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HomeMy WebLinkAboutItem 06.j Date: Item No. RESOLUTION AMENDING THE LAKEVILLE FIRE RELIEF ASSOCIATION BYLAWS RELATING TO PENSION BENEFIT LEVELS Proposed Action Staff recommends adoption of the following motion: Move to approve Resolution Amending the Lakeville Fire Relief Association Bylaws relating to Pension Benefit Levels. Passage of this motion will increase the pension benefit level to $10,000 per year of service for firefighters effective January 1, 2021. Overview The Lakeville Fire Relief Association submitted a request for pension benefit increase of $805 for calendar year 2021 which would result in pension benefit level of $10,000 effective January 1, 2021. This is the maximum currently allowed by Minnesota state statute. The Lakeville Fire Relief Association’s request was reviewed and discussed at the November 23, 2020 council workshop and the City Council concurred with the 2021 increase. Per the Office of the State Auditor, the City Council is required to ratify each incremental benefit level before it becomes effective. The attached resolution addresses the pension benefit level for 2021. Primary Issues to Consider  What are the funding sources for Lakeville Fire Relief pensions?  What is the history of Lakeville Fire Relief pensions and how does it compare with other metro area cities?  What are the financial (tax levy) impacts to the City of Lakeville? Supporting Information  Resolution amending Lakeville Fire Relief Association Bylaws  November 23, 2020 Council Workshop Memo which includes a memo from the Lakeville Fire Relief Association. Financial Impact: $ Budgeted: Y☐ N☒ Source: Related Documents: (CIP, ERP, etc.): Envision Lakeville Community Values: Safety Throughout the Community Report Completed by: Michael Meyer, Fire Chief; Jerilyn Erickson, Finance Director December 7, 2020 0 LFRA Special Fund CITY OF LAKEVILLE RESOLUTION NO._________ RESOLUTION AMENDING LAKEVILLE FIRE RELIEF ASSOCIATION BYLAWS RELATING TO PENSION BENEFIT LEVELS WHEREAS, The bylaws of the Lakeville Fire Relief Association provide for a defined contribution benefit for volunteer firefighters that are eligible under the vesting schedule. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Lakeville, Minnesota that the Lakeville Fire Relief Association's bylaws are hereby amended as per Appendix A attached hereto. ADOPTED by the Lakeville City Council this 7th day of December 2020. ___________________________ Douglas P. Anderson, Mayor _____________________________ Charlene Friedges, City Clerk APPENDIX A LAKEVILLE FIRE RELIEF ASSOCIATION Benefit Levels Benefit Level Effective Date Benefit Level per Year of Active Service Interest Rate for Deferred Pension Benefit Date Benefit Approved by Municipality January 1, 2021 $10,000.00 Separate Account December 7, 2020 January 1, 2020 $9,195.00 Separate Account May 6, 2019 January 1, 2019 $8,395.00 Separate Account November 19, 2018 January 1, 2018 $7,595.00 Separate Account February 6, 2017 January 1, 2017 $7,225.00 Separate Account October 17, 2016 January 1, 2016 $6,877.00 Separate Account November 3, 2014 January 1, 2015 $6,742.00 Separate Account November 3, 2014 January 1, 2014 $6,610.00 Separate Account March 18, 2013 January 1, 2012 $6,417.00 Separate Account December 19, 2011 April 6, 2009 $6,230.00 Separate Account April 6, 2009 January 1, 2009 $6,230.00 5.000% December 1, 2008 January 1, 2008 $6,000.00 5.000% November 5, 2007 January 1, 2007 $5,820.00 5.000% December 18, 2006 January 1, 2006 $5,725.00 5.000% January 1, 2006 January 1, 2005 $5,550.00 5.000% January 1, 2005 January 1, 2004 $5,400.00 5.000% January 1, 2004 January 1, 2003 $5,300.00 5.000% January 1, 2003 January 1, 2002 $5,100.00 5.000% January 1, 2002 January 1, 2001 $4,750.00 5.000% January 1, 2001 January 1, 2000 $4,500.00 5.000% January 1, 2000 January 1, 1999 $4,000.00 5.000% January 1, 1999 January 1, 1998 $3,850.00 5.000% January 1, 1998 January 1, 1997 $3,750.00 5.000% January 1, 1997 1 City of Lakeville Finance Department Memorandum To: Mayor and Council From: Jerilyn Erickson, Finance Director Mike Meyer, Fire Chief Date: November 23, 2020 Subject: Fire Relief Pension Benefit The Lakeville Fire Department is comprised primarily of paid-on-call firefighters. These firefighters are paid a nominal amount for the actual fire calls but are eligible for a lump sum pension benefit (subject to vesting requirements and years of service). A memo from the Lakeville Fire Relief Association Board is attached to this report which articulates their request for an increase in the pension benefit increase along with some supporting information. City staff has reviewed the historical pension benefit levels, funding sources, funding ratio of the Special Pension Fund, and the impact of the proposed pension benefit levels using conservative estimates for investment earnings, etc. The following table shows the projected impact of the increases in pension benefit levels for the 2021-2026 period as proposed by the Fire Relief Board: For comparative purposes, in 2018, the projections presented to the City Council were as follows for the years 2019-2024: Actual Projected Projected Projected Projected Projected Projected Projected 2019 2020 2021 2022 2023 2024 2025 2026 Pension Benefit Level 8,395.00$ 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)