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5.a) Request to PERA for Cost on Firefighter Retirement Plan Meeting Date: 04/06/2010 Agenda Item: 5i � City Council Agenda Report City of Scandia 14727 209�h St. North Scandia, MN 55073 (651)433-2274 Action Requested: Authorize a request to PERA (Public Employees Retirement Association) for a Cost Analysis of prospective coverage of the Scandia Fire Relief Association by the Statewide Volunteer Firefighter Retirement Plan(SVFRP.) Deadline/ Timeline: N/A Background: • The SVFRP was created by 2009 state legislation to offer a voluntary replacement for existing Fire Relief Association retirement plans. • Advantages to participating in the state plan include removing the burden of administering a retirement plan from local relief associations, investment management by the State Board of Investment, and portability of benefits for volunteer firefighters who may serve in more than one department over their careers. • Funding of the SVFRP is from existing fire state aid, local contributions and investment earnings, the same as local relief association plans. • The decision to participate in the SVFRP is made jointly by the city and the relief association. The first step in the decision- making process is to request a cost analysis from PERA. • The Human Resources Committee met with the Fire Relief Association on March 17. The consensus was a cost analysis should be obtained and that joining the SVFRP should be considered. • The cost analysis would look at current relief association investments and liabilities, the current benefit level and the future benefit level under SVFRP to estimate the cost of transitioning to the new plan. • The SVFRP benefit level options do not include Scandia's current $2,350 per year of service benefit level. (SVFRP benefit levels increment at $500.) Scandia could enter the program at the $2,500 level, and there would be a 5-year transition period before members would be vested at the higher benefit level. If, however, the benefit level were increased to $2,500 before Scandia entered Page t of 2 03/25/10 the SVFRP, there would be no transition period to the higher $2,500 benefit level. • The Relief Association would prefer that the City raise the benefit level to $2,500 before entering the SVFRP. However,because there would be additional cost to the city by doing so, the Human Resources Committee recommended that a cost analysis of both existing benefit levels be requested before making that decision. PERA staff was contacted, and they are willing to perform the analysis of both options. Recommendation: I recommend that the Council authorize the request for a cost analysis using two alternative existing benefit levels ($2,350 and $2,500)and a proposed benefit level of$2,500. Attachments/ • Plan Description, SVFRP Materials provided: . Enrollment Process, SVFRP • Request for Cost Analysis Form Contact(s): Jeff Biebl, Relief Association President 651 433-5694 Prepared by: Anne Hurlburt, Administrator (Reyuest PGRA Cost Analysis for SVFRP) Page 2 of 2 03/25/10 Plan Description ' � Statewide Volunteer Firefighter Retirement Plan ' Legislation passed in 2009 created a Statewide Volunteer Firefighter Retirement Plan (SVFRP, referred to as '�the Plan" in this document) for volunteer firefighters who provide service to a municipal fire department or an independent nonprofit firefighting corporation. The Plan is voluntary, and open to fire departments as a replacement of their existing volunteer firefighter retirement plan. It is also open to municipalities currently without a volunteer firefighter retirement plan. The Plan is codified as Minnesota Statutes Chapter 353G. The purpose of this Plan Description is to provide information to volunteer firefighters, relief associations and municipalities about the Plan. It includes information about how the Plan is funded, how benefits are determined, and how an entity elects to join the Plan. Funding The lump sum benefits payable from the Plan are funded by existing fire state aid` allocated to a municipality, additional municipal contributions, as applicable, and earnings on the investment of these funds. Each participating entity will have a separate Entity Account in which the assets necessary to fund the benefits will be � maintained. A new investment account has been established in the Supplemental Investment Fund (SIF) managed by the State Board of Investment (SBI) expressly for investment of the Plan assets. The SBI is vested with the authority to determine the asset allocation of this new SIF account with the expectation that the account will earn a 6 percent return over the long-term. PERA will track separately the assets