HomeMy WebLinkAboutCity Council Packet 11-12-2013 SpecialCITY OF PLYMOUTH
AGENDA
SPECIAL COUNCIL MEETING
NOVEMBER 12, 2013, 5:30 p.m.
MEDICINE LAKE CONFERENCE ROOM
1. CALL TO ORDER
2. TOPICS
A. Consider Plymouth Firefighters Relief Association request for pension
benefit increase
3. ADJOURN
Special Council Meeting 1 of 1 November 12, 2013
rp) CiCityof
Plymouth
Adding Qaafity to Life
To:
SPECIAL
COUNCIL MEETING Prepared by:
November 12, 2013
Item:
1. ACTION REQUESTED:
Agenda 2ANumber:
Mayor and City Councilmembers
Dave Callister, Administrative Services Director
Consider Plymouth Firefighters Relief Association request for
pension benefit increase
Consider the request by the Plymouth Firefighters Relief Association to increase firefighter pension
benefits.
2. BACKGROUND:
All firefighters receive compensation for attending training, responding to fire calls and working
duty crew shifts. The hourly rates are $11.19 to $13.73 for firefighters and up to $19.73 for officers.
In addition to hourly wages, all firefighters are eligible for a defined benefit retirement plan that is
administered by the Plymouth Firefighters Relief Association (PFRA).
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 was to increase the annual
defined benefit from $7,500 to $8,300 per firefighter per year of service, an increase of 10.7%.
On January 22, 2013, the Council held a study session with the PFRA to discuss this request. After
considerable discussion, the majority of the Council did not support the pension increase as it would
put taxpayers at risk in the future if state fire aid and investment income were not sufficient to fully
fund the pension program. Council indicated they would continue having discussions with the
PFRA regarding the pension increase request.
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 full vesting 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 pension proposal would increase the lump sum retirement for
20 years of service to $166,000.
Page 1
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
FUNDING
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
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. Most local fire relief pension plans are not sustainable solely from the two
percent fire aid and require an annual property tax levy.
In addition, a new supplemental state aid program was passed into law during the 2013 session. This
law appropriated $15.5 million annually of which $5.5 million was allocated on an annual basis to
volunteer fire relief associations to be distributed based on the same formula as the regular state fire
aid. The impact of this new law for Plymouth 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. After talking to several state officials, temporary in
this case could be a lengthy period of time, perhaps 20 years or more.
The recent state aid history shows a high of $498,561 in 2004 with a low of $301,510 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 advocated in the past for legislative changes and there
has been past discussion regarding formula changes or redistribution of state aid funds. To this
extent, the future of state fire aid is uncertain.
Page 2
State Fire Aid History rp) p `
ityof
Y
600,000 Adding4o1Ry w Life
500,000
400,000
300,000
200,000
100,000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Supplemental 0 $0 $0 $0 $0 $0 $0 0 $0 $0 $102,478
Fire Aid 389,908 $498,5611$477,303 $489,3761$419,827 $358,197 $301,8591$315,510 $305,862 $311,432 $346,792
Page 2
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%.
Rate of Return on Pension Fund Investments
Each year, the Minnesota Office of the State Auditor (OSA) issues a report on the average annual
rate of return for all fire relief associations. The OSA reports that the rate of return for the PFRA
over the last ten years is 3.2% placing it at the 48th percentile, meaning that the PFRA is in the
middle of the sample group of all Minnesota fire relief associations.
Investment Options
Since 2006, the PFRA has utilized a financial advisor, Vanguard, to invest all fund assets. Another
option available to local fire relief associations is to invest all or a portion of their assets in the
Minnesota State Board of Investment (SBI). A total of 43% of the fire relief associations with over
3 million in assets currently utilize the SBI (see attachment). The 10 year average annual rate of
return for relief 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 than the SBI average, including
Plymouth. Investing all or a portion of the fund assets in the SBI may be a good option for the
PFRA to consider.
Page 3
Plymouth Fire Relief Association
Funding Ratio
CityofribPlymouth
Assets/Liabilities AdOng Quality roOfe
140%
120%
100%
80%
60%
40%
20%
0%
1999 2000 2001 2002 2003 1 2004 1 2005 1 2006 1 2007 1 2008 1 2009 2010 2011 2012
115.9%1123.7%198.1% 186.5% 1100.9%198.4% 1103.7%1118.5%1120.6%187.7% 1105.7%1116.8%1112.9% 118.9%
Rate of Return on Pension Fund Investments
Each year, the Minnesota Office of the State Auditor (OSA) issues a report on the average annual
rate of return for all fire relief associations. The OSA reports that the rate of return for the PFRA
over the last ten years is 3.2% placing it at the 48th percentile, meaning that the PFRA is in the
middle of the sample group of all Minnesota fire relief associations.
