HomeMy WebLinkAboutCity Council Packet 01-22-2013 SpecialCITY OF PLYMOUTH
AGENDA
SPECIAL COUNCIL MEETING
JANUARY 22, 2013, 5:30 P.M.
MEDICINE LAKE CONFERENCE ROOM
1. CALL TO ORDER
2. TOPICS
A. Request of Fire Relief Association for pension increase
3. ADJOURN
Special Council Meeting 1 of 1 January 22, 2013
rp)City of Agenda 2APlymouthNumber:
dddfng Quality to Life
To: Laurie Ahrens, City Manager
REGULAR
COUNCIL MEETINGPrepared by: Dave Callister, Administrative Services Director
Givonna Kone, HR Manager
January 22, 2013
Reviewed by: Laurie Ahrens, City Manager
Item: Review Plymouth Firefighters Relief Association
request for pension benefit increase
1. ACTION REQUESTED:
Consider the request by the Plymouth Firefighters Relief Association (PFRA) to increase firefighter
pension benefits.
2. BACKGROUND:
In addition to pension benefits, all firefighters receive compensation for attending training and fire
calls. The hourly rate ranges from $11.19 to $13.73 for firefighters and up to $19.73 for officers.
In June 2012, the PFRA adopted a resolution requesting that the City Council consider an increase in
pension benefits for its members, effective January 1, 2013. The request is to increase the annual
defined benefit from $7,500 to $8,300 per firefighter per year of service, an increase of 10.7%.
Currently, for every year of service, Plymouth firefighters receive $7,500 towards their pension.
After 10 years, firefighters are partially vested and at retirement are eligible to receive 60% of the
total amount in a lump sum payment as long as they are 50 years of age or older. The pension
vesting level increases from 60% at ten years to fully vested at 100% for 20 years of service or more.
For example, a firefighter with 20 years of service currently receives a lump sum payout at
retirement of $150,000. The PFRA's proposal would increase the lump sum retirement for 20 years
of service to $166,000.
History of pension increases
1994 — $3,500 per year of service
1995 — $3,750 per year of service
1996 — $4,000 per year of service
1998 — $5,500 per year of service
2002 — $6,000 per year of service
2003 — $6,500 per year of service
2004 — $7,000 per year of service
2007 — $7,500 per year of service
Page 1
FUNDING
Currently, firefighter pensions are funded entirely through annual state fire aid and investment
earnings. There is no city contribution or tax levy used to fund the pensions. The state fire aid
consists of a two percent fire insurance premium tax on all fire, lightning, sprinkler leakage and
extended coverage premiums. The aid is distributed to Plymouth based on population and property
value within the city. The recent funding history shows a high of $498,561 received in 2004 with a
low of $301,510 received in 2009. As is the case with all state funding sources, the annual aid
amount fluctuates and is always subject to legislative tinkering. The State Auditor has been working
in the past for legislative changes and there has been increased discussion regarding formula changes
or redistribution of state aid funds. To this extent, the future of state fire aid is uncertain.
Most local fire relief pension plans are not sustainable solely from the two percent fire aid and
require an annual property tax levy.
Funding Ratios
Funding ratios are an important measure in assessing the financial health of a pension fund. Funding
ratios show the relationship between a relief association's assets and liabilities. The chart below
illustrates the funding ratio for the Plymouth Fire Relief Association's Special Fund. Historically,
the funding percentage fluctuates from year to year. In the last 13 years, the funding ratio has been
as high as 124% and as low as 87%.
Page 2
140!
120%
100%
SOTS
60°%
40%
20%
0%
Plymouth Fire Relief Associationrp tityof
Funding Ratio Plymouth
Assets/Liabilities Atipinx Qewutr 00 Ldp
Rate of Return on Pension Fund Investments
The PFRA annual management letter compares the rate of return on investments to an average of 60
fire relief associations in Minnesota. The comparison reflects that on average, the rate of return for
the PFRA over the last seven years has outperformed the group average rate of return (4.7% to
3.9%).
Page 3
Plymouth Fire Relief Association City of
Annual Rate of Return rp) Plymouth
AW41r QUaRIx xr lufx
30%
20%
10%
0%
10%
20%
3056
4095
2404 2005 2006 2007 2008 2009 2010 2011
6.9% 6.4% 9;3% 6.5% 28.2% 21.2% 10.8% 0;1%
Page 3
Market Comparisons
As with any request for pay and benefit increases, we have completed a market survey that compares
eight similar sized fire departments in the metropolitan area.
Plymouth Fire Department
Pay and Pension Comparison
Training & Per Equivalent Annual 2012 Annual
Call Hourly Pay * Pension Compensation
Plymouth $13.73 5,698 7,500 13,198
Average ** $12.68 4,844 6,618 11,462
Variance $1.05 854 882 1,736
Equivalent Pay is based on an average of 415 hours for training and calls per firefighter for 2011.
Average includes similar cities with Paid On Call Firefighters only, including Apple Valley, Blaine
Eagan, Eden Prairie, Lakeville, Maple Grove, Minnetonka and Woodbury.
In 2011, Plymouth Paid On Call (POC) firefighters worked an average of 415 hours per year. Hours
of work for individual firefighters ranged from a low of 136 to a high of 1,222 per year, an average
of 11 to 102 hours per month.
