HomeMy WebLinkAboutCity Council Minutes 11-12-2013 SpecialAdopted Minutes
Special Council Meeting
November 12, 2013
Mayor Slavik called a Special Meeting of the Plymouth City Council to order at 5:43 p.m. in the
Medicine Lake Room, 3400 Plymouth Boulevard, on November 12, 2013.
COUNCIL PRESENT: Mayor Slavik, Councilmembers Stein, Wosje, Willis, Bildsoe, and Prom.
ABSENT: Councilmember Johnson.
STAFF PRESENT: City Manager Callister, Fire Chief Kline, Human Resources Manager Kone',
and Deputy Clerk Baird.
OTHERS PRESENT: Board Members from the Plymouth Fire Department Relief Association
Marti, Flores, Dore, McCurdy, Morris, and Werstein.
Consideration of Pension Benefit Increase Request for Plymouth Firefighters Relief
Association
City Manager Callister gave a report on the request by the Plymouth Firefighters Relief
Association (PFRA) to increase firefighter pension benefits. They have had no increase since
2007. A one percent increase in the paid -on-call base wage of $13.79 is scheduled for 2014,
increasing the rate to $13.93. He stated that all firefighters receive compensation for
attending training, responding to fire calls and working duty crew shifts. In addition to
hourly wages, all firefighters are eligible for a defined benefit retirement plan that is
administered by the PFRA.
In June 2012, the PFRA adopted a resolution requesting that the City Council consider an
increase in pension benefits from $7,500 to $8,300 per firefighter per year of service, an increase
of 10.7%, effective January 1, 2013. On January 22, 2013, the Council held a study session with
the PFRA to discuss this request. After discussion, most of the Council did not support the
pension increase. At the time Council indicated they would continue to have discussions with the
PFRA regarding the pension increase request.
Plymouth firefighters currently receive $7,500.00 for every year of service 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. The pension vesting level increases from 60% at ten years
to full vesting at 100% for 20 years of service or more.
City Manager Callister reported that firefighter pensions are funded entirely through annual state
fire aid and investment earnings. There is no city contribution or tax levy. The state fire aid
consists of a two percent fire insurance premium tax on all fire, lightning, sprinkler leakage and
Adopted Minutes 1 of 5 Special Meeting of November 12, 2013
extended coverage premiums and is distributed to the city based on population and property
value.
He also stated that in 2013 a new supplemental state aid program was passed into law. This
allocated $5.5 million annually to volunteer fire relief associations to be distributed based on the
same formula as the regular state fire aid. The impact for the city was an additional $102,478 in
supplemental state fire aid. The funding in the new law is temporary and will expire when the
Minnesota PERA police and fire fund reaches a certain funding percentage.
Vanguard has been utilized as a financial advisor to invest all fund assets since 2006. Another
option available would be to invest all or a portion of assets in the Minnesota State Board of
Investment (SBI). The 10 year average annual rate of return for associations that use the SBI is
3.9%, compared to the PFRA 10 year rate of return of 3.2%. About 8.4% of Minnesota relief
associations had rates of return that were equal to or greater than the ten year SBI average while
91.6% had lower returns, including Plymouth. Investing all or a portion of the fund assets in the
SBI may be a good option for the PFRA to consider.
Callister said that in 2012, Plymouth Paid On Call (POC) firefighters worked an average of 473
hours per year. Hours of work for individual firefighters averages 12 to 132 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. Under the current system, the city
could not approve a pension increase that would only apply to years served in 2014 and beyond.
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.
By increasing the requested pension benefit to $8,300, the financial impact would be $67,200 in
additional liability each year going forward. 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. While this may not be applicable now,
Council needs to weigh the present and future risks into any decision. If there are shortfalls in
future years, the city would be responsible for making the pension program whole. A future
shortfall would result in the city increasing its property tax levy.
Callister explained the difference in defined benefit plans versus defined contribution plan. The
current PFRA plan is a defined benefit plan in which all eligible firefighters, with a vesting level
of 10 years, receive a fixed lump -sum amount at retirement which can then be directed by the
firefighter into a personal retirement account or cashed out.
Callister indicated that national trends are showing many entities are changing from defined
benefit plans to defined contribution plans. In 2009, a neighboring city implemented a new
pension model (defined contribution plan) that supplements its existing defined benefit plan. The
Adopted Minutes 2 of 5 Special Meeting of November 12, 2013
defined contribution plan is for duty crews only and mandates that $2.00 per hour is set aside
towards a 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 and there is immediate vesting.