Investment Options
Since 2006, the PFRA has utilized a financial advisor, Vanguard, to invest all fund assets. Another
option available to local fire relief associations is to invest all or a portion of their assets in the
Minnesota State Board of Investment (SBI). A total of 43% of the fire relief associations with over
3 million in assets currently utilize the SBI (see attachment). The 10 year average annual rate of
return for relief 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 than the SBI average, including
Plymouth. Investing all or a portion of the fund assets in the SBI may be a good option for the
PFRA to consider.
Page 3
30%
20%
10%
0%
10%
20%
30%
40%
Plymouth Fire Relief Association
Annual Rate of Return Plymoributh
Adding Q nifty toLife
Market Comparisons
As with any request for employee pay and benefit increases, we have completed a market survey that
compares similar sized fire departments in the Twin Cities metropolitan area.
Plymouth Fire Department
Pay and Pension Comparison
Training & Per Equivalent Annual
Call Hourly Pay * Pension***
Plymouth $13.73 6,494 7,500
Average ** $13.92 6,584 6,511
Variance -$0.19 90 989
2004 2005 2006 2007 2008 1 2009 2010 2011 2012
6.9% 6.4% 9.3% 6.5% 28.2% 1 21.2% 10.8% 0.1% 11.1%
Market Comparisons
As with any request for employee pay and benefit increases, we have completed a market survey that
compares similar sized fire departments in the Twin Cities metropolitan area.
Plymouth Fire Department
Pay and Pension Comparison
Training & Per Equivalent Annual
Call Hourly Pay * Pension***
Plymouth $13.73 6,494 7,500
Average ** $13.92 6,584 6,511
Variance -$0.19 90 989
Equivalent Pay is based on an average of 473 hours for training and calls per firefighter for 2012.
Average includes cities that pay an hourly per call rate, including Apple Valley, Brooklyn Park,
Coon Rapids, Eden Prairie, Edina, Maple Grove, Minnetonka, St.Louis Park and Woodbury.
Annual Pension includes Apple Valley, Lakeville, Minnetonka and Woodbu
A one percent increase in the paid -on-call base wage of $13.79 is scheduled for 2014, increasing the
rate to $13.93.
In 2012, Plymouth Paid On Call (POC) firefighters worked an average of473 hours per year. Hours
ofwork for individual firefighters ranged from a low of 143 to a high of 1,579 per year, an average
of 12 to 132 hours per month.
Page 4
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 2014 and beyond, although, on the surface this would seem to make sense as
it does limit 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.
By increasing the pension benefit to $8,300, the financial impact of an $800 per year of service
pension increase would be $67,200 in additional 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. While this may not be applicable given today's
factors, the Council needs to weigh the present and future risks into any decision regarding pension
increases. If there are shortfalls in future years, the city is responsible for making the pension
program whole. A future shortfall would result in the city increasing its property tax levy to meet
the needs ofthe plan.
Pension Amounts
As per the most recent Report of Volunteer Fire ReliefAssociations 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. In 2011, the average lump sum benefit for metro area relief associations was $3,788.
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. In June of 2013, the
City of Eden Prairie increased their lump sum amount to the state maximum of $10,000 per year of
service although most, if not all of their retirees are still under a monthly benefit plan.
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. Unfortunately, the most recent statewide data from the OSA is from 2011 so we do not
have any general pension increase trends from 2012 or 2013.
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.
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, a neighboring city
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 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.
Another option to consider would 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 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.
While 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. As you can see from the attachments, there are many fire relief
associations that currently have a defined contribution pension system including Edina, Eagan,
Maple Grove, Brooklyn Park and West Metro (Crystal/New Hope). Although to my knowledge no
relief associations have done this type of conversion in the last 10 years, I believe this should be
discussed as an option with potential advantages to both firefighters and the city.
City staff 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
Staff would like to discuss alternative plans that reward those firefighters who work more hours
instead of the current model where every firefighter receives the same pension benefit regardless of
the hours dedicated to the department. As you can see from the attachments, there is a wide
discrepancy in hours worked by individual firefighters.
At least one relief association in Minnesota has implemented a performance based pension system
that rewards firefighters for attending calls.
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. 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 have indicated they
are not interested in this option.
Page 6
3. BUDGET IMPACT:
Currently, the PFRA Pension Fund is funded entirely through annual state fire aid and investment
earnings and no city property tax levy is needed. 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.
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.