The current pension system for firefighters in Minnesota is calculated so that all firefighters receive
the same pension benefit, regardless of how many hours worked. In addition, any increases in the
lump sum pension amounts are retroactive, meaning that a firefighter with 30 years of service would
receive the additional $800 per year of service or $24,000 in additional pension benefits at
retirement. Under the current system, the city could not approve a pension increase that would only
apply to years served in 2013 and beyond, although, on the surface this would seem to make sense as
it limits past pension liabilities and rewards firefighters going forward. Currently, Minnesota
Statutes do not allow for a two tiered system that would increase the pension benefit prospectively
for all future years. Instead, all service pensions must be applied uniformly for all years of active
service both retroactively and prospectively.
The financial impact of an $800 per year of service pension increase would be $67,200 in increased
liability each year going forward (assuming 71 active firefighters, and 13 deferred vested members).
In total, based on the retroactive provision, the proposed benefit increase would add approximately
500,000 in liabilities for the plan.
If state fire aid remains the same or decreases, and if pension benefits increase, the long term
sustainability of the pension plan could be affected. The result of this would be that the city would
have to add a property tax levy to meet the needs of the plan. In past practice, the city has funded
the pension fund with only state fire aid and investments earnings.
Page 4
Pension Amounts
As per the most recent Report of Volunteer Fire Relief Associations by the Office of the State
Auditor (OSA), the maximum lump -sum benefit level allowed under state law is $10,000 per year of
service. The average lump sum for monthly/lump-sum combination plans in 2010 was $4,725. The
average lump sum for metro area relief associations was $3,734. Plymouth is one of five cities that
have a current retirement benefit of $7,500 per year of service with the others being Brooklyn
Center, Northfield, Robbinsdale and Shakopee. Other pension amounts are as follows:
Metro Cities over 40,000 in population Surrounding Cities (10 mile radius)
Apple Valley 6,300 Brooklyn Center 7,500
Eagan 6,500 Dayton 1,500
Eden Prairie 5,600 Golden Valley 6,700
Lakeville 6,230 Hamel 2,300
Maple Grove 6,500 Hopkins 5,300
Minnetonka 6,910 Loretto 4,200
Woodbury 6,720 Excelsior 6,250
Brooklyn Park Defined Contribution Maple Plain 2,100
Edina Defined Contribution Robbinsdale 7,500
Roge rs 2,600
West Metro Defined Contribution
Wayzata Defined Contribution
In 2009 and 2010 most cities appear to have kept pension levels relatively flat. According to the
OSA report, in 2009 and 2010, there were 31 and 11 relief associations, respectively, in Minnesota
that decreased their benefits, including the Hopkins Fire Relief Association whose benefit levels
were reduced from $7,000 to $5,300 per year of service due to the city placing a cap on its municipal
contribution.
Defined Benefit Plan versus Defined Contribution Plan
The current PFRA plan is a defined benefit plan in which all eligible firefighters receive a fixed
lump -sum amount. At retirement (minimum age of 50) and assuming a minimum vesting level of 10
years, the firefighter receives a lump -sum payment which then can be directed by the firefighter into
a personal retirement account or cashed out.
A defined contribution plan requires that an account be set up for each individual firefighter.
Contributions are made to this account by the firefighter, the employer or both. Along with the
contributions, the final amount of funds in the account at retirement is influenced by the firefighter
decisions on how the money is invested. In addition, there is no vesting period so a firefighter
benefits from retirement funds from day one versus the 10 year vesting currently in place.
Current national trends are showing that many entities are changing from defined benefit plans to
defined contribution plans.
Page 5
With this in mind, cities are considering or implementing new models. In 2009, the City of
Minnetonka implemented a new pension model (defined contribution plan) that supplements its
existing defined benefit plan. The defined contribution plan is for duty crews only. The City
mandates that for duty crew members only, $2.00 per hour is set aside towards the ICMA deferred
compensation plan. The more a firefighter works, the more that is set aside tax deferred for their
retirement plan. The investments in the deferred compensation plan are self-directed by each
firefighter. We would like to consider an alternative plan that rewards those firefighters who work
more hours instead of the current model where every firefighter receives the same benefit regardless
of the hours dedicated to the department.
We have met with PFRA officials on several occasions and expressed our interest in exploring
alternative pension options that would meet the following goals:
Tie retirement benefits to actual hours worked
Reduce the uncertain long-term liability for the city
Maintain the goal of recruitment and retention
Allow for full immediate vesting for all firefighters
Allow full portability of assets for firefighters should they leave employment with the city
Cede investment control to individual firefighters
A new supplemental defined contribution plan may cost more now but allows for more predictability
and is more sustainable in the long-term. The current plan, while fully funded and well managed,
may not be sustainable in the long term without significant future tax levy implications. We suggest
that alternative options be explored to supplement the current plan that are based more on hours
worked and less on years of service. Up to this point, the PFRA have indicated they are not
interested in this option.
3. BUDGET IMPACT:
Currently, the Pension Fund is funded entirely through annual state fire aid and investment earnings
and no city property tax levy is needed. However, if the state fire aid is reduced or eliminated or if
investment earnings are not sufficient as benefits increase, the City is required by statute to fund any
such deficits. Such deficits, if any, would be added to future property tax levies and amortized over
a 10 year period.
The financial impact of the requested increase of $800 per year of service would add approximately
500,000 in liabilities for the plan in year one. Depending on investment rate of return, state fire aid
and future benefit increases, a local levy may be required to sustain the plan.