of each Entity Account within the Plan. PERA will perform annual calculations for each Entity Account to assess the level of funding needed to maintain assets sufficient to pay the benefits being earned by the participating entity's volunteer firefighters. The calculations will resemble the procedure already defined in law for use by all existing volunteer fire relief associations. Required contributions for the coming year will be based on service ` Fire State Aid is a program that collects a premium tax from insurance companies based upon gross direct premiums, including policy fees, premium finance and other charges from customers insuring against property losses. The premium tax is collected expressly to pay the pension costs of municipalities and non-profit fire corporations employing firefighters. The program is described in detail in Minnesota Statutes Chapter 69. Volunteer Firefighter Retirement Plan credit data provided to PERA in March of each year by each participating entity's fire chief. Once an entity joins the Plan, future fire state aid payments allocated to that participating entity will be sent to PERA and deposited directly into the Entity's Account. If the fire state aid is not sufficient to adequately fund the account for the year, PERA will bill the participating entity for the required additional municipal contribution. Additional contributions, if any, are due by December 31 of each year. A sample time line for the calculation and billing of annual costs is found on Page 8 of this document. Governance PERA's Board of Trustees The policy-making, management, and administrative functions related to the Plan are vested in the board of trustees and the executive director of the Public Employees Retirement Association. Their duties, authorities, and responsibilities are described in Minnesota Statutes Chapter 353.03. Fiduciary activities of the Plan must be consistent with Minnesota Statutes governing public pensions. Advisory Board Chapter 353G provides for an Advisory Board made up of representatives from townships, cities, fire chiefs and volunteer firefighters. The advisory board is expected to provide advice and guidance to PERA's Board of Trustees about the retirement coverage needs of volunteer firefighters. Benefits Retirement Benefits The Plan provides for the payment of lump sum retirement benefits that are based on a specific dollar value paid for each year of credited service accumulated by a volunteer firefighter who terminates service and meets the minimum requirements for receipt of the benefits. The dollar value payable per year of service is determined by the sponsoring municipality or entity at the time an election to participate in the Plan is made, selected from 16 possible benefit levels. An entity may elect to increase the benefit level after joining the Plan if the Entity Account is adequately funded or if the entity authorizes the additional annual contributions necessary to fund increased benefit levels. The 16 possible bene�t levels provided by the Plan are shown in detail in Table 1 on page 6 of this Plan Description. To be eligible for a benefit, a firefighter must: - be at least 50 years old; 2 Volunteer Frrefighter Retirement Plan - be vested, which means having acquired a minimum of 5 years of "good-time" service creditt in the Plan; and, - have severed his or her employment relationship with the fire department for a minimum of 30 days. A full retirement benefit is payable to a firefighter with 20 years of service. Firefighters retiring with fewer than 20 but more than 5 years of service are eligible for a percentage of a full benefit as described in Table 2 on page 7. Former members of the fire department who were vested at the time they left the department are also entitled to benefits when they attain age 50. Minimum participation in the Plan If an existing volunteer firefighter relief association becomes part of the Plan, the former plan benefits are payable to anyone who is vested and who leaves volunteer service within the first five years of participation in the statewide plan. A firefighter must participate in and earn at least 5 years of service credit in the SVFRP to receive a benefit based upon the levels provided by the Plan. Once a firefighter has participated in the statewide plan for at least 5 years, all years of credited service will be paid at the dollar value provided by the SVFRP. Non-vested benefits No benefits are payable to a firefighter who leaves the volunteer fire department before having earned five years of credited service, except as provided for under � the portability provisions of the Plan as noted in the next paragraph. Portability provisions One of the goals of