The Shakopee Fire Department Relief Association (SFDRA) approved an amendment to the Association's bylaws at their member meeting on April 26, 2021.  In order for the bylaw amendment to become effective, it needs to be approved by the City Council.  The bylaw amendment becomes effective upon City Council approval with the pension benefit increase effective August 1, 2021.

Appendix A and Appendix C of the attached bylaws includes a summary of the changes and also a history of bylaw amendments.  The yellow highlighted areas of the bylaws are the areas that are changing.

This year's changes is limited to the request for a change in the pension benefit level.

In 2017, the council adopted a guideline for approving benefit increases for the SFDRA.  The goal of the guideline is to ensure the SFDRA assets are sufficiently funded compared to the liabilities before requesting a pension benefit from the council.  The guideline helps ensure that no additional city contribution is required to fund the pension benefit increase request.

The council approved a pension benefit level increase of 3 percent ($250 per year of service) effective November 31, 2020. The previous request was based on information