Another option could be a conversion from a defined benefit plan to a defined contribution plan
where annual calculations are done based on the plan assets to determine what the retirement
benefits are. A defined contribution plan may require 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's decisions on how the money is invested. In addition, there may be lower
vesting requirements so a firefighter may benefit from retirement funds earlier than the 10 year
vesting currently in place. Defined contribution plans are always 100% funded, as the liabilities
are limited to the total plan assets.
Callister said that benefits may go up and down in value, the risk and reward of a defined benefit
plan is shifted to the firefighters and not the city. There are fire relief associations that currently
have a defined contribution pension system including Edina, Eagan, Maple Grove, Brooklyn Park
and West Metro (Crystal/New Hope). He believes this should be discussed as an option with
potential advantages to both firefighters and the City.
City staff has met with PFRA officials on several occasions and expressed 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
At least one relief association in Minnesota has implemented a performance based pension
system that rewards firefighters for attending calls.
Callister stated that a new supplemental defined contribution plan may cost more now but allows
for easier budgeting and is more sustainable in the long-term. The current plan may not be
sustainable in the long term without significant future tax levy implications. Staff suggests that
alternative options be explored to supplement or modify the current plan that are based more on
hours worked and less on years of service. Up to this point, the PFRA indicated they are not
interested in this option. He recommends that the pension benefit be increased from $7,500 per
year of service to $8,000 per year of service, effective January 1, 2014.
The recommendation is given with the following conditions that must be satisfied prior to
December 31, 2015 and before any future pension increases are requested:
Adopted Minutes 3 of 5 Special Meeting of November 12, 2013
That the PFRA Board or designated subcommittee, initiate the following with City officials:
1. Discuss the advantages/disadvantages of converting the pension system from a defined
benefit plan to a defined contribution plan.
2. Discuss a performance based pension system that addresses internal inequity in the
current pension system.
3. Discuss a supplemental pension system that could provide for immediate vesting,
portability of assets, individual investment control and provide compensation based on
number of hours worked.
4. Discuss the advantages/disadvantages of investing all or a portion of the plan assets with
the Minnesota State Board of Investments.
Councilmember Bildsoe asked what is the percentage of firefighters who take retirement.
Fire Chief Kline said of the 112 members who have left since 2000, 72% left with no vested
interest, 12% were partially vested and 16% were fully vested.
Firefighter Werstein said that the PFRA board initially brought a request of $8,300 increase
in January 2013 after meetings with Fire Chief Kline and City Manager Callister in June of
2012. Callister suggested a one-time increase of $500 to $8,000. Another option put forth
was a five year plan with an initial increase of $600 to $8,100 in 2015; $300 increase to
8,400 in 2016; and $300 increase to $8,700 in 2018. In December of 2011 special fund
assets were $6.3 Million, and at the October 25, 2013 meeting the net assets were $8.1
Million.
Councilmember Prom asked how the funds are appropriated, are they bonds? Firefighter
Werstein said that the funds are 60% bonds and 40% equities.
Mayor Slavik asked about the defined contribution plan and if the PRFA has looked into that
option. Firefighter Werstein said that an accounting firm performed a study and presented
their findings at a 2008 meeting. The members voted it down. The members would have
benefited greatly, but they would rather benefit from the $7,500.
Mayor Slavik asked if they could base the pension on the number of hours worked.
Firefighter Werstein said it would take state legislation to change that. All firefighters get
paid the same.
Councilmember Wosje suggested that some wages should be put in deferred compensation
to allow firefighters the opportunity to participate in putting additional investment money
into the account. Firefighter Morris said nothing is proposed on the board, they would need
more information.
Adopted Minutes 4 of 5 Special Meeting of November 12, 2013
Councilmember Stein asked if there were minimum hours per month to qualify for the
pension? Fire Chief Kline said no minimum amount of hours per month, but there are
minimum training requirements and minimum amounts of hours per year.
Councilmember Willis asked if the firefighters were willing to look at a defined contribution
plan? Firefighter Dore said yes.
The Council requested that the PRFA go back to its members and discuss the defined
contribution plan and report back. No official action was taken. Council directed staff to
bring the item to the council meeting on December 10. They would support the $8,300
increase. They also requested a status report on the four conditions listed within the next
twelve months to pursue all options.
Adjournment
The meeting adjourned at 6:20 p.m.
Adopted Minutes 5 of 5 Special Meeting of November 12, 2013