Recommendation:
Given the current positive factors surrounding the current pension plan including a funded
percentage of 118.9% and the recent 44% increase in supplemental state fire aid and given that the
firefighters have not seen an increase in the pension level since 2007, I am recommending that the
pension benefit be increased from $7,500 per year of service to $8,000 per year of service, effective
January 1, 2014.
This recommendation is given with the following conditions that must be satisfied prior to December
31, 2015 and before any future pension increases are requested:
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.
4. ATTACHMENTS:
2011 Plymouth Fire Pay and Pension Worksheets (sorted by hours worked and years of service)
Firefighter Pension Plan for Comparable Departments
Plan Types Definition from OSA Report
Letter and Resolution from PFRA requesting pension increase
PFRA Pension Increase Request Presentation
For the complete 20110 SA Report (180 pages) on Fire Relief Associations, please visit
http://www.osa.state.mn.us/Reports/pen/2011/vfra/vfra 11 report.pdf
Page 7
City of Plymouth Fire Department
Years of Service per quartile (Sorted by 2012 Total Hours)
2011 2012 Hourly Total
Fire Total Total Hourly Pension Pension Hourly Years of
Fighter Hours Hours Wage Benefit Benefit Benefit Service
Years of Service
Per Quartile
1 1 665.50 1,579.50 15.23 7,500 4.75 19.98 6
9.2
first quartile average
9.4
first median avg.
9.7
second quartile average
11.7
average
14.0
third quartile average
14.0
second median avg.
13.9
fourth quartile average
2 1,222.00 1,175.00 13.73 7,500 6.38 20.11 13
3 709.00 942.00 15.23 7,500 7.96 23.19 8
4 762.00 941.00 13.73 7,500 7.97 21.70 5
5 924.50 938.00 13.73 7,500 8.00 21.73 13
6 995.00 937.50 13.73 7,500 8.00 21.73 11
7 542.501 906.00 15.23 7,500 8.28 23.51 8
8 720.50 887.00 13.73 7,500 8.46 22.19 5
9 969.00 885.50 13.73 7,500 8.47 22.20 16
10 1,091.00 881.50 13.11 7,500 8.51 21.62 3
11 Partial 877.50 13.11 7,500 8.55 21.66 2
12 874.00 836.00 13.73 7,500 8.97 22.70 19
13 514.50 801.50 13.73 7,500 9.36 1 23.09 6
14 Partial 779.50 12.48 7,500 9.62 22.10 2
15 487.50 775.50 15.23 7,500 9.67 24.90 19
16 817.00 672.50 15.23 7,500 11.15 26.38 11
17 483.00 661.50 19.73 7,500 11.34 31.07 21
18 1,010.50 652.50 13.11 7,500 11.49 24.60 4
19 777.50 587.00 13.73 7,500 12.78 26.51 9
20 Partial 564.50 13.11 7,500 13.29 26.40 2
21 Partial 551.50 13.11 7,500 13.60 26.71 2
22 589.50 544.50 13.73 7,500 13.77 27.50 18
23 290.00 529.50 13.11 7,500 14.16 27.27 6
24 655.50 525.50 11.81 7,500 14.27 26.08 4
25 461.00 501.50 13.73 7,500 14.96 28.69 8
26 422.50 488.50 19.73 7,500 15.35 35.08 14
27 Partial 478.00 11.81 7,500 15.69 27.50 2
28 580.501 472.50 11.81 7,500 15.87 27.68 4
29 350.50 456.50 16.73 7,500 16.43 33.16 11
30 404.00 454.50 13.73 7,500 16.50 30.23 17
31 383.00 438.50 13.73 7,500 17.10 30.83 28
32 758.00 435.50 13.11 7,500 17.22 30.33 5
33 405.50 433.50 13.73 7,500 17.30 31.03 13
34 361.00 429.50 13.11 7,500 17.46 30.57 5
35 328.001 413.50 13.11 7,500 18.14 31.25 4
36 457.00 408.00 11.19 7,500 18.38 29.57 30
37 363.50 401.00 11.19 7,500 18.70 29.89 9
38 572.50 389.50 13.73 7,500 19.26 32.99 25
39 491.50 388.00 15.23 7,500 19.33 34.56 9
40 370.00 375.50 15.23 7,500 19.97 35.20 8
41 418.50 373.00 16.73 7,500 20.11 36.84 14
42 368.001 371.00 13.73 7,500 20.22 33.95 22
43 Partial 369.50 11.19 7,500 20.30 31.49 2