4. ATTACHMENTS:
Resolution from Plymouth Firefighters Relief Association requesting pension increase
2011 Plymouth Fire Pay and Pension Worksheets (sorted by hours worked and longevity)
Defined Benefit to Defined Contribution Plan Article
Letter from PFRA
PFRA Pension Increase Request Presentation
Page 6
WHEREAS, a pension is designed to pay a fixed sum regularly to a former employee, or beneficiary thereof, as a
perquisite for time and service rendered by the former employee; and
WHEREAS, the Plymouth Firefighters Relief Association ("PFRA" or "Association") receives and manages
public money and, in concurrence with the City of Plymouth, provides retirement benefits for the City of
Plymouth Firefighters ("Firefighters");
WHEREAS, the current defined benefit pension payable to Firefighters, ratified by the City of Plymouth, is, as of
January 1, 2007, Seven Thousand Five Hundred Dollars ($7,500) per year of service, and the maximum defined
benefit pension payable under Minnesota state law is Ten Thousand Dollars ($10,000) per year of service; and
WHEREAS, the PFRA Special Fund ("Special Fund") — used to pay pensions — appreciates with payments of
Minnesota State Fire Aid and gains in market value of investments; and
WHEREAS, the Minnesota Office of State Auditor oversees the Association by helping ensure financial integrity
and accountability and holding the Special Fund to the highest standards of financial accountability; and
WHEREAS, to ensure the greatest compliance with these standards of financial reliability and insulate from
drastic market changes, among other things, Minnesota state law requires frequent actuarial valuations; and
WHEREAS, these actuarial valuations require a highly conservative liability factor to be applied against current
assets to determine the Special Fund's funding ratio; and
WHEREAS, despite recent economic stagnation, the Special Fund has experienced strong performance against
many market indicators demonstrating successful management of the Association's assets; and
WHEREAS, the Special Fund has assets currently in excess of Six Million Three Hundred Thousand Dollars
6,300,000); and
WHEREAS, according to the most recent actuarial valuation based on financials as of December 31, 2011, the
Special Fund is currently conservatively funded at a ratio of One Hundred Ten Percent (110.4%) for a benefit
level of Seven Thousand Five Hundred Dollars ($7,500) and conservatively funded near a ratio of One Hundred
Three Percent (102.9%) for a benefit level of Eight Thousand Three Hundred Dollars ($8,300); and
WHEREAS, the PFRA has had a strong record of being good stewards with the Association's assets, and the
PFRA will continue to work with the City of Plymouth to ensure the long -terra viability and sustainability of
PFRA's Special Fund; NOW THEREFORE,
BE IT RESOLVED, the PFRA respectfully requests the City of Plymouth ratify a pension defined benefit
increase bringing the pension defined benefit payable to Eight Thousand Three Hundred Dollars (58,300) per year
of service, effective December 31, 2012.
Adopted by the Plymouth Firefighters Relief Association Board of Trustees, on this Monday, June 18'b, 2012.
Kevin Werstein
President
Sue Magy
Secretary
Page 7
City of Plymouth Fire Department
Sorted by Total Hours)
1/15/2013
Fire
Fighter
Total
Hours
Hourly
Wage
Pension
Benefit
Hourly
Pension
Benefit
Total
Hourly
Benefit
FICA
Medicare
Total
Wages
Benefits
Years of
Service
1 1,222.00 13.73 7,500 6.14 19.87 1,284 18,062 12
7.3
first quartile
9.7
first median
12.1
second quartile
10.4
mean
8.4
third quartile
11.2
second median
13.9
fourth quartile
2 1,091.00 13.11 7,500 6.87 19.98 1,094 15,397 2
3 1,010.50 13.73 7,500 7.42 21.15 1,061 14,936 3
4 995.00 13.73 7,500 7.54 21.27 1,045 14,706 9
5 969.00 13.73 7,500 7.74 21.47 1,018 14,322 15
6 924.50 13.73 7,500 8.11 21.84 971 13,664 11
7 874.00 13.73 7,500 8.58 22.31 918 12,918 18
8 762.00 13.11 7,500 9.84 22.95 764 10,754 4
9 777.50 13.73 7,500 9.65 23.38 817 11,492 9
10 758.00 13.73 7,500 9.89 23.62 796 11,204 5
11 709.00 13.11 7,500 10.58 23.69 711 10,006 6
12 720.50 13.73 7,500 10.41 24.14 757 10,649 4
13 817.00 15.23 7,500 9.18 24.41 952 13,395 9
14 663.50 13.11 7,500 11.30 24.41 665 9,364 3
15 655.50 13.11 7,500 11.44 24.55 657 9,251 3
16 580.50 13.11 7,500 12.92 26.03 582 8,193 3
17 542.50 12.48 7,500 13.82 26.30 518 7,288 6
18 589.50 13.73 7,500 12.72 26.45 619 8,713 17
19 665.50 15.23 7,500 11.27 26.50 775 10,911 5
20 572.50 13.73 7,500 13.10 26.83 601 8,462 24
21 514.50 13.73 7,500 14.58 28.31 540 7,604 4
22 425.00 11.81 7,500 17.65 29.46 384 5,403 5
23 461.00 13.73 7,500 16.27 30.00 484 6,814 7
24 457.00 13.73 7,500 16.41 30.14 480 6,755 28
25 491.50 15.23 7,500 15.26 30.49 573 8,058 7
