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HomeMy WebLinkAbout5J Fire Pension Increase ReportPhone 952.447.9800 / Fax 952.447.4245 / www.cityofpriorlake.com 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: NOVEMBER 19, 2018 AGENDA #: 5J PREPARED BY: FRANK BOYLES, CITY MANAGER PRESENTED BY: FRANK BOYLES AGENDA ITEM: DISCUSSION: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING A PENSION INCREASE FOR THE PRIOR LAKE FIRE DEPARTMENT FIREFIGHTERS RELIEF AND PENSION ASSOCIATION Introduction The purpose of this agenda item is to consider a request by the Prior Lake Volunteer Fire Department and Relief Association to increase the pension benefits as of January 1, 2019 from $8000/year of service to $8500/year of service. History Prior Lake (and Spring Lake and Credit River Townships) are served by a paid on-call volunteer fire department of 45 paid per call firefighters and a full-time Fire Chief. Firefighter compensation is provided through a payment of $12.20/hour for fire call responses and training and a lump sum pension benefit paid following at least ten years of active service. Fire officers also receive an additional stipend in recognition of additional duties. Unlike other City employees whose pension is through Public Employees Retirement Association (PERA), paid per call volunteer firefighters receive their pension through an established Fire Relief and Pension Association. The Prior Lake Fire Relief and Pension Association is overseen by a Pension Board comprised of six members appointed from the Fire Department membership, the Prior Lake Fire Chief, the Prior Lake Mayor and the City Manager. The finance director and assistant city manager assist in the accomplishment of the business of the Board. The Board is responsible for investment of pension funds, annual audit, preparing an annual status report to the membership and recommending any adjustments to the investment policy, bylaws or pension terms. To maximize assets, the Board and membership have retained an investment firm to manage their funds in accordance with state statute. The City Council must approve any pension compensation adjustments. State statute also imposes limitations on the maximum allowable pension of $10,000 per year of service. The fire department is at $8000 per year of service at the present time. 2 Current Circumstances To qualify for a pension benefit, a firefighter must have served the Prior Lake Fire Department for 10 years or more, reached the age of 50 years and been a member of the Relief Association for at least 10 years. With 10 years of service credit, a member is 60% vested. The vesting schedule increases incrementally until a member is fully vested at 20 years of service. Current 2018 Rate Years of Service % Vested Lump Sum Pension 10 60 $48,000 20 100 $160,000 Proposed 2019 Rate Years of Service % Vested Lump Sum Pension 10 60 $51,000 20 100 $170,000 The fire department pension benefit is funded through a combination of resources: •Investment earnings of the Relief Association Pension Fund •State Aid (received by the City and passed-through to the Relief Association) •Annual City Pension contribution ($20,000/year since 2003) •City deficit contribution (when required) Typically, pension increases are not proposed by the membership or recommended by the Pension Board unless the pension Fund and its investment performance can support the increase. The same is true for the increase proposed. Conclusion The Fire Department membership has voted in support of an annual pension increase to $8500/year. Likewise, the Pension Board also voted to recommend the increase to the City Council. ISSUES: As part of its consideration of the proposed pension increase, the Pension Board prepared an overview of firefighter compensation structure, funding sources and comparison data/metrics (if data was available). Staff met with a fire department subcommittee to discuss and outline the report. This report is attached for Councilor information and provides an overview of the department structure, estimated time commitment by firefighters, compensation history, funding history, cost per household and some comparison data. Many firefighters will tell you that they join the fire service because of the camaraderie and their desire to give back to the community. This is true, but as we all lead busier lives, it becomes more and more difficult for people to make the time commitments required of firefighters for training, business meetings, fire calls and community events, in addition to their 3 FINANCIAL IMPACT: work and family responsibilities. It is critical that the City remain competitive with our neighbors so that we can address recruiting needs and are appropriately rewarding dedicated service. Like all employers, the City will continue to face recruitment and retention issues within the Fire Department because of retirements, but the fire Department has the added challenge of the time commitment demands. For the first time in its history, the City was required to make deficit contributions in the cumulative amount of $227,372 to the Pension Fund over a four-year period (2010-2013). These deficit contributions were triggered by the investment losses in the Pension Fund during the economic downturn. State statute requires that the City step in to assure the pension liability is appropriately funded. The Pension Fund has