the Plan is to provide portability of benefits for volunteer firefighters. The Plan is designed to pay benefits to a firefighter who may not vest in one account, but when all volunteer service earned in accounts participating in the Plan is combined, the individual has earned more than five years of credited service. If that is the case, a prorated share of benefits payable based on credits earned in each account would be payable to the individual who meets all other requirements for payment of a lump sum benefit under the Plan. Survivor benefits Benefits are paid to the surviving spouse of an active or deferred member who dies. If there is no surviving spouse, benefits are paid to the firefighters dependent children, and if no children, to the deceased firefighter's estate. The survivor benefit is equivalent to the lump sum benefit that would have been t Chapter 353G does not define "good-time service credit." The chief of each participating fire department determines the minimum activity levels and length of time an individual volunteer must serve to receive credit. Credit may be awarded in annual or monthly increments as determined by the chief of the fire company. 3 ���o;�.-r�teer Fir�efiat�ic-r� Retirer;?�r7; �°lar; payable to the firefighter at age 50 using the service credit earned as of the date of death. Supplemental benefits In addition to primary benefits, the Plan provides supplemental benefits equivalent to those outlined in Minnesota Statutes Chapter 424A.10. With supplemental benefits, the retiring firefighter receives a one-time cash payment equal to 10% of the lump sum benefit up to a maximum of $1,000. For a survivor, a supplemental benefit is 20% of the lump sum, up to a maximum of $2,000.* Other benefits The Plan does not currently provide disability benefits, but it is expected that this will be one of the first issues for discussion by the advisory board. Process for joining the Plan The decision to participate in the Plan is made jointly by the entity operating the fire department and the volunteer firefighter relief association (if one exists). Individual firefighters can not join the Plan on their own. The process for electing coverage of volunteer firefighters by the Plan is initiated by a request to PERA for a cost analysis of the prospective retirement coverage, as follows. 1. If the volunteer firefighters are covered by an existing relief association, the secretary of the relief association must ask the relief association board to approve a request for a cost analysis from PERA. Whether or not there is an existing relief association, the chief administrative officer of the municipality or non-profit fire corporation that sponsors the fire department must seek approval from the city council or the non-profit's board to request a cost analysis. 2. If the municipality's council or t.he non-profit's board (and the relief association board, if one exists) approve of a cost analysis, the secretary of the relief association (if one exists) and chief administrative officer jointly submit a request to PERA's executive director for estimates of costs of the potential retirement coverage. If the volunteer fire department is associated with more than one municipality or non-profit, the chief administrative officer of each sponsoring entity of the volunteer fire department must jointly execute the request. 3. PERA prepares estimated costs for the benefit level(s) requested. Supplemental benefits are paid by PERA, and PERA is reimbursed for their costs by the State of Minnesota. Thus, municipalities and entities participating in the Plan do not fund supplemental benefits. 4 i!i�i�(:I?tEE! Fif��Ilulitc !" ':t=;i�`C;'iEr��i F'l�i"t 4. The State Board of Investment (SBI) reviews the investment portfolio of the existing relief association (if one exists) and determines which assets could be transferred to SBI and which must be sold before December 315t should the entity elect to join the Plan. 5. Upon receipt of the cost analysis, the governing body of the municipality or municipalities, or independent nonprofit corporation associated with the fire department has 90 days to approve coverage in the Plan. If the retirement coverage change is not' acted upon within 90 days, it is deemed to be disapproved. If the retirement coverage is approved by the applicable governing body, a copy of the approval is sent to PERA. 6. If coverage is approved, PERA begins administering the Plan for the entity effective the following January 1 and issues all future benefit payments. 