26 487.50 15.23 7,500 15.38 30.61 568 7,993 7
27 418.50 13.73 7,500 17.92 31.65 440 6,186 7
28 405.50 13.73 7,500 18.50 32.23 426 5,993 5
29 404.00 13.73 7,500 18.56 32.29 424 5,971 6
30 401.00 13.73 7,500 18.70 32.43 421 5,927 27
31 422.50 15.23 7,500 17.75 32.98 492 6,927 13
32 383.00 13.73 7,500 19.58 33.31 402 5,661 26
33 375.00 13.73 7,500 20.00 33.73 394 5,543 6
34 361.00 13.11 7,500 20.78 33.89 362 5,095 1
35 368.00 13.73 7,500 20.38 34.11 387 5,439 5
36 368.00 13.73 7,500 20.38 34.11 387 5,439 21
37 363.50 13.73 7,500 20.63 34.36 382 5,373 5
38 418.50 16.73 7,500 17.92 34.65 536 7,537 8
39 483.00 19.73 7,500 15.53 35.26 729 10,259 20
40 370.00 15.23 7,500 20.27 35.50 431 6,066 6
41 395.00 16.73 7,500 18.99 35.72 506 7,114 10
42 328.00 13.11 7,500 22.87 35.98 329 4,629 3
43 324.50 13.73 7,500 23.11 36.84 341 4,796 9
44 323.00 13.73 7,500 23.22 36.95 339 4,774 10
45 322.00 13.73 7,500 23.29 37.02 338 4,759 9
46 335.00 15.23 7,500 22.39 37.62 390 5,492 8
47 350.50 16.73 7,500 21.40 38.13 449 6,312 9
48 290.50 13.11 7,500 25.82 38.93 291 4,100 5
49 290.00 13.11 7,500 25.86 38.97 291 4,093 5
50 297.00 13.73 7,500 25.25 38.98 312 4,390 4
51 295.00 13.73 7,500 25.42 39.15 310 4,360 15
52 362.00 19.73 7,500 20.72 40.45 546 7,689 36
53 282.50 15.23 7,500 26.55 41.78 329 4,632 10
54 266.00 13.73 7,500 28.20 41.93 279 3,932 6
55 229.00 13.73 7,500 32.75 46.48 241 3,385 9
56 203.50 13.73 7,500 36.86 50.59 214 3,008 14
57 201.00 13.73 7,500 37.31 51.04 211 2,971 9
58 178.50 13.73 7,500 42.02 55.75 187 2,638 17
59 171.50 13.73 7,500 43.73 57.46 180 2,535 14
60 163.50 13.73 7,500 45.87 59.60 172 2,417 19
61 159.50 13.73 7,500 47.02 60.75 168 2,357 9
62 155.50 13.73 7,500 48.23 61.96 163 2,298 10
63 143.001 13.73 1 7,500 52.45 66.18 150 2,114 10
64 1 135.501 13.73 1 7,500 55.35 69.08 142 2,003 36
Page 8
City of Plymouth Fire Department
Hours per Quartile (sorted by Years of Service]
1/15/2013
Fire
Fighter
Total
Hours
Hourly
Wage
Pension
Benefit
Hourly
Pension
Benefit
Total
Hourly
Benefit
Years of
Service
Total
Hours
1 362.00 19.73 7,500 20.72 40.45 36
412.9 hours
first quartile
452.8 hours
first median
492.8 hours
second quartile
476.2
mean
hours
455.4 hours
third quartile
499.6 hours
second median
543.8 hours
fourth quartile
2 135.50 13.73 7,500 55.35 69.08 36
3 457.00 13.73 7,500 16.41 30.14 28
4 401.00 13.73 7,500 18.70 32.43 27
5 383.00 13.73 7,500 19.58 33.31 26
6 572.50 13.73 7,500 13.10 26.83 24
7 368.00 13.73 7,500 20.38 34.11 21
8 483.00 19.73 7,500 15.53 35.26 20
9 163.50 13.73 7,500 45.87 59.60 19
10 874.00 13.73 7,500 8.58 22.31 18
11 589.50 13.73 7,500 12.72 26.45 17
12 178.50 13.73 7,500 42.02 55.75 17
13 969.00 13.73 7,500 7.74 21.47 15
14 295.00 13.73 7,500 25.42 39.15 15
15 203.50 13.73 7,500 36.86 50.59 14
16 171.50 13.73 7,500 43.73 57.46 14
17 422.50 15.23 7,500 17.75 32.98 13
18 1,222.00 13.73 7,500 6.14 19.87 12
19 924.50 13.73 7,500 8.11 21.84 11
20 395.00 16.73 7,500 18.99 35.72 10
21 323.00 13.73 7,500 23.22 36.95 10
22 282.50 15.23 7,500 26.55 41.78 10
23 155.50 13.73 7,500 48.23 61.96 10
24 143.00 13.73 7,500 52.45 66.18 10
25 995.00 13.73 7,500 7.54 21.27 9
26 777.50 13.73 7,500 9.65 23.38 9
27 817.00 15.23 7,500 9.18 24.41 9
28 324.50 13.73 7,500 23.11 36.84 9
29 322.00 13.73 7,500 23.29 37.02 9
30 350.50 16.73 7,500 21.40 38.13 9
31 229.00 16.73 7,500 32.75 49.48 9
32 201.00 13.73 7,500 37.31 51.04 9
33 159.50 13.73 7,500 47.02 60.75 9
34 418.50 16.73 7,500 17.92 34.65 8
35 335.00 15.23 7,500 22.39 37.62 8
36 461.00 13.73 7,500 16.27 30.00 7
37 491.50 15.23 7,500 15.26 30.49 7
38 487.50 15.23 7,500 15.38 30.61 7
39 418.50 13.73 7,500 17.92 31.65 7
40 709.00 13.11 7,500 10.58 23.69 6
41 542.50 12.48 7,500 13.82 26.30 6
42 404.00 13.73 7,500 18.56 32.29 6
43 375.00 13.73 7,500 20.00 33.73 6
44 370.00 15.23 7,500 20.27 35.50 6
45 266.00 13.73 7,500 28.20 41.93 6
46 758.00 13.73 7,500 9.89 23.62 5
47 665.50 15.23 7,500 11.27 26.50 5
48 425.00 11.81 7,500 17.65 29.46 5
49 405.50 13.73 7,500 18.50 32.23 5
50 368.00 13.73 7,500 20.38 34.11 5
51 363.50 13.73 7,500 20.63 34.36 5
52 290.50 13.11 7,500 25.82 38.93 5
53 290.00 13.11 7,500 25.86 38.97 5
54 762.00 13.11 7,500 9.84 22.95 4
55 720.50 13.73 7,500 10.41 24.14 4
56 514.50 13.73 7,500 14.58 28.31 4
57 297.00 13.73 7,500 25.25 38.98 4
58 1,010.50 13.73 1 7,500 7.42 21.15 3
59 663.50 13.11 7,500 11.30 24.41 3
60 655.50 13.11 7,500 11.44 24.55 3
61 580.50 13.11 7,500 12.92 26.03 3
62 328.00 13.11 7,500 22.87 35.98 3
63 1,091.00 13.11 7,500 6.87 19.98 2
64 361.00 13.11 7,500 20.78 33.89 1
Page 9
The Reasons For Changing a Defined
Benefit Plan to a Defined Contribution Plan
By John Kibilko, allow Contributor
Moving from a defined -benefit plan to a defined -contribution plan could help your
retirement outlook.