now recovered to exceed its projected liability at 126%.If the city council authorizes the requested increase to $8500/year, the Pension Fund will continue to exceed the projected liability at 104%. No contribution in addition to the $20,000 has been necessary from the City since 2014, and the Pension Fund can support the proposed increase. The City’s annual contribution to support the firefighter lump sum benefit is among the lowest of the communities we compare with and has been so since 2003 as shown in the compensation report. The services provided by the Fire Department continue to be one of the City’s best values for the taxpayer dollar. ALTERNATIVES: 1. Motion and second as part of the consent agenda to adopt a Resolution Authorizing a Pension Increase to $8500/year of service credit for the Prior Lake Fire Department Firefighters Relief and Pension Association effective January 1, 2019. 2.Remove from the consent agenda for additional discussion. RECOMMENDED MOTION: Alternative 1. 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 18-___ A RESOLUTION AUTHORIZING REVISIONS TO THE BYLAWS AND A PENSION INCREASE FOR THE PRIOR LAKE FIRE DEPARTMENT FIREFIGHTERS RELIEF AND PENSION ASSOCIATION Motion By: Second By: WHEREAS, The bylaws of the Prior Lake Volunteer Firefighters Relief and Pension Association provides for a defined contribution benefit; and WHEREAS, The present annual benefit in effect is $8000 in 2018 for volunteer firefighters that are eligible under the vesting schedule; and WHEREAS, The Relief and Pension Association Pension Fund is over 100% funded and the investment earnings of the fund can support a benefit increase to $8500 per year of service now and in the future without the need for additional city contribution; and WHEREAS, It is in the best interest of the City of Prior Lake to provide a pension level that is comparable with other volunteer fire departments in order for the City to continue to recruit, retain and reward volunteer fire service. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The Prior Lake Volunteer Firefighter Relief Association Bylaws dated November 19,2018 are hereby approved. 3. A $8500 per year of service credit for pension, disability and death benefit purposes within the Bylaws of the Prior Lake Fire Department Firefighter Relief and Pension Association is hereby approved effective 1/1/2019. PASSED AND ADOPTED THIS 19TH DAY OF NOVEMBER 2018 VOTE Briggs McGuire Thompson Braid Burkart Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ ______________________________ Frank Boyles, City Manager PRIOR LAKE FIRE DEPARTMENT COMPENSATION REPORT October 2018 2 OVERVIEW Mission. The mission of the Prior Lake Fire Department is to minimize the loss of life and property from fires, natural disasters, and life threatening situations. The Department performs these services with a paid, on-call volunteers through education, prevention, and training. When called upon, the Fire Department assists other emergency agencies. History. In 1916, the City purchased its first chemical wagon and fought fires with a baking soda mixture that was pumped onto fires. The Prior Lake Fire Department was officially founded in 1929 and the first motorized fire truck was purchased in 1937. The first modern Fire Station was built in 1994-95 and continues to serve as the main office for the Department. To improve response times on the northwest side of Prior Lake, Fire Station No. 2 was constructed in 2007/2008. Prior Lake hired its first full-time Fire Chief in January 2010. Services. The Fire Department serves the 16 square miles corporate limits of the City of Prior Lake. The Department also provides service for Spring Lake Township and for Credit River Township through contracts with each entity. Together the service area reaches approximately 74 square miles, serving a combined population nearing 40,000. Though safer, modern construction techniques and stricter building codes have made building fires less common, firefighters work has grown to include motor vehicle accidents, calls for medical help, natural disasters and other emergencies. The department responds to a variety of emergency calls including: • Fire suppression on structure, wildland and vehicle fires including mutual aid to neighboring communities; • Hazardous material response including chemical, natural gas leaks and carbon monoxide events; • Rescue response for motor vehicle accidents, off road recreational vehicle accidents, water rescue, horseback riding accidents, vulnerable or lost person searches, life threatening medical response; • Good intent calls and fire, smoke, carbon monoxide alarms. Service Demand. Historically, the department experienced increases in call volume over several years peaking at 1,100 annually. Changes in response criteria (we are no longer the primary ambulance provider), improvements in building codes/inspections, enhanced alarm systems and fire prevention education have reduced and stabilized call numbers. The anticipated population growth of the area suggests a steady increase in call volume of 3-5% totaling approximately 500 calls annually. YEAR 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD 11/5 # of Calls 406 432 443 478 450 404 454 440 451 404 3 Below is a breakdown of the major areas of response by call number and type: ORGANIZATIONAL STRUCTURE The Fire Chief reports to the City Manager. The Fire Chief is supported by three assistant chiefs, five captains and 37 fire fighters. All personnel, except for the Fire Chief, are paid on-call positions. Administrative support is provided by the receptionist based in City Hall. Firefighters. Members of the Prior Lake Fire Department are selected through an application process. Applicants must be at least 18 years of age, be a high school graduate, have a valid driver license, and reside within a reasonable response time of a Prior Lake Fire Station. All applicants must pass a basic skills test, a physical agility test, and a pre-employment drug test and physical. 