7. On the date immediately prior to the effective date of the coverage change (December 31), the special fund of the applicable volunteer firefighters' relief association, if one exists, ceases to exist as a pension fund of the association and legal title to the assets of the special fund transfers to the State Board of Investment. With some modifications, the relief association may continue as an organization and maintain its general fund. 8. If coverage is not approved, the Plan is not extended to firefighters and the firefighters continue as before with or without a relief association benefit plan, as applicable. 5 S�i%PCll.t..t'k�i .'� f�:�ri i`'.i�! i'{t"'r",%l�`1I3�',�� �i�'�i�;. �'���� '� ��t!�Ys�: �r�r b���e�fi ie��oels Cash benefit per year Benefit Level Of "good-time" service credit A $500 B $750 C $1,000 D $1,500 E $2,000 F $2,500 G $3,000 H $3,500 I $4,000 J $4,500 K $5,000 L $5,500 M $6,000 N $6,500 O $7,000 P $7,500 Benefit Example The City of Anytown joined the Plan and selected level C as the benefit level for their volunteer firefighters. If a firefighter had 20 years of good time service credit and then "retired" at age 50, that firefighter would 6 , ��i�_ f.'f r::'it '�` .�=i � E'�:irf't')EI7: �'la;? receive a lump sum benefit of $20,000 ($1,000 per year of service times 20 years). �a��1l�� a' F're�rat�r� b�r�efits fa�° parfiicipants with at I���� �ivE, �ca+ �e�� t�ar7 2Q y�ars ai s�rvi�e ccedit Completed full Percentage of the years of good-time full service pension service credit 5 40% 6 44% 7 48% 8 52% 9 56% 10 60% 11 64% 12 68% 13 72% 14 76% 15 80% 16 84% 17 88% 18 92% 19 96% 20 or more 100% Benefit Example The City of Anytown joined the Plan and selected level C as the benefit level for their volunteer firefighters. If a firefighter had 10 years of good time service credit and then "retired" at age 50, that firefighter would receive a lump sum benefit of $6,000. That is calculated by multiplying the number of years of good time service credit (10 in this example) times the benefit level (Level C in this example, or $1,000 per year of service) times the nonforfeitable percentage of the service pension (60% in this example) since the firefighter had less than 20 years of service. � ; � .������ `'�f�C;�i�F��E"iri. f IG�. , .. t��'f:� �`C-�i��. 10 x $1,000 x 60% _ $6,000. 8 !',�'ti�r,�eF� 1=irefiahi�!� Retrrement F�i�;� . C5:EJ 1�, J �. . �:��€���:��� 4;ch�:dule for paymer�� �;t �•�:�t�i:��:� �c�n��i�s��tic���w March 31, 2009 Deadline for Fire Chief to certify good-time service credits to PERA for previous calendar year. Spring 2009 PERA calculates liabilities and required contributions for 2010. Summer 2009 PERA notifies municipalities and non-profit fire companies of required contributions for 2010. October 1, 2010 PERA receives Fire State Aid for the former relief associations and new plan sponsors. If the employer received an invoice for employer Dec. 31, 2010 contributions, the payment is due by the end of'the year. 9 Enroilment Process ' z ' Statewide Volunteer Firefighter Retirement Plan ' Legislation passed in 2009 created a Statewide Volunteer Firefighter Retirement Plan (SVFRP, referred to as "the Plan" in this document) for volunteer firefighters who provide service to a municipal fire department or an independent nonprofit firefighting corporation. The Plan is voluntary, and open to fire departments as a replacement of their existing volunteer firefighter retirement plan. It is also open to municipalities currently without a volunteer firefighter retirement plan. The Plan is codified as Minnesota Statutes Chapter 353G. This document will provide information needed for a relief association and municipality or independent nonprofit firefighting corporation to: (1) request an estimate of annual costs expected to be incurred as a result of joining the Plan, (2) act on that information, (3) elect enr,ollment in the Plan, and (4) move assets and liabilities into the Plan. Request a Cost Analysis The decision to participate in the Plan is made jointly by the entity operating the fire department and the volunteer firefighter relief association (if one exists). Individual firefighters can not join the Plan on their own, nor can an entity pick and choose which volunteer firefighters will be enrolled. The process for electing coverage of volunteer firefighters by the Plan is initiated by a request to PERA for a cost analysis of the prospective retirement coverage. The cost analysis will provide the entity operating the fire department an estimate of future annual contributions that will be required to provide the level of benefits selected. There is no charge for this service. The steps for requesting a cost analysis are described in Minnesota statutes 353G.05. They are as follows: 1. If the volunteer firefighters are covered by an existing relief association, the secretary of the relief association must ask the relief association board to approve a request for a cost analysis from PERA. Whether or not there is an existing relief association, the chief administrative officer of the municipality or non-profit fire corporation that sponsors the fire department must seek approval from the city council or the non-profit's board to request a cost analysis. 