9.a 1 Staff Report-Fire Department PERA benefit{
►7C1-1NDIA
Staff Report
Date of Meeting: June 20, 2017
To: City Council
From: Neil Soltis, Administrator
Re: Fire Department PERA benefit
Background: The Public Employees Retirement Association of Minnesota (PERA) has provided the
City with a cost analysis that looks at increasing the firefighter retirement benefit plan. Chief Hinz is
requesting that the Council consider increase the retirement benefit amount from $2,500 to $2,800
effective January 1, 2018.
Issue: Should the benefit amount be increased?
Proposal Details: Currently the benefit provided to firefighters at retirement is a lump sum payout
of $2,500 per year of service. As of December 31, 2016 the account for Scandia firefighters has a
value of $723,514 and projected liability for future pay -outs of $560,011 leaving an excess balance
of $163,503. Based on the current benefit level, the City's required contribution is $54,742 per
year. This amount has been funded through earnings on the accumulated account balance and the
State Fire Aids which are estimated to total $76,635 per year.
A change to a benefit of $2,800 per year of service would increase the projected liability for future
pay -outs by $66,158 and reduce the excess balance to $97,345. Additionally, the annual
contribution would increase by $6,471 per year to $61,213 per year.
Fiscal Impact: There is no immediate fiscal impact since the required contribution amount is less
than the combined total of the estimated investment earnings computed at 6% and the estimated
state fire aids. Future contributions may be required based on the following:
1. A change in the estimated interest rate
2. Decreased interest earnings based on a lower account balance (see example below)
3. A reduction in state fire aids.
Options:
1. Approve as recommended
2. Approve at a lower annual amount
3. Retain current retirement benefit
Recommendation: Option 1— The target age group for new firefighters is a declining demographic
in Scandia. While there may be a need to begin to levy in order to fund the fire retirement benefit
in the future, the retirement benefit is one of few tangible benefits for the volunteer firefighters.
12/31/2016
Pay -out of 3
highest benefit
amounts
Balance after
pay -out
Account balance
$
723,514
$ (240,000)
$
483,514
Interest @ 6%
$
43,411
$
29,011
State Fire Aids
$
33,224
$
33,224
Funds available
$
76,635
$
62,235
Annual contribution required
$2,500 benefit
$
54,742
$
54,742
$2,800 benefit
$
61,213
$
61,213
Surplus earning amount
$2,500 benefit
$
21,893
$
7,493
$2,800 benefit
$
15,422
$
1,022
Options:
1. Approve as recommended
2. Approve at a lower annual amount
3. Retain current retirement benefit
Recommendation: Option 1— The target age group for new firefighters is a declining demographic
in Scandia. While there may be a need to begin to levy in order to fund the fire retirement benefit
in the future, the retirement benefit is one of few tangible benefits for the volunteer firefighters.