44 322.00 344.00 13.73 7,500 21.80 35.53 11
45 324.50 337.50 13.73 7,500 22.22 35.95 11
46 362.00 331.50 19.73 7,500 22.62 42.35 38
47 290.50 318.00 13.11 7,500 23.58 36.69 6
48 295.00 317.00 13.11 7,500 23.66 36.77 17
49 323.001 312.00 13.73 7,500 24.04 37.77 21
50 282.50 304.50 13.86 7,500 24.63 38.49 12
51 335.00 296.50 12.48 7,500 25.30 1 37.78 9
52 375.00 296.50 13.73 7,500 25.30 39.03 8
53 130.00 269.00 13.73 7,500 27.88 41.61 20
54 201.00 267.50 13.86 7,500 28.04 41.90 11
55 297.00 253.50 13.73 7,500 29.59 43.32 6
56 266.001 242.50 13.73 7,500 30.93 44.66 8
57 203.50 220.50 13.73 7,500 34.01 47.74 15
58 229.00 188.50 13.73 7,500 39.79 53.52 11
59 163.50 175.50 13.73 7,500 42.74 56.47 21
60 143.00 172.00 13.73 7,500 43.60 57.33 12
61 159.50 154.00 13.73 7,500 48.70 62.43 11
62 178.50 151.00 13.73 7,500N49. 63.40 7
63 171.50 149.50 13.73 7,500 63.90 16
64 155.50 145.50 13.73 7,50065.28 12
65 135.50 143.00 13.73 7,500 66.18 37
Page 8
City of Plymouth Fire Department
Hours per quartile (Sorted by Years of Service)
2011 2012 Hourly Total
Fire Total Total Hourly Pension Pension Hourly Years of
Fighter Hours Hours Wage Benefit Benefit Benefit Service
Total
Hours Per Year
1 1 362.00 331.50 19.73 7,500 22.62 42.35 38
411.0
first quartile average
449.7
first median avg.
488.3
second quartile average
506.1
average
495.0
third quartile average
560.9
second median avg.
622.9
fourth quartile average
2 135.50 143.00 13.73 7,500 52.45 66.18 37
3 457.00 408.00 11.19 7,500 18.38 29.57 30
4 383.00 438.50 13.73 7,500 17.10 30.83 28
5 572.50 389.50 13.73 7,500 19.26 32.99 25
6 368.00 371.00 13.73 7,500 20.22 33.95 22
7 483.001 661.50 19.73 7,500 11.34 31.07 21
8 323.00 312.00 13.73 7,500 24.04 37.77 21
9 163.50 175.50 13.73 7,500 42.74 56.47 21
10 130.00 269.00 13.73 7,500 27.88 41.61 20
11 487.50 775.50 15.23 7,500 9.67 24.90 19
12 874.00 836.00 13.73 7,500 8.97 22.70 19
13 589.50 544.50 13.73 7,500 13.77 1 27.50 18
14 295.001 317.00 13.11 7,500 23.66 36.77 17
15 404.00 454.50 13.73 7,500 16.50 30.23 17
16 171.50 149.50 13.73 7,500 50.17 63.90 16
17 969.00 885.50 13.73 7,500 8.47 22.20 16
18 203.50 220.50 13.73 7,500 34.01 47.74 15
19 422.50 488.50 19.73 7,500 15.35 35.08 14
20 418.50 373.00 16.73 7,500 20.11 36.84 14
21 924.501 938.00 13.73 7,500 8.00 21.73 13
22 405.50 433.50 13.73 7,500 17.30 31.03 13
23 1,222.00 1,175.00 13.73 7,500 6.38 20.11 13
24 155.50 145.50 13.73 7,500 51.55 65.28 12
25 143.00 172.00 13.73 7,500 43.60 57.33 12
26 282.50 304.50 13.86 7,500 24.63 38.49 12
27 229.00 188.50 13.86 7,500 39.79 53.65 11
28 201.001 267.50 13.86 7,500 28.04 41.90 11
29 817.00 672.50 15.23 7,500 11.15 26.38 11
30 159.50 154.00 13.73 7,500 48.70 62.43 11
31 995.00 937.50 13.73 7,500 8.00 21.73 11
32 350.50 456.50 16.73 7,500 16.43 33.16 11
33 324.50 337.50 13.73 7,500 22.22 35.95 11
34 322.00 344.00 13.73 7,500 21.80 35.53 11
35 178.501 151.00 13.73 7,500 49.67 63.40 9
36 335.00 296.50 12.48 7,500 25.30 37.78 9
37 777.50 587.00 13.73 7,500 12.78 26.51 9
38 491.50 388.00 15.23 7,500 19.33 34.56 9
39 370.00 375.50 15.23 7,500 19.97 35.20 8
40 709.00 942.00 15.23 7,500 7.96 23.19 8
41 375.00 296.50 13.73 7,500 25.30 39.03 8
42 461.001 501.50 13.73 7,500 14.96 28.69 8
43 542.50 906.00 15.23 7,500 8.28 23.51 8
44 266.00 242.50 13.73 7,500 30.93 44.66 8
45 363.50 401.00 13.73 7,500 18.70 32.43 7
46 665.50 1,579.50 15.23 7,500 4.75 19.98 6
47 290.50 318.00 13.11 7,500 23.58 36.69 6