The advantages of defined -contribution retirementpla s versus defined -benefit plans are
numermis, anal apply to employees, employers and taxpayers. A defined -benefit plan is a
traditional or old-fashioned, depe71di.ng on your age --plan that is fimded completely by
employers and pays retirees a fixed aniount each month based on years of service and
salary. lWany Iarcgc, established companies and most public -sector• entities still provide
defined -benefit programs. Defined -contribution plans, Iike 401(k)s, allow employees to
choose investment options and contribute to the plan (usually with the employer matching
fund s).
Advantages for Employees
Employees have control and choice. You decide -- from among options provided
through your employer -- how much to set aside for retirement, and you also make all
investment decisions. You can, if you choose to, buy and sell shares or direct your fund
manager to do so while determining how conservative or risky to be with your
investments. In defined -benefit plans, pension managers make investment decisions for
all employees. You also don't have to worry about political, bureaucratic or union
mishandling of retirement funds assets.
Defined -contribution plans have portability. Your retirement plan follows you when you
change jobs, unlike a defined -benefit plan, in which many workers lose benefits (or
vesting years) when they leave a job. You can transfer funds to another 401(k) fund, for
example, when you begin work with another employer.
Workers enjoy immediate vesting in a defined -contribution plan because the entire
amount of the account -- both the employee and employer contributions -- are the
property of the worker. This is a benefit to employees who don't stay with companies
long enough to vest. In traditional defined -benefit plans, employer contributions are tied
up in investment pools and workers don't vest for a set number of years -- five or 10
typically. Most employees never see a dime of employer contributions to their benefit
plans because they don't stay around long enough to qualify for benefits.
Despite periodic downturns in stocks and other investment instruments, long-term
investment strategies can provide much higher returns than those typically realized by
most defined -benefit retirement plans. Defined -benefit fund managers don't necessarily
have the best interests of employees in mind. They are concerned with the long-term
viability of the fund -- being able to pay retirees in the future. Often, higher investment
returns result in employers cutting contributions or withdrawing excess assets.
Page 10
Managing your own investment strategy can yield better results, through stocks, bonds,
mutual funds and other tactics.
Taxpayer Advantages
Most government employees participate in defined -benefit retirement plans. The 20
million state government employees in the U.S. account for more than $5 trillion in
pension liabilities (as of December 2008), of which nearly $3.25 trillion is unfunded,
according to a report published by Northwestern University. This debt will come due
someday, and if states continue to tumble further into debt, the American taxpayer will
foot the bill. Defined -contribution plans pose no such risk to taxpayers.
Because of political relationships among unions and politicians, the dangers and
potential ramifications of defined -benefit pension plans, especially government -worker
plans, are enormous. Again, defined -contribution plans eliminate these dangers.
Employer Advantages
Unlike defined -benefit plans, in which retirees are guaranteed an open-ended amount of
money (monthly benefits until they die, or even after they die if spouses qualify),
defined -contribution plans allow employers to know their exact pension liabilities. When
employers stop working for them -- through quitting, retiring or dying -- the employer's
contribution is done.
Through tax deductions for contributions, and tax credits for start-up and program
administration costs, employers can realize savings on most pension plans.
A good, competitive defined -contribution plan can help attract desirable workers,
especially younger workers who have grown up with defined -contribution plans, know
how they operate, understand the benefits and will consider each potential employer's
plan when choosing where to work.
Page 11
Plymouth Firefighters Relief Association
January 14, 2013
Mayor Kelli Slavik
City of Plymouth
3400 Plymouth Boulevard
Plymouth, MN 55447
Dear Mayor Slavik:
Thank you very much for allowing the Plymouth Firefighters Relief Association ("PFRA") the
opportunity to present to you and the city council. The PFRA has appreciated the support the
City of Plymouth has provided over the years and we hope to have your continued support for
years to come. Today, we hope that you will grant our request to increase the PFRA pension.
Our initial request (previously submitted) asks for an increase to $8,300 per year of service from
the current benefit of $7,500 per year of service (state maximum defined benefit payable is
10,000 per year of service). Please find a copy of our presentation materials attached to this
cover letter.
