The Shakopee Fire Department Relief Association (SFDRA) Board passed a motion at their June meeting to request the City Council consider a pension benefit guideline along with a pension benefit increase for 2017. The last pension benefit request was passed by the City Council on December 3, 2013. The request called for $100 per year annual pension increases for the years 2014, 2015 and 2016 to the rate of $7,600, $7,700 and $7,800, respectively. The previous increase prior to this dated back to 2005.

As of December 31, 2012, the Fire Relief pension was funded at a 96% rate and required a city contribution beyond the Fire State-Aid payment received from the State. Since that time, the SFDRA has hired a financial advisor specializing in fire reliefs that has increased the rate of return on the Association's investments.  In addition, the Fire State-Aid dollars have almost doubled from $123,647 in 2010 to $246,909 in 2016. 

The SFDRA pension has been above 100 percent funding since 2013 and the city has not contributed any additional funds to the pension since 2014. As of December 31, 2016, the SFDRA is sitting at 114.4 percent funded.

The SFDRA is requesting to implement a benefit increase strategy that provides its members with a more predictable and systematic increases which would be based off of the annual funding coverage levels. The increase in benefit level depends upon the prior year's actual funding level. 

The goal of the new strategy is to ensure the SFDRA assets are sufficiently funded compared to the liabilities before requesting a pension benefit increase from the City Council. This would aid in ensuring the no additional city contribution would be required to fund the pension benefit increase request. Conversely, the greater the pension assets exceed liabilities the greater the increase in the pension benefit request. 

The recommended Funding Coverage Percentages (FCP) and corresponding per year of service pension benefit percentage increases are as follows:

1. FCP less than 112% no increase
2. FCP 112% or greater 3% increase
3. FCP 117% or greater 4% increase
4. FCP 122% or greater 5% increase
5. FCP 127% or greater 6% increase

The guideline also recommends further stipulations including:

• The actual dollar amount increase would be rounded to the nearest twenty-five-dollar increment.
• As a further protection and control, it is recommended that there should be no increases in the pension benefit for one year after the last mandatory city contribution.  This provides a buffer and additional safeguard for the volatility that may occur when large market corrections occur.
• All spreadsheets and financial models created by SFDRA Board members, and investment professionals should be regularly updated with current information and reviewed at the annual pension benefit discussion in April.
• This guideline may be amended by future councils at their discretion.

Even though the guideline has protections built into it to safeguard against the city needing to make mandatory contributions. These safeguards are not a 100 percent guarantee.  A large correction in the financial markets could bring the FCP below 100 percent and subsequently require a mandatory city contribution.

The pension benefit request effective for August 1, 2017 would be a three (3) percent increase based off of the FCP of 114.4 percent at December 31, 2016. The 3 percent increase rounded to the nearest $25 would be an increase of $225 per year of service, bringing the total yearly pension benefit to $8,025. 

In researching fire relief pensions, the Office of the State Auditor does recommend smaller more frequent increases rather than large and more infrequent increases. Based on SFDRA funding percentage, the association could request about a $1,000 increase and still be at about 105 percent funded. However, that doesn't leave much room for any potential market corrections or keeping equity among paid on-call members. This proposed guideline aims to guard against market corrections and keep equity among all members. 

The City Council will still need to approve any future annual increases.