HomeMy WebLinkAboutItem 31
City of Lakeville
Finance Department
Memorandum
To: Mayor and Council
From: Jerilyn Erickson, Finance Director
Mike Meyer, Fire Chief
Date: November 23, 2020
Subject: Fire Relief Pension Benefit
The Lakeville Fire Department is comprised primarily of paid-on-call firefighters. These
firefighters are paid a nominal amount for the actual fire calls but are eligible for a lump sum
pension benefit (subject to vesting requirements and years of service).
A memo from the Lakeville Fire Relief Association Board is attached to this report which
articulates their request for an increase in the pension benefit increase along with some
supporting information.
City staff has reviewed the historical pension benefit levels, funding sources, funding ratio of
the Special Pension Fund, and the impact of the proposed pension benefit levels using
conservative estimates for investment earnings, etc. The following table shows the projected
impact of the increases in pension benefit levels for the 2021-2026 period as proposed by the
Fire Relief Board:
For comparative purposes, in 2018, the projections presented to the City Council were as
follows for the years 2019-2024:
Actual Projected Projected Projected Projected Projected Projected Projected
2019 2020 2021 2022 2023 2024 2025 2026
Pension Benefit Level 8,395.00$ 9,195.00$ 10,000.00$ 10,000.00$ 10,000.00$ 10,000.00$ 10,000.00$ 10,000.00$
Benefit Change 800$ 800$ 805$ -$ -$ -$ -$ -$
Projected Net Assets 10,566,797 11,261,588 10,723,850 10,024,406 9,041,818 8,215,779 8,121,875 8,450,667
Accrued Liability 7,298,204 8,265,382 8,467,953 7,808,202 7,080,778 6,788,873 7,451,634 8,348,163
Surplus or (Deficit) 3,268,593 2,996,207 2,255,897 2,216,204 1,961,040 1,426,906 670,241 102,504
Ratio 144.79% 136.25% 126.64% 128.38% 127.70% 121.02% 108.99% 101.23%
Projected Projected Projected Projected Projected Projected Projected
2018 2019 2020 2021 2022 2023 2024
Pension Benefit Level 7,595$ 8,395$ 9,195$ 10,000$ 10,000$ 10,000$ 10,000$
Benefit Change 370$ 800$ 800$ 805$ -$ -$ -$
Projected Net Assets 9,302,945 9,230,870 9,319,203 8,588,278 7,638,689 8,018,734 7,245,166
Accrued Liability 6,522,140 7,028,101 7,811,870 7,920,802 7,275,226 7,601,935 7,135,834
Surplus or (Deficit) 2,780,805 2,202,769 1,507,334 667,475 363,464 416,799 109,332
Ratio 142.64% 131.34% 119.30% 108.43% 105.00% 105.48% 101.53%
2
The projections do not reflect a municipal contribution being phased back in as a funding
source. Since 2014, the City has not made any voluntary contributions to the Pension Trust
Fund.
The Fire Relief Association is requesting that the City Council approve the 2021 pension
benefit level at $10,000 which is an $805 increase from the 2020 pension benefit level.
City staff calculates the impact of any proposed pension increases based on the State of
Minnesota’s formula for funding the Pension Trust because it is this formula that will
determine if there is a projected fund deficit and therefore, a required municipal contribution.
This calculation also factors in assumptions about retirement, retention, investment earnings,
etc.
The Lakeville Fire Relief financial report for year ending 12/31/2019 reflects a plan fiduciary
net position as a percentage of the total pension liability of 163.72%. Year ending 12/31/2018
reflected 152.49%.
Council Direction
Staff is seeking direction regarding the 2021 fire pension benefit level.
Attachment: November 23, 2020 Lakeville Fire Relief Memo
Memorandum
To: Mr. Justin Miller, City Administrator
From: Lakeville Fire Relief Association
Copy: Mike Meyer, Fire Chief
Jerilyn Erickson, Finance Director
Date: November 23, 2020
Subject: Fire Relief Pension Benefit Increase Proposal
The Lakeville Fire Relief Association is respectfully proposing a pension benefit increase of
$805 for calendar year 2021.
