Securities have more than 50 years of experience in providing clients with sound financial solutions. Backed by the resources of one of the nation's largest brokerage firms, we use state-of-the-art technology and conservative investment products and services to help our clients reach their financial dreams. The mission of The Parr Financial Group is to help individuals, corporations and other institutions develop the best strategies for achieving the goals they value without undue sacrifice while avoiding unnecessary investment risk. What We Do " As part of our private client services, we provide comprehensive wealth planning, retirement-plan analysis, investment research and screening, and portfolio-management services. Anthony J. Parr First Vice President - Investments 612-340-4553 anthony. parr@wachoviasec.com Brian C. McKnight Associate Vice President - Investments 612-340-4555 brian .c.mcknight@wachoviasec.com Barbara J. Folz Senior Registered Account Administrator 612-340-4512 barbara.j. folz@wachoviasec.com Jodi Benson Houglum Account Administrator 612-340-4545 jodi. benson hougl um@wachoviasec.com Fax: 612-332-4071 Toll-free: 800-331-4923 http://www.parrfinancialgroup.wbsec.com WACHOVIA SECURITIES. LLC. MEMBER NYSE AND SIPC. (03/05) -Chanhassen Fire Department Integrated Performance Monitor as of December 31, 2004 Account % of Total Dollar Wcil!hted Net Worth Net Worth 12/31/03 Cash Flow + - Special Account 24% 6.16% S 419,239.10 S 872,770.07 S (491,337.10 FundSource Account 19% 4.00% S 337,155.89 S - S 325,000.00 Pru-Advisor Account 19% 9.56% S 327,957.91 S 357,173.45 S (60,000.00 MPMG Account 18% 17.40% S 323,622.53 S 309,182.78 S (25,000.00 DMA-Agg Gr II Account 20% 15.20% S 342,622.48 S - S 300,000.00 / Total 100% 10.64% $ 1J750,597.91 $ 1,539,126.30 $ 48,662.90 Total Assets $ 1,750,597.91 Allocation Table Indices as of 12/31/04 Small Cap 6.37% Mid Cap 14.01% International 16.35% Larl!:e Cap 32.33% Bonds/Bond Funds 14.13% Cash and Equivalents 16.70% Specialty 0.11% Total 100.00% S&1> 500 10.90% DJlA 30 5.30% Russell MidCap 20.20% Russell 3000 18.30% Ei\FE 20.70% LB Govt/Credit 4.20% SBI Income Share 9.20% 60%S&1>500/40%LB Aggr 8.30% ,...... Allocation Chart Bonds/Bond Funds, 14.13% Cash and Equivalents, 16.70% Specialty, 0.11% \ Small Cap, 6.37% Mid Cap, 14.01% International, 16.35% Large Cap, 32.33% ~ !:I Small Cap . Bonds/Bond Funds . Mid Cap 0 International D Cash and Equivalents . Specialty o Large Cap Information contained on this page is believed to be reliable. It has not been verified for accuracy or completeness by Wachovia Securities Incorporated or any of its employees. ~ . . ....... Asset Allocation Presentation .. -- CHANHASSEN FIRE DEPARTMENT Current vs Strategic Allocation -Market Capitalization Analysis Current Custom-FRA 60/40 .,"':~., ~,.~,j.-.t\W~", ~ ; .' . .':-: ," l-" . Large Cap (30.70%) II Mid Cap (14.01%) o Small Cap (6.37%) . International Equity (16.35%) . Multi-Class (3.25%) o Fixed Income (12.50%) o Cash Equivalent (16.70%) . Real Estate Investment Trusts (0.11 %) . Other (0.00%) . Large Cap (25.00%) 1m Mid Cap (10.00%) o Small Cap (10.00%) . International EqUity (15.00%) I.:] Fixed Income (35.00%) o Cash Equivalent (5.00%) Long Positions - I ~arket Cap Current Strategic Difference Large Cap $ 537,468.85 30.70% $ 437,649.48 25.00% $ 99,819.37 - 5.70% Mid Cap $ 245,190.19 14.01% $ 175,059.79 10.00% $ 70,130.40 - 4.01 % Small Cap $ 111,597.06 6.37% $ 175,059.79 10.00% $ - 63,462.73 3.63% r- International Equity $ 286,259.75 16.35% $ 262,589.69 15.00% $ 23,670.06 - 1.35% Multi-Class $ 56,924.44 3.25% $ 0.00 0.00% $ 56,924.44 - 3.25% I Fixed Income $ 218,844.28 12.50% $ 612,709.27 35.00% $ - 393,864.99 22.50% I Cash Equivalent $ 292,296.03 16.70% $ 87,529.90 5.00% $ 204,766.13 - 11.70% I Real Estate Investment Trusts $1,951.79 0.11% $ 0.00 0.00% $1,951.79 - 0.11% Other $ 65.52 0.00% $ 0.00 0.00% $ 65.52 0.00% Total: $ 1,750,597.91 100.00% $ 1,750,597.91 100.00% $ 0.00 0.00% The Disclosu,es at the end of Ihe teporl include definitions of Ihe Ie""s on this page and othe, detal/ed Info,malion. Market Values are based on previous day's closing price and positions. ........ Copyright@ 2005. Wachovia Securities, LLC. All Rights Reserved. Page 7 of 23 L