0 20 40 60 80 100 120 140 Fire Medical Accident Hazmat False Alarm Fire Calls by Type 108 119 91108 119 91 44 43 47 84 89 95 42 61 67 20-30 31-40 41-50 AGE OF FIREFIGHTERS 16% 15% 31%31% 7%51-59 Fire Medical Accidents Hazmat False Alarms 2015 2016 2017 50 50 50 60+ 4 - The average age of a Prior Lake firefighter is 43. More than half the staff is under the age of 45. - The average tenure of a Prior Lake firefighter is 8 years of service. Requirements. Members of the Fire Department are required to meet a minimum of 35% of all fire calls bi-annually. In addition, members are required to participate in 75% of maintenance and training exercises biannually and attend mandatory quarterly business meetings. First-year firefighters are required to complete 140 hours of training and complete Firefighter II certification. In 2017, the average response rate of all firefighters was 41%. Prior Lake Fire Relief Association. Prior Lake firefighters are members of the Prior Lake Fire Relief Association. The Association is the administrator of the single-employer defined benefit pension plan, which was established November 1, 1957 and operates under the provisions of Minnesota Laws 1965, chapter 446. It is governed by a Board of Trustees made up of six members elected by the members of the Association for three-year terms, and the Mayor, City Manager and Fire Chief. Although not part of the operational structure, the Board of the Fire Relief Association Board provides oversight of the fire fighter pension fund. The Board is responsible for investment of the Association funds, annual audits, and annual report to the membership. BUDGET The annual Fire Department budget is funded by the City’s general fund, cost-sharing contracts with the surrounding townships, and state aid. General fund expenditures can be categorized into four primary areas, which are explained below: Personnel. The largest expenditure for the Department is personnel, accounting for almost half of the annual budget. Personnel costs include volunteer firefighter wages, pension contributions, workers compensation and the compensation package for the full-time Fire Chief. 0-5 years 6-10 years 11-15 years 16-20 years 21+ TENURE OF FIREFIGHTERS 10% 52% 17% 17% 4% 5 Operations. Operational expenses include expenditures for small equipment, fuel, materials and supplies, utilities and facilities expenses for the two fire stations, and minor capital costs. Pension. The City contributes $20,000 annually toward the Fire Relief Pension Fund. The City passes through the expenditure budget the state pension contribution. The Pension Fund details are explained in depth below. Training and Education. Training and employee development, memberships and subscriptions, public education and uniform expenses are included in this category. NOTE: The replacement of capital equipment, such as fire trucks and tankers, is tracked in the Equipment Replacement Plan and reviewed annually as part of the Capital Improvement Plan. MMARY Cost per Household. Chart below reflects the annual cost for fire services in per household. Personnel State Pension Contribution (pass-through) Operations Training/Uniforms 2018 GENERAL FUND BUDGET -$929,460 49% 23% 22% 6% Revenues Year Total Fire Operating Budget Township Service Contracts State Aid City Pension Deficit Contribution Net General Fund Cost # of Households General Fund Cost per Household 2013 857,539 362,106 206,356 58,990 348,067 8,821 39.5 2014 904,430 325,976 195,194 0 383,260 9,009 42.5 2015 880,919 279,094 208,087 0 393,738 9,180 42.9 2016 902,031 311,068 214,891 0 376,072 9,291 40.5 2017 905,149 298,076 216,182 0 390,891 9,332 41.9 2018 929,460 297,775 225,610 0 406,075 Est. 9,464 42.9 6 COMPENSATION Compensation for firefighters is a combination of an hourly wage paid for call response and training activities and a pension benefit. Firefighters do not receive additional PERA, health, dental or life insurance benefits from the City. Wages. Members of the Fire Department are compensated on a monthly basis for call response and for training at the rate of $12.20/hour in 2016.The Assistant Chief of Training receives an additional $6,000 annual payment and the remaining two Assistant Chiefs $5,000. Five Captains earn a $2,000 stipend each per year in consideration of additional duties. Rate increases are assessed annually as part of the budget process and evaluated against market comparisons. Most recent wage adjustments: Year Hourly Rate 2014 2015 2016 2017 2018 $11.50 $11.85 $12.20 $12.20 $12.20 Peer Cities. Below is a table that outlines the hourly rate and pension contributions of other Minnesota cities with volunteer fire departments: City 2017 Hourly 2018 Hourly 2017 Pension 2018 Pension Apple Valley $15.35 $16.00 $6,700 $6,700 Chanhassen $12.00 $13.00 $6,000 $6,800 Cottage Grove $13.53 $14.32 $4,700 $4,700 Farmington $11.24 $12.50 $5,500 $6,500 Golden Valley $16.23 $16.64 $8,000 $8,300 Inver Grove Heights $13.00 $13.00 $7,900 $8,050 Lakeville $12.00 $13.00 $7,225 $7,595 Rosemount $10.00 $12.00 $7,200 $7,300 Savage $14.07 $14.49 $5,725 (monthly option) $5,896 Shakopee $14.00 $14.85 $8,025 $8,025 Woodbury $16.32 $16.77 $6,720 $6,720 Prior Lake $12.20 $12.20 $7,200 $8,000 AVERAGE $13.29 $14.06 $6,850 $7,049 7 Pension. The pension is established through the Prior Lake Fire Relief Association. Firefighters are eligible for participation upon hire and begin to earn service credit immediately. Members are “vested” and eligible for a partial or full pension based upon years of service. To achieve full pension, a member must have reached the age of 50 and have 20 years of service credit. A member who has reached the age of 50 and retires with 10 years of service is eligible for a partial benefit (60%). Year Annual Pension Sum at Retirement 1-9 $8,000 $0 10 (60% vested) $8,000 $48,000 20 (100% vested) $8,000 $160,000 The statutory maximum pension contribution is $10,000 annually. The contribution amount remained flat at $6,500 during the Great Recession. Since then, there have been three pension increases. PENSION The Prior Lake Fire Department pension benefit is funded through a combination of resources: • Fund Investment Earnings • State Aid • City Pension Contribution • City Deficit Contribution (if necessary) $6,500 $6,500 $6,800 $7,100 $7,100 $7,200 $8,000 $5,000 $6,000 $7,000 $8,000 $9,000 2012 2013 2014 2015 2016 2017 2018 Year Pension Benefit History 8 Pension Increase. Fire State Aid amount is determined by the State of Minnesota. At the monthly Relief Association meeting in October, the membership reviews the investment performance of the pension fund. Historically, pension increases have been considered based upon the pension fund balance. If the membership votes to recommend an increase, the recommendation is presented to the Relief Association Board for consideration and then to the City Council for approval. Pension Increase Criteria. The goal of the Relief Association is to be self-funded without any contribution from the City. The Relief Association is committed to providing the best possible pension to its members while minimizing the risk to the City of a required contribution. The following criteria is used when considering a pension increase: • Fund balance: The fund should have a positive balance with assets being greater than liabilities. $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 2012 2013 2014 2015 2016 2017 2018 Pension Contribution History state aid city annual city deficit 99.4% 113.7%115.4% 102.6%107.3% 126% 0% 20% 40% 60% 80% 100% 120% 140% 2012 2013 2014 2015 2016 2017Percent FundedYear Pension Fund Balance History - During the great recession, the city contributed an additional $277,462 to keep the fund balance at 100%. - The city’s $20,000 annual contribution has not been adjusted in 10 years. 9 • Investment Performance: Projected investment returns should be stated by using the projected annual income as stated in the most recent Combined Snapshot Report. • Peer Department Pension Level: It can be difficult to compare peer department pension levels due to many factors that influence benefit level. The desire of the Relief Association is to maintain the benefit at a level comparable to our peer group. • Effect on Recruiting and Retention: The pension is important for the recruitment and retention of volunteer firefighters. The positive effect a pension increase can have on these areas contributes to the consideration of increases. FUTURE CHALLENGES The Prior Lake Fire Department faces several challenges in the future: • Equipment. Over the next 5 years, important and expensive pieces of equipment will need to be replaced including, a new tanker, engine, and brush truck. • Recruitment and Retention. Nationally, the number of volunteer firefighters has dropped by around 11 percent since the mid-1980s, according to the National Fire Protection Association. As the population ages, fewer young people are available or inclined to assume this responsibility. Compensation and benefits will need to be assessed continually to encourage volunteers to come forward and to keep existing paid on call firefighters engaged. • Time Commitment. The time commitment for volunteer firefighters is significant. Calls occur 24 hours a day, 7 days a week, often at inconvenient times, which is especially difficult on families. In addition, training requirements are significant and demand more time away from home and work. As firefighters’ lives get busier, the incentive to commit such intense volunteer hours weakens. • Cost. The cost of running a Fire Department is significant. Equipment, vehicle replacement, training, and emerging and mobile technology costs are high and continue to grow. • Staffing. In the next five years, the City will need to consider a second full-time staff member to assist the Fire Chief with expanding duties and responsibilities, including training, administration and inspections. • Fire Inspections. Proactive life safety inspections of high-density housing, elderly living facilities and other City-licensed facilities are not currently happening as regularly nor as often as necessary.