Over the last fifteen (15) years our pension has increased five (5) times, for an average of once
every three (3) years. The last pension increase was in 2007 where the pension increased from
7,000 per year of service to its current $7,500 per year of service. At that time in 2007, we had
over $6.1 million in assets, and we discontinued our monthly benefit payment option as well.
The PFRA Special Fund ("Pension Fund") is primarily funded by Fire State Aid and investment
earnings. Thanks to the City's strong leadership creating a solid mix of commercial and
residential real estate development in Plymouth, we recently received $311,431.82 in Fire State
Aid from the State of Minnesota. This amount was once again the highest in the state. Over the
years, the PFRA investment earnings have also contributed greatly to the increase in our current
assets.
As of our last actuarial (January 1, 2012), we had 103% worth of current assets versus future
liabilities, accounting for an increase to $8,300 per year of service, which was based on assets in
excess of $6.3 million (compared to over $7 million in current assets as of December 31, 2012).
When determining the above funding ratio (103%), the state requires an extremely conservative
calculation to assure pension funds within the state are soundly -funded. The method of
calculating our funding ratio is known as an Entry Age Normal Cost Method. This method
analyzes the present dollars needed to pay future retirement benefits for each individual member.
The method conservatively assumes each new member will receive at least a partially -vested
pension from their first day. Furthermore if a member partially -vests in the Pension Fund, then it
is assumed that they will work until the retirement age of fifty (50) years old. This conservative
formula accounts for a wide range of possible variances, such as a loss of assets or an increase in
membership numbers.
PFRA Pension Increase Presentation Cover Letter
Page 1 of 3
Page 12
Plymouth Firefighters Relief Association
If such occurrences were to happen, a municipal contribution may be needed. To date, the
Pension Fund has not required a municipal contribution. Under State law, a municipal
contribution may be required when a pension fund is not "fully -funded" or the Fire State Aid
payment combined with prospective annual investment earnings will not cover the shortfall.
Several neighboring municipalities have recently paid required municipal contributions. The
primary reason for those cities having to contribute can be traced to the design of their plans.
Those municipalities offer defined benefit plans, like Plymouth; however, those cities also
continue to have a monthly payment benefit option (versus lump -sum payment). As we
mentioned previously, the PFRA discontinued its monthly benefit option when the pension was
increased to $7,500 per year of service. It is important to note that other neighboring
communities routinely make voluntary municipal contributions (i.e. Maple Grove and West
Metro Fire District) to their Pension Funds. It has been a long time, over forty (40) years, since
the PFRA received a municipal contribution, required or otherwise.
Though we are unable to predict the future, we are confident that the Pension Fund will not
require a municipal contribution if the pension is increased. Our confidence is grounded in our
history of significant Fire State Aid payments, exceptional investment appreciation, and regular
membership numbers.
You should be aware that some in this state have suggested that Fire State Aid should be used to
fund the State's recent General Fund budget deficits rather than firefighter pensions. The PFRA
feels quite confident that this scenario will not materialize in the near future with the recently
elected, pro -labor majorities in both houses of the State Legislature.
However if an elimination of Fire State Aid were to occur, we are confident that our past history
of investment gains demonstrates our capability to enjoy future successes without Fire State Aid
which should minimize any concerns. For the better part of the past decade, our investment
performance has accounted for more than fifty percent (50%) of our Pension Fund appreciation.
Moreover, if the error in the Fire State Aid (overstating insurance premiums) is taken into
account, our investment performance amounts to between two-thirds (2/3rd)
and three-quarters
3/4th) of the Pension Fund's recent appreciation.
A significant change in PFRA membership could also potentially require a municipal
contribution. Currently over two-thirds (2/3rd) of the PFRA membership has less than ten (10)
years of service, the point when a member becomes partially -vested into the Pension Fund, and
each year only a handful of members will become partially -vested in the Pension Fund.
Moreover, despite numerous fire department hiring's, resignations and retirements, our
membership has remained relatively constant over the last ten (10) years (we have averaged
between sixty-five (65) and seventy (70) members during that timeframe). Based on past
practices we do not expect a significant spike in new members. Finally the last two (2) times the
pension was increased (in 2003 and 2007), only four (4) firefighters retired in the years following
the increases. Thus, we do not anticipate a major shift in membership numbers, up or down, that
should affect a municipal contribution if the pension is increased.
PFRA Pension Increase Presentation Cover Letter
Page 2 of 3
Page 13
Plymouth Firefighters Relief Association
We understand that the trend throughout the country has been to forego defined benefit pension
plans based on the long-term financial liability associated with exorbitant benefits. The PFRA
benefit, though substantial, is not equivalent to those pension plans. Basically the Pension Fund
does not include as much long-term exposure to risk because it pays a one-time, lump -sum
benefit.
The Pension Fund is an important part of our compensation, in recruitment and retention.
Though we cannot guarantee the City's long-term exposure to risk with our plan, we feel assured
based on our history of solvency and measured increases that the reward is worth the risk now,
and hope you do as well.
Based on the foregoing, we hope you will vote in favor of increasing the PFRA's pension as
soon as practicable. In the event that a step increase over multiple years would be more
palatable, we would be open to discussing this possibility as well.
Thank you again for your time, support, and the opportunity to present you this information. We
would welcome any questions, comments or concerns that you may have now or in the future.