The Relief Board has strived to use sound strategies and Envision Lakeville Community Values
in decisions that relate to the management of the Special Pension Fund. Listed are key factors
that are considered with the Special Fund:
Community Values: Good Value for Public Services
Community Values: Sense of Community and Belonging
Community Values: Cultivate a Sense of Community
1. Community Values: Good Value for Public Services – Public Safety
The Special Fund investment account is managed by the Lakeville Fire Relief Association and
has consistently been fully funded over the past ten years, providing a substantial value to
our community with minimal financial impact. The last required municipal contribution
occurred in 2010. In 2011-2014, the City made voluntary contributions to the pension fund,
to continue to grow and support it. Starting in 2015, the City has not made voluntary
contributions or needed to make any required municipal contributions because of the
positive fund balance.
To review, Lakeville’s municipal contribution for 2015, 2016, 2017, 2018, 2019 and 2020 has
been $0. In completing the required SC20 form for the State of MN, the required contribution
for 2021 will be $0.
The Lakeville Relief Board and Association members recognize the challenges that City is
facing with the 2021 budget and tax levy and would like the City to consider reinstating a
voluntary municipal contribution beginning in 2021 for the 2022 budget year to support the
continued growth of the Special Pension Fund.
2. Community Values: Good Value for Public Services – Public Safety
The Special Pension Fund, unlike many pension funds in the State and around the country, is
fully funded, as sound financial management has positioned the Fund in a positive position to
support Firefighters. A primary goal for the Lakeville Fire Relief Association and the Lakeville
Fire Department is to use the Special Pension Fund as one of the key components in retaining
and incentivizing financially, firefighters who give a considerable time commitment and
personal sacrifice to the community. Maintaining a fund balance of 115% provides good
value for public safety and minimal commitment of the City.
3. Community Values: A Sense of Community and Belonging
The Lakeville Fire Relief Association believes there is a value in consistent community support.
Of all the services that the City of Lakeville provides to its residents, only one requires that you
live within the community. The Lakeville Fire Department requires that you live within two
miles of your respective station. Being a firefighter within the community comes with a
significant amount of responsibility and personal ownership in everything they do. It requires
a significant commitment from the firefighter, and more importantly from their family.
4. Community Values: Cultivate a Sense of Community
We are your neighbor, local business owners and friends. Nationally and locally, recruitment
of Volunteer and Paid-On-Call Fire Fighters has seen a steady decline. Lakeville is no
exception as recruiting and retention of firefighters has seen the same trend. For every new
firefighter hired, the department will have a firefighter leave the department. As a Paid-On-
Call department repeating this recruitment and retention cycle, we must provide a strong
benefit level that allows the Lakeville Fire Department to effectively recruit and engage our
firefighters.
The following pages have been submitted for further historical and statistical information,
analysis and impact.
Respectfully,
Lakeville Fire Relief Association Board
Pension Funding Sources
A.) The primary revenue sources for financing the fire relief pensions are investment
earnings, State Fire Aid and municipal contributions (tax levies). The following is a
historic overview of the revenue sources.
Year Investment
Earnings State Fire Aid Municipal
Contribution Total
2020 TBD $407,568 $0 TBD
2019 $1,904,143 $379,598 $0 $2,283,741
2018 ($314,875) $367,701 $0 $52,826
2017 $1,132,262 $347,635 $0 $1,479,897
2016 $551,474 $342,276 $0 $893,750
2015 $39,629 $335,889 $0 $375,518
2014 $490,870 $312,542 $60,000 $863,412
2013 $1,156,305 $309,365 $60,000 $1,525,670
2012 $420,119 $217,958 $44,804 $682,881
2011 ($93,663) $213,067 $44,804 $164,208
2010 $560,847 $196,224 $178,380 $935,451
2009 $976,119 $191,073 $0 $1,167,192
2008 ($1,264,827) $224,674 $92,071 ($945,320)
2007 $375,096 $264,923 $85,933 $732,090
2006 $383,941 $304,523 $83,511 $774,397
2005 $181,458 $284,395 $81,000 $549,364
2004 $274,403 $291,147 $125,140 $646,550
2003 $395,012 $220,209 $48,467 $741,361
Totals
2003-2019 $7,211,943 $4,795,199 $904,110 $12,911,252
The following sources represent the Lakeville Fire Relief Associations annual revenue streams
historically over the last 17 years:
Investment Earnings: 56%
State Aid: 37%
Municipal Contribution: 7%
Pension Benefit Levels
B.) Benefit Provisions. Authority for payment of pension benefits is established in
Minnesota Statute § 69.77 and 424A and may be amended only by the Minnesota State
Legislature. The benefit provisions are delineated in the Lakeville Fire Relief Association
bylaws and are consistent with Minnesota statutes. The following is a historical
overview of Lakeville benefit levels.