48 297.00 253.50 13.73 7,500 29.59 43.32 6
49 290.001 529.50 13.11 7,500 14.16 27.27 6
50 514.50 801.50 13.73 7,500 9.36 23.09 6
51 762.00 941.00 13.73 7,500 7.97 21.70 5
52 758.00 435.50 13.11 7,500 17.22 30.33 5
53 720.50 887.00 13.73 7,500 8.46 22.19 5
54 361.00 429.50 13.11 7,500 17.46 30.57 5
55 1,010.50 652.50 13.11 7,500 11.49 24.60 4
56 328.001 413.50 13.11 7,500 18.14 31.25 4
57 655.50 525.50 11.81 7,500 14.27 26.08 4
58 580.50 472.50 11.81 7,500 15.87 27.68 4
59 1,091.00 881.50 13.11 7,500 8.51 21.62 3
60 Partial 478.00 11.81 7,500 15.69 27.50 2
61 Partial 877.50 13.11 7,500 8.55 21.66 2
62 Partial 564.50 13.11 7,500 13.29 26.40 2
63 Partial 369.50 11.19 7,500 20.30 31.49 2
64 Partial 551.50 13.11 7,500 13.60 26.71 2
65 Partial 779.50 12.48 7,500 9.62 22.10 2
Page 9
Minnesota Fire Relief Associations 11/08/13
With over $3 million in assets Statewide
10 Year
Rate of Return Percentile State Board of Pension Assets Per City Funded
City Market Value 2011 5 Year 10 Year Rank Investment? Benefit Firefighters Firefighter Contribution Percentage
1 Coon Rapids 6,132,013 3.3% 4.0% 5.5% 98% 33.5% at SBI DC 51 120,236 100% Defined Contribution
2 Edina 6,943,991 1.0% 3.2% 5.3% 98% 99.6% at SBI DC 42 165,333 100% Defined Contribution
3 Brooklyn Center 3,125,724 4.5% 1.2% 5.0% 96% No 7,500 34 91,933 39,204 93% Defined Benefit
4 Golden Valley 4,005,785 4.1% 2.6% 5.0% 96% 70.6% at SBI 6,700 48 83,454 97,604 106% Defined Benefit
5 Hastings 3,211,079 0.3% 2.0% 4.8% 93% No 4,500 46 69,806 105% Defined Benefit
6 Mound 4,024,638 2.6% 2.1% 4.8% 93% No 7,500 40 100,616 141,625 90% Defined Benefit
7 White Bear Lake 5,223,158 3.2% 1.5% 4.8% 93% No DC 49 106,595 104% Defined Benefit
8 Roseville 7,402,826 1.8% 1.6% 4.6% 90% 99.0% at SBI 3,000 51 145,153 207,651 85% Defined Benefit
9 Fridley 3,281,663 0.6% 3.7% 4.2% 83% No DC 35 93,762 100% Defined Contribution
10 Lake Johanna 3,726,607 2.6% 1.5% 4.2% 83% No 5,600 65 57,332 83,324 97% Defined Benefit
11 Brooklyn Park 6,763,077 1.2% 1.2% 4.1% 81% 99.9% at SBI DC 74 91,393 26,181 100% Defined Contribution
12 Maple Grove 9,202,124 0.1% 0.4% 4.1% 81% No DC 90 102,246 207,442 100% Defined Contribution
13 Inver Grove Heights 3,374,280 0.2% 2.2% 4.0% 79% No 5,800 60 56,238 113% Defined Benefit
14 Maplewood 4,250,121 0.4% 1.5% 4.0% 79% 91.3% at SBI 5,500 41 103,661 222,110 105% Defined Benefit
15 Eden Prairie 16,841,826 2.3% 0.9% 3.9% 74% No 5,600 95 177,282 830,077 85% Defined Benefit
16 Northfield 3,275,651 1.1% 1.3% 3.9% 74% 99.4% at SBI 7,500 31 105,666 77,374 94% Defined Benefit
17 Shakopee 3,974,012 0.7% 1.6% 3.9% 74% 52.8% at SBI 7,500 42 94,619 351,976 89% Defined Benefit
18 Spring Lake Park 10,346,390 0.9% 2.0% 3.9% 74% 9.0% at SBI DC 51 202,870 270,750 107% Defined Benefit
19 West Metro 5,321,184 5.2% 1.3% 3.9% 74% No DC 59 90,190 287,270 100% Defined Contribution
20 Minnetonka 11,933,087 0.6% 1.7% 3.5% 61% 49.2% at SBI 6,910 68 175,487 198,026 93% Defined Benefit
21 Woodbury 6,363,953 1.2% 0.4% 3.5% 61% 100.0% at SBI 6,720 70 90,914 143,189 98% Defined Benefit
22 Chaska 3,998,279 0.1% 1.4% 3.3% 52% No DC 32 124,946 205,361 75% Defined Benefit
23 Stillwater 3,002,246 2.6% 0.2% 3.3% 52% 19.8% at SBI 5,000 32 93,820 109% Defined Benefit
24 Andover 3,059,505 1.7% 0.1% 3.2% 48% No DC 50 61,190 50,000 100% Defined Contribution
25 Apple Valley 4,401,850 3.1% 1.0% 3.2% 48% No 6,300 65 67,721 300,257 70% Defined Benefit