Respectfully,
The PFRA Board of Trustees
Kevin Werstein, President
kwerstei(a),plymouthmn. gov
763) 550-2038
Susan Magy, Secretary
smagy(aplymouthmn. gov
763) 553-0991
Christopher Dore, Trustee
cdore(a,plymouthmn. goy
763) 350-4422
Cc: Plymouth City Council Members
Jeff McCurdy, Treasurer
jmccurdygplymouthmn. gov
612) 816-6888
Aaron Morris, Vice -President
ammorrisgplymouthmn. gov
612) 310-6354
Steve Marti, Trustee
smarti(&,plymouthmn. gov
763) 546-9220
Laurie Ahrens, Plymouth City Manager
Dave Callister, Plymouth Administrative Services Director
Rick Kline, Plymouth Fire Chief
PFRA Pension Increase Presentation Cover Letter
Page 3 of 3
Page 14
Plymouth Firefighters Relief Association
PENSION INCREASE REQUEST
PRESENTATION
JANUARY 22, 2013
Page 15
PFRA Pension Increase Request Presentation
January 22, 2013
Unless specifically noted in the slide,
all of the statistical data presented in
the following slides was taken
directly from the Minnesota State
Auditor's website
www.osa.state.mn.us
Page 16
2
PFRA Pension Increase Request Presentation
January 22, 2013
KEY FIGURES
Current Defined Benefit: $7,500 per year of service
As of December 31, 2012, assets in excess of $7.0 Million*
compared to $5.3 Million as of December 31, 2411, the date
of our last actuarial)
Last Actuarial Valuation or Funding Ratio (assets compared
against liabilities) of 103% for $8,300 per year of service
Currently 75 Active Plymouth Firefighters, 12 Deferred
Members, and 5 Retired Members which are paid monthly
Based on Pension Fund balance as of December 31, 2012
Page 17
3
PFRA Pension Increase Request Presentation
January 22, 2013
WHY INCREASE THE PENSION?
An increase is overdue
aver the last fifteen years, we have historically
seen a pension increase every 3 years
aur last pension increase was in 2007 (6 years ago)
Increasing the pension is the right thing to do
and now is the right time to increase it
We are currently over -funded for the increase
103% for $8,300 per year of service)
Steady management of the Pension Fund has created a wide and increasing gap
between it and equivalent pension plans
Page 18
4
PFRA Pension Increase Request Presentation
January 22, 2013
HISTORY OF PFRA PENSION INCREASES
N
A 4
1996 $4,000/year $4,000/year 102% $2.398 M
1998 $5,500/year $5,500/year 126% $3.279 M
2001 $6,000/year $6,000/year 94% $4.015 M
2002 $6,500/year $7,000/year 95% $3.718 M
2003 $7,000/year $7,500/year 99% $4.537 M
2007 $7,500/year $7,500/year 113% $6.462 M
2013 8,300/year $10,000/year ?103%* $7.040 M**
Assumption based on PFRA's 2012 Actuarial Valuation performed by Van Iwaarden
Associates as of December 31, 2011, which contained $6.3 million in assets
Based on Pension Fund balance as of December 31, 2012
Page 19
5
PFRA Pension Increase Request Presentation
January 22, 2013
KEY DEFINITIONS FOR FUNDING STATUS
Actuarial Valuation (a/k/a "Funding Ratio")
Calculations prepared by an actuary comparing the present
value of retirement plan assets against future liabilities using
the Normal Cost Method (below) owed by the plan.
Minn. Stat. § 356.215, Subd. 1(b))
Entry Age Normal Cost Method
A method of calculating the present dollars needed to pay
future retirement benefits for each individual member,
assuming that each member will reach the retirement age
50 years old) from their first day.
Minn. Stat. § 356.215, Subd. 1(d))
Page 20
a
PFRA Pension Increase Request Presentation
January 22, 2013
EXAMPLE OF HOW CONSERVATIVE THE ENTRY AGE NORMAL
Regardless of age, a member is
expected to earn a pension benefit
from their first day. Thus, the
Pension Fund is required to have a
minimum of ten years (partial -
vesting) worth of current dollars on -
hand for each new member.
8,300 x 10 years of service x 60%
vesting ratio = $49, 800
E.g. $49,800 (for each new member) x 51
current members (> 10 years of service) -
2,539,800
Once vested, the method calculates
that the member will work until
retirement age (50 years old), and
the Pension Fund is required to have
those current dollars on -hand.
25 $8,300 x 25 $207,500
years of
service =
30 $8,300 x 20 $166,000*
years of
service =
Current assets are measured against the Cost of future liabilities to determine the
Funding Ratio.
Page 21
7
PFRA Pension Increase Request Presentation
January 22, 2013
EQUIVALENT FIRE DEPARTMENTS BASED ON
PENSION BENEFITS
c1tv Benefit Funding Ratio
As of 1213112010)
Plymouth 7,500 118%
Brooklyn Center 7,500 102%
Shakopee 7,500 84%
Northfield 7,500 93%
Robbinsdale 7,500 60°%
Eden Prairie * 56 88%
Minnetonka* 56 97%
Both Eden Prairie and Minnetonka pay Monthly Pension Benefits ($56/month =
7,500/year, Minn. Stat. § 424.02, Subd. 3(c -d))
Page 22
8
PFRA Pension Increase Request Presentation
January 22, 2013
5 -YEAR PERSPECTIVE OF COMPARABLE FIRE DEPARTMENT FUNDING RATIOS
CURRENT ASSETS VS. FUTURE LIABILITIES)
Q-Ply—th -0-Mlnnetonka -t Eden Pralne —PoorthfAd -,x-Shakopee -!} 6rooklyn Center —Robb—dale
2006 2007 2008 Zang 2010
Page 23
PFRA Pension Increase Request Presentation
January 22, 2013
REQUIRED MUNICIPAL CONTRIBUTIONS*
State law requires a municipality to pay a municipal contribution to
the Pension Fund unless:
The Pension Fund is fully -funded, or
A Pension Fund is "fully -funded" when there are sufficient
assets to cover future liabilities.