2. If the municipality's council or the non-profit's board (and the relief association board, if one exists) approve of a cost analysis, the secretary of the relief � association (if one exists) and chief administrative officer of the entity that sponsors the fire department jointly submit a request to PERA's executive director for estimates of costs of the potential retirement coverage using PERA's Cost Analysis Request Form. If the volunteer fire department is associated with more than one municipality or non-profit, the chief IiOft;C;;2tI" flfEtiC;'?IE`! KE=�;!"�t';'f�17: f'l�l� administrative officer of each sponsoring entity of the volunteer fire department must jointly execute the request. 3. Once PERA receives the Cost Analysis Request Form, staff will either contact the fire department or the State Auditor's Office to receive demographic information required to calculate costs. That information includes data about individual members (birth dates, years of service in any existing plan), proposed benefit level(s), asset values, and a copy of the relief association bylaws (if a relief association exists). 4. Once the demographic information is received, PERA will run a cost analysis. Depending on the backlog, it may take a couple of weeks to run the analysis. Once the analysis is complete, the results will be sent to those who initiated the request. 5. At the same time, if a relief association exists and has a special fund established,,the State Board of Investment (SBI) will review the investment portfolio of the special fund and determine which assets could be transferred to SBI and which must be sold before December 315` should the entity elect to join the Plan. Results will be communicated back to the relief association. In most cases, assets will have to be sold. Respond to the Cost Analysis/Elect Enrollment Upon receipt of the cost analysis from PERA, the governing body of the municipality (or municipalities) or the independent nonprofit corporation associated with the fire department has 90 days to approve coverage in the Plan. If the retirement coverage change is not acted upon within 90 days, it is deemed to be disapproved. If coverage in the Plan is not approved, no change is made and firefighters will not be enrolled in the Plan. Entities may request an additional cost analysis at any time in the future using the same procedure as outlined above. If the retirement coverage is approved by the applicable governing body, a board or council resolution should be written stating that coverage has been approved, and a copy of the resolution sent to PERA. PERA will notify SBI, and SBI will work with the owner of the assets so that there is a smooth transfer of assets on December 315t of that year. PERA will also work with the record holder to set up a separate account, enroll members, and collect the information we need to administer the plan. Coverage by the Plan is effective on the next following January lst. On the date immediately prior to the effective date of the coverage change, the special fund of the applicable volunteer firefighters' relief association, if one exists, will cease to exist as a pension fund of the association and legal title to the assets of the special fund will transfer to SBI, with the beneficial title to the assets of the special fund remaining in the applicable volunteer firefighters. 2 '✓Gl�i.�iliC;t�� fi!"Ciii,(.'r{��r '!�L'Z11"t='I??t=C?i t'i�;i What Paperwork Will Be Required In The Future? Once coverage by the Plan is effective, PERA will certify the existence of coverage in the Plan on an annual basis for each participating fire department in order to fulfill the requirements in Minnesota Statutes 69.011, subd. 2. The applicable fire chief, however, will need to continue certifying the fire personnel and fire department equipment as of the prceding December 31 on an annual basis in accordance with MS 69.011, subd. 2(b). The State Auditor's Office will require one more financial report and audit in accordance with MS 69.051, subd. 1 for those relief associations that have assets of at least $200,000. The board of each volunteer firefighters relief association that is not required to file a financial report and audit under subdivision 1 must prepare one last detailed statement of the financial affairs for the preceding fiscal year of the