4.2. SR 07-26-1993 - Laserfiche WebLink

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e e e Next, I would like to make the Council aware of several issues relating to the Council's responsibilities and obligations to the Fire Relief Association. It is important that the Council be aware of these prior to approving an increase in the benefit amount. I have attached numerous articles from the League of Minnesota Cities magazine and a recent article found in the State Auditor's newsletter, each of which relates to the Fire Relief Association. I will attempt to highlight the main points of these articles. First, the Fire Relief Association can ratify a benefit increase without City Council approval, but only if the Relief Association has a surplus (i.e., is totally funded) and no municipal contribution is required. It is always in the Relief Association's best interest to have the City Council approve any increase in the benefit amount; however, it is not always a benefit to the City Council to approve each benefit increase. The City Council is liable to make up for any potential shortfall in Relief Association assets in order to make payment for benefits at the level approved by the City Council. For example, if the Relief Association had approved a benefit amount of $3,000 and the City Council had approved a benefit amount of $2,000 and there were numerous retirements and a decrease in the market value of the investments, the City would be responsible for making payment to firefighters based on the $2,000 level. One way to avoid the issue of holding the City responsible while still allowing the firefighters to get the maximum amount from the Relief Association assets is to change from a defined benefit to defined contribution method of payment. The City has been suggesting this for the last several years. Recently, the Relief Association had a guest speaker from Anoka to explain how Anoka changed from defined benefit to defined contribution. Using the defined contribution benefit system, the Association's assets are split among the firefighters based on number of years of service and other factors. Using this method, the fund is always totally funded and there is no need for the City to provide sufficient funds. It is hopeful that the Relief Association membership will consider changing to a defined contribution benefit system. The final attachment is a copy of the Schedule 2 from the Relief Association. I did not receive a copy of Schedule 1 showing the liability for each firefighter. The schedules were calculated by Gus Welter, the Relief Association's Consultant. There are several things I want to point out on this schedule. First, the Relief Association assets as of January 1, 1993, are shown at a higher level than the number in the audit. The audit states the assets at the lower of cost or market while the Relief Association lists its assets at market value. According to State Statute, the Relief Association may use the market value of its assets for this calculation. The market value of the assets is approximately $22,500 higher than the investments valued at lower of cost or market. As you know, the market value is subject to change on a daily basis.