26 Plymouth 6,333,430 0.5% 2.2% 3.2% 48% No 7,500 71 89,203 113% Defined Benefit
27 Excelsior 3,573,611 1.9% 0.7% 3.1% 45% 99.8% at SBI 6,250 46 77,687 88,124 97% Defined Benefit
28 Eagan 8,196,053 2.9% 0.6% 3.0% 41% No DC 102 80,353 405,546 100% Defined Contribution
29 Anoka Champlin 3,159,270 3.0% 3.9% 1.6% 8% No DC 44 71,802 10,920 100% Defined Contribution
30 Savage 3,854,881 2.8% 2.8% 1.6% 8% 32.1% at SBI 5,072 35 110,139 184,514 78% Defined Benefit
Average 5,610,077 0.8% 1.2% 3.9% 70% 6,136 54 103,388 152,708 97%
Average for SBI Cities 0.6% 1.3% 3.9% 70.5% 96% Average for Defined Benefit
Average for Non SBI Cities 1.8% 1.2% 3.8% 68.7% 98% Average for Defined Contribution
97% Average for All
Difference 2.4% 0.1% 0.1% 2%
SBI Cities ROR to Plymouth 1.1% 0.9% 0.7% 22.5%
Page 10
Plan Types
A relief association's plan type is characterized by how the plan is funded. Relief associations
can either be defined -benefit retirement plans or defined -contribution retirement plans. A
defined -benefit retirement plan provides a retirement benefit that is predetermined based on a
formula. The unknown variable for a defined -benefit retirement plan is the amount of funding
needed to support the predetermined benefits.
Benefits are primarily funded through a combination of fire state aid, municipal contributions,
and investment earnings. When revenue from one of these funding sources decreases, pressure
may be put on the other funding sources to make up the difference. If a relief association
experiences investment losses, for example, a municipality may need to increase its contributions
to the association so that benefits are sufficiently funded.
A defined -contribution retirement plan provides a retirement benefit with a predetermined
amount of funding. The unknown variable for a defined -contribution retirement plan is what a
member's benefit amount will be at retirement. The benefit amount is equal to the member's
individual account balance at the time of retirement. Members of defined -contribution plans
receive equal shares of state and municipal contributions and prorated shares of investment
earnings. Account balances vary from year to year based on the relief association's investment
performance, revenues, and expenses. Members of a defined -contribution plan receive a one-
time lump -sum payment when they retire.
Relief associations electing to administer defined -benefit retirement plans are further
characterized by how benefits are payable. Defined -benefit retirement plans may either pay
benefits as a one-time lump -sum payment or as a monthly payment made from the time of
retirement until the member's death.
Nearly 84 percent of relief associations in Minnesota are lump -sum plans, meaning that they pay
benefits as a one-time lump -sum payment to members upon their retirement. In lump -sum plans,
benefits are paid to members based on an annual benefit level in effect at the time of the
member's separation from active service and membership. Lump -sum plans are the most
common plan type because they are generally easier to administer and have fewer associated
administrative costs.
Only 23, or 3.3 percent, of relief associations offered monthly benefits to retirees. Of these relief
associations, 18 provide their members with a choice at retirement of receiving a monthly benefit
or a lump -sum benefit. Five relief associations provided only monthly benefits to their members.