Year
Pension
Benefit
Amount
Increase
2021 $10,000 $805
2020 $9,195 $800
2019 $8,395 $800
2018 $7,595 $370
2017 $7,225 $348
2016 $6,877 $135
2015 $6,742 $132
2014 $6,610 $97
2013 $6,513 $96
2012 $6,417 $187
2011 $6,230 $0
2010 $6,230 $0
2009 $6,230 $230
2008 $6,000 $180
2007 $5,820 $95
2006 $5,725 $225
2005 $5,500 $100
2004 $5,400 $100
2003 $5,300 $200
Lump Sum Benefit Comparison
C.) The following is a list of the Metro Area fire relief associations with lump sum benefits
compared to Lakeville.
Relief Association
Population
(2019)
Benefit
Level
2018
Benefit
Level
2019
Benefit
Level
2020
Benefit
Level
2021
Maplewood 41,738 Moved to
Fulltime
Staffing
Northfield 20,774 $10,000 $10,000 $10,000 $10,000
Inver Grove Heights 35,321 $8,500 $8,550 $8,600 $10,000
Shakopee 37,076 $8,425 $8,750 $9,275*
Golden Valley 22,715 $8,300 $8,700 $9,200 $9,600*
Rosemount 25,202 $7,300 $7,400 $7,800 ****
Prior Lake 27,005 $8,000 $8,500 $9,000 $9,500
Lakeville 65,831 $7,595 $8,395 $9,195 $10,000*
Woodbury 71,616 $6,720 $8,500 $8,720 $8,982****
New Brighton 23,427 $7,700 $7,700 $8,300
Farmington 23,123 $6,500 $7,500 $7,500
Eden Prairie 64,567 $12,400*** $12,400*** $12,400*** $12,400***
*Italicized amounts reflect the proposed amounts that have not been approved.
**Northfield is not in the 7-county metro area.
*** Eden Prairie has special legislation for benefit level
**** Increase is based on Plan Funding Ratio (PRF)
Population estimates are from the Metropolitan Council or city website.
D.) Tax Levy Impacts
Lump-Sum Pension Plans
For lump-sum plans, the minimum required municipal contribution equals the financial
requirements of the special fund minus 1) the amount of fire state aid to be received during
the following calendar year; and 2) the amount of any contributions to the special fund from
the active members of the relief association to be received during the following calendar year.
In addition, five percent annual interest on the assets is subtracted.
The minimum required municipal contribution is calculated by the officers of the relief
association during the month of July for the minimum required municipal contribution, the
officers need to know the special fund’s financial requirements for the following year. In July,
the officers calculate the financial requirements for the following year and the overall funding
balance for the current calendar year.
If the special fund is not fully funded, the financial requirements for the following calendar
year are determined by taking into account 1) the total accrued liability for all active and
deferred members of the relief association, calculated for the following calendar year; 2) the
increase in the total accrued liability for the following calendar year over the present calendar
year; 3) the amount of anticipated future administrative expenses; and 4) one-tenth of the
deficit resulting from either an increase in the service pension or an investment loss occurring
over the last ten years.
If the special fund is fully funded, the financial requirements for the following calendar year is
the total of 1) the increase in the total accrued liability for all members for the following
calendar year over the present calendar year; and 2) the amount of anticipated future
administrative expenses.
Reference: Minn. Stat 424A.092, subd. 3(d)