Fire State Aid is sufficient to cover the municipal obligation.
Fire state Aid is based on a 21 tax of fire insurance premiums
which is collected by the state of Minnesota and redistributed to
municipalities to pay for volunteer firefighter pensions.
Plymouth's 2012 Fire State Aid (2%) money was $311,431.82
Office of Minnesota State Auditor, Statement of Position:
Required Municipal Contributions to Volunteer Firefighters'
Pensions Plans, Rev. November 2012
Page 24
10
PFRA Pension Increase Request Presentation
January 22, 2013
HOW THE STATUTORY MUNICIPAL CONTRIBUTION IS CALCULATED*
Minn. Stat. § 69.773, Subd. 5)
The minimum municipal contribution equals the financial
requirements of the Pension Fund MINUS;
The estimated Fire State Aid payable (estimated by
using the Aid amount from the year prior)
AND
Any anticipated contributions, including investment
earnings reasonably anticipated
AND
Five Percent (5%) annual interest on the assets
Office of Minnesota State Auditor, Statement of Position: Required
Municipal Contributions to Volunteer Firefighters' Pensions Plans,
Rev. November 2012
Page 25
PI=RA Pension Increase Request Presentation
January 22, 2013
COMPARABLE MUNICIPAL CONTRIBUTIONS
Minnetonka" Maple Prairie"
Grow
2001 $0 130,148 $299,292* 0
2002 $45,000* 147,676 $272,504* 0
2003 $75,000 158,645 $262,696* 0
2004 $45,000 169,771 $260,000* 0
2005 $0 177,851 $290,000 0
2006 $0 179,119 $286,356* 0
2007 $0 183,450 $350,887* 0
2008 $0 201,026 $411,221* 0
2009 $0 205,908 $462,805* 0
2010 $348,168* 201,344 $1,129,002* 0
Required a municipal contribution
Minnetonka and Eden Prairie have Defined Benefit Plans (similar to Plymouth)
with monthly payments versus lump -sum payments which has exponentially greater
liabilities
Maple Grove has a Defined Contribution Plan (different than Plymouth) and they
contribute voluntarily to their Fire Relief Association
Page 26
12
PFRA Pension Increase Request Presentation
January 22, 2013
PFRA INVESTMENT EARNINGS VS. FIRE STATE AID
Investment Fire State Aid Totalincrease % Attributed
Earnings to Investment
Appreciation) Earnings
2003 $580,651 $388,908* $969,559 59.88/0
2004 $276,329 $497,561* $773,890 35.70%
2005 $327,393 $472,303* $799,696 40.94%
2006 $538,244 $489,376* $1,027,620 52.37%
2007 $407,507 $419,827* $827,334 49.25%
2008 ($1,584,789) $358,197* ($4,226,592) 0%
2009 $1,100,134 $301,859* $1,401,993 78.47%
2010 $640,379 $310,510 $950 889 67.34%
2011** $570,101 $304,862 $874,872 65.15%
Prior to 2007, insurance companies were overstating the amount of insurance
premiums that actually dealt with fire insurance which resulted in above -normal
distributions of Fire State Aid (which reduced the % attributed to Investment
Earnings above). In response, the Minnesota Department of Revenue made
adjustments to Fire State Aid between 2007-2009. See Minnesota State Auditor's
Pension Division Newsletter," dated September, 2007 (www.osa.state.mn.us)
Based on PFRA's 2012 Actuarial Valuation performed by Van Iwaarden Associates
Page 27
13
PFRA Pension Increase Request Presentation
January 22, 2013
PFRA INVESTMENT EARNINGS VS. FIRE STATE AID
N $2,000 --
N $1,500
1,000sH
500
0
500 tips
1,500
2,000 -- - -- - - -- —
a Total Fund Increase Investment Earnings State Fire Aid
Page 28
14
PFRA Pension Increase Request Presentation
January 22, 2013
PFRA MEMBERSHIP OVER THE LAST 10 YEARS
of Active Members of Deferred
2001 62 17
2002 68 27
2003 62 26
2004 6S 30
2005 63 32
2006 69 28
2007 66 25
2008 72 22
2009 69 18
2010 71 19
10 -year average: 66 24
5 -year average: 69 22
Page 29
15
PFRA Pension Increase Request Presentation
January 22, 2013
YEARS OF SERVICE DISTRIBUTION FOR CURRENT PFRA MEMBERSHIP"*
16
15
14
of Members
12
10
9
8
6
5 5
4 4 4
3 3 3 3
2 2 2
1 1 1 1 1 1
0 EJ— -Q-0.
1 3 5 7 9 * 11 13 15 17 19**21 23 25 27 29 31 33
Years of Service
10 Years = partial -vesting in PFRA Pension (60% of benefit payable, which increases
by 4% for each subsequent year of service)
20 Years = fully -vested in PFRA Pension
Based on PFRA Membership Records
Page 30
16
PFRA Pension Increase Request Presentation
January 22, 2013
MASS EXODUS, IF PENSION IS
INCREASED?
In the years following the last 2
pension increases, the PFRA had the
following # of retirements*:
2003 - 4 retirements
2007 - 4 retirements
Based on PFRA Membership Records
Page 31
17
PFRA Pension Increase Request Presentation
January 22, 2013
Any Questions?
Page 32