Monthly benefits are based on the member's years of service and a monthly benefit amount, and
are paid from the time of retirement until the member's death. Monthly benefit plans are the least
common type of plan due to their complexity and higher administrative costs. In fact, the
majority of the 18 relief associations that offer their members a choice of receiving a monthly or
a lump -sum benefit have discontinued the monthly benefit option for future members.
Excerpt from State of Minnesota Office of the State Auditor Financial and Investment
Report of Volunteer Fire Relief Associations for the year ended December 31, 2011.
Page 11
Plymouth Firefighters' Relief Association
July 22, 2013
Mayor Kelli Slavik
City of Plymouth
3400 Plymouth Boulevard
Plymouth, MN 55447
Dear Mayor Slavik:
Thank you very much for your continued support of the Plymouth Firefighters' Relief Association
PFRA" or "Association"). It has been noticed and appreciated.
As you are aware, pension funding has been the topic of many discussions, locally and nationally,
over the past decade. Throughout the country there has been considerable media attention paid to
defined -benefit plans, especially local governments' and auto workers' defined -benefit pension
plans. Most of the attention, negative in nature, has surrounded the need for governmental assistance
or "bail outs" to remedy expected shortfalls in these plans. It is important to note that our pension
plan is similar in name only. We remain soundly funded and well-positioned for the future (see
important figures below).
This past January 14, 2013, the Association's Board of Trustees requested the city of Plymouth ratify
a one-time pension increase of $800 per year of service, effective January 1, 2014. This increase
would raise our lump -sum pension benefit to $8,300 per year of service.
After the results of the most recent Minnesota legislative session and having internal and external
discussions, we have decided to add two additional proposals that supplement our initial request
January 14, 2013 request," see proposals below). We feel that these proposals are fair, prudent
and accomplish our mutual objectives: balance near-term desires with objective, strategic
planning for a self-sufficient pension plan.
Brief Back rgound
As you may recall, the PFRA, in conjunction with the city ofPlymouth, manages the Association's
Special Fund. The Special Fund is used to pay a defined -benefit, lump -sum pension to qualifying
retired members of the Plymouth Fire Department. Our partnership has worked extremely well for
many years and we have experienced tremendous success together. Our current pension benefit
ranks amongst the highest in the state. Moreover, to the best of our knowledge, the Special Fund has
never required a municipal contribution to alleviate any plan deficits, even during difficult economic
times, unlike many of our similarly -situated or neighboring pension plans. One distinct difference
between our Special Fund and other under -funded plans, locally and nationally, is that our Special
Fund pays a one-time, lump -sum payout versus reoccurring monthly payments.
Important Figures
The Special Fund is 103% funded (current assets versus future liabilities) for the increased
benefit of $8,300 per year of service (as ofour last actuarial valuation).
PFRA Supplemental Pension Increase Proposals
Page 1 of 3
Page 12
Plymouth Firefighters' Relief Association
Our Assets:
o $6.3 million, as of January 1, 2012 (as of our last actuarial valuation);
o $7 million, as of January, 2013;
o $7.3 million, as ofJuly, 2013.
Our Future Liabilities:
o Future liabilities remain relatively constant compared to our last actuarial valuation.
Our 2012 Fire State Aid: $311,432 — the highest amount in the state.
Legislative Update
As you may be aware, this past Minnesota legislative session, the legislature addressed expected
shortfalls for several high-profile, public safety -oriented pension plans. Part ofthe legislation
includes the advent of supplemental state aid which will supplement current Fire State Aid payments
to relief associations, like ours. According to the legislation, supplemental state aid will increase aid
payments to relief associations by twenty-four percent (24%) per year, roughly $75,000 for
Plymouth. The state supplemental aid will last until both the State Patrol Plan and the Public
Employees Retirement Association — Police & Fire Plans reach eighty percent (80%) funded. As of
their last actuarial valuation (July 1, 2012), these plans were funded at 72.27% and 77.97%,
respectively.
Proposals
Proposal #1: January 14, 2013 (Initial) request
Raising the benefit level to $8,300 per year of service (January 14, 2013 request), effective
January 1, 2014.
If proposal #1 were adopted, we would refrain from seeking another pension increase for at least
three years (2016).
Proposal #2: One-time $500 per year increase
Raising the benefit level to $8,000 per year of service, effective January 1, 2014.
If proposal #2 were adopted, we would likely request to revisit the pension issue by the end of 2014.
Proposal #3: Guaranteed step increases over afive-year period
Raising the benefit level to $8,100 per year of service, effective January 1, 2014;
Raising the benefit level to $8,400 per year of service, effective January 1, 2016;
Raising the benefit level to $8,700 per year of service, effective January 1, 2018.
If proposal #3 were adopted, we would refrain from seeking another pension increase for at least five
years (2018).