relief association's special fund in accordance with MS 69.051, subd. 1a. Each municipality which has an organized �re department but which does not have a firefighters' relief association shall prepare one last detailed financial report of the receipts and disbursements by the municipality for fire protection service during the preceding calendar year in accordance with MS 69.051, subd. 3. Annually, by March 31, the fire chief of the fire department with firefighters who are active members of the retirement plan will certify to PERA the good time service credits earned by each firefighter for the previous year. That information will be used to determine required contributions for the following calendar year and to provide benefits to those who retire during the year. Relief Association Changes Minnesota Statutes 353G.06 contains detailed information about what happens to the relief association once the firefighters are covered by the Plan. On December 31, the special fund of the relief assocation, if one exists, ceases to exist as a pension fund of the association and legal title to the assets of the special fund transfers to the State Board of Investment. The relief association membership may elect to retain the relief association upon the effective date of the change in volunteer firefighter retirement coverage, but the following changes will take place: ➢ The relief association board membership will be reduced to �ve people; : The relief association may only maintain a general fund; : The relief association may no longer receive state aid or municipal funds; and :� The relief association may no longer pay any service pension or benefit that was not authorized as a general fund disbursement under the articles of incorporation or bylaws of the relief association in effect prior to the plan coverage election process. 3 , • Request for a Cost Analysis of Retirement Coverage .� In the Statewide Volunteer Firefighter Retirement Plan � The process for electing coverage of volunteer firefighters by the Statewide Volunteer Firefighter Retirement Plan (SVFRP) is initiated by a request for a cost analysis of the prospective retirement coverage using this form. Once completed, the form must be signed by representatives of the relief association (if one exists) and the entity or entities sponsoring the fire department, and returned to the Public Employees Retirement Association (PERA) using the address or fax number listed at the bottom of this form. PART A - INFORMATION REQUEST Name of Fire Department: Existing benefit level per year of service: We would like PERA to provide a cost analysis of joining the SVFRP using the benefit levels per year of credited service indicated below (Select up to 4 benefit levels): � $500 � $2,000 � $4,000 � $6,000 � $750 � $2,500 � $4,500 � $6,500 � $1,000 � $3,000 � $5,000 � $7,000 1�"' $1,500 � $3,500 � $5,500 � $7,500 PART B - SIGNATURE OF RELIEF ASSOCIATION (if one exists) The relief association board requests that PERA provide a cost analysis of retirement coverage in the Statewide Volunteer Firefighter Retirement Plan for our volunteer fire department members. Name of Relief Association Name of Board Secretary (p/ease print) Signature of Relief Associatian Secretary Date Email Address Phone Number PART C - SIGNATURE OF THE ENTITY SPONSORING THE FIRE DEPARTMENT The entity listed below requests that PERA provide a cost analysis of retirement coverage in the Statewide Volunteer Firefighter Retirement Plan for our volunteer firefighters. Name of Sponsoring Entity (municipality, nonprofit corp.) Name of Chief Administrative Officer Signature of Chief Administrative Officer Date � Email Address Phone Number If the fire department is sponsored by more than one entity, please fill out the back side of this form. Please Return to: PERA, 60 Empire Drive Suite 200, St. Paul, MN 55103 or fax to 651-296-8392 State��ric�e Vvlunteer Firefighter Retirement Plan �ec�c�est far Cost Analysis PART D — SIGNATURE OF OTHER ENTITIES SPONSORING THE FIRE DEPARTMENT If more than one entity sponsors the fire department, the chief administrative officer of each association entity must execute the request for a cost analysis by signing below. Name of Sponsoring Entity (municipality, nonprofit corp.) Name of Chief Administrative Officer Signature of Chief Administrative Officer Date Email Address Phone Number Name of Sponsoring Entity (municipality, nonprofit corp.) Name of Chief Administrative Officer Signature of Chief Administrative Officer Date " Email Address Phone Number Name of Sponsoring Entity (municipality, nonprofit corp.) Name of Chief Administrative Officer Signature of Chief Administrative Officer Date Email Address Phone Number 2