Conclusion
Our partnership has achieved a modicum of success to date. The Association's members are firm
believers in the notion that past performance is a solid predictor of future behavior. Our Special
Fund, Fire State Aid and benefit level, rank amongst the highest in the state because of our mutual
efforts. We are well-positioned unlike many of our similarly -situated associates.
PFRA Supplemental Pension Increase Proposals
Page 2 of 3
Page 13
Plymouth Firefighters' Relief Association
However, with that being said, we know that you make difficult decisions for the city of Plymouth
every day. The decision to increase our pension may not be one that is easily made. We further
understand that there are unseen forces, both market-based and policy -based, that could affect the
performance of our Special Fund. Thus, in offering these proposals, we are attempting to objectively
pursue strategic, conservative increases that will both satisfy near-term desires and maintain a self-
supporting Special Fund in the long-term.
The Association's Board of Trustees feels that these proposals satisfy all of the above objectives. It
is important to note that these proposals are merely suggestions - we remain patient and somewhat
flexible. We sincerely hope to hear positive news from you in the near future regarding our request.
Please do not hesitate to contact us if you have any questions, comments or concerns. Thank you
again for entertaining our request to ratify a pension increase.
Respectfully,
The PFRA Board of Trustees
Kevin Werstein, President
kwersteigplymouthmn. gov
763) 550-2038
Aaron Morris, Secretary
ammorrisg]2lymouthmn. gov
612) 310-6354
Sergio Flores, Trustee
sfloreskplymouthmn. gov
763) 486-8119
Cc: Plymouth City Council Members
Dave Callister, Plymouth City Manager
Rick Kline, Plymouth Fire Chief
PFRA Supplemental Pension Increase Proposals
Page 3 of 3
Jeff McCurdy, Treasurer
jmccurdyk]213 mouthmn.gov
612) 816-6888
Christopher Dore, Vice -President
cdorekplymouthmn. gov
763) 350-4422
Steve Marti, Trustee
smartikplymouthmn. gov
763) 546-9220
Page 14
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-term 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 ReliefAssociation Board of Trustees, on this Monday, June 18'b, 2012.
Kevin Werstein
President
Sue Magy
Secretary
Pftgel 7
Plymouth Firefighters' Relief Association
PENSION INCREASE REQUEST
PRESENTATION
November 12, 2013
Page 16
PFRA Pension Increase Request Presentation
November 12, 2013
Initial Request "January 14, 2013 request"
One-time increase of $800 per year, raising
benefit to $8,300 per year
Effective January 1, 2014
Page 17
PFRA Pension Increase Request Presentation
November 12, 2013
Increase Alternative #1
recommended by Manager Callister)
One-time increase of $S00 per year, raising
benefit to $8,000 per year
Effective January 1, 2014
Page 18
PFRA Pension Increase Request Presentation
November 12, 2013
Increase Alternative #2 ("5 -year plan"
Defined" Step Increases
600 increase, effective January 1, 2014, raising benefit to $8,100
300 increase, effective January 1, 2016, raising benefit to $8,400
300 increase, effective January 1, 2018, raising benefit to $8,700
Page 19
PFRA Pension Increase Request Presentation
November 12, 2013
Top 5 Defined -Benefit Yearly Pension Amounts
1) Eden Prairie 101000** Unknown
2) Plymouth 7,500 111%
3) Brooklyn Center 7,500 93%
4) Northfield 7,500 94%
5) Shakopee 7,500 89%
Statewide averages: Combination Plan — 84.2%; Lump -Sum Only Plan — 102.2%
Funded Status, as of December 31, 2011 **Effective June 16, 2013
Page 20
PFRA Pension Increase Request Presentation
November 12, 2013
1
2)
3)
Top 5 2013 Fire State Aid Recipients & Amount
Plymouth $346,791.73 $102,477.93
Eden Prairie
Woodbury
4) Minnetonka
5) Lakeville
321,341.66
274,338.63
270,448.38
238,798.81
94,957.37
81,067.84
79,918.26
70,565.72
Page 21
PFRA Pension Increase Request Presentation
November 12, 2013
Last PFRA Actuarial Valuation
as of December 31, 2011)
Special Fund Assets: $6,333,430
Benefit Amount Funded Status Actuarial Accrued Liability
7,500 110.5% 5,739,219
8,300 102.9% 6,157,178
9,100 96.2% 6,575,140
Page 22
PFRA Pension Increase Request Presentation
November 12, 2013
Current Special Fund Assets
as of October 25, 2013)
8,
0111781343905
Page 23
PFRA Pension Increase Request Presentation
November 12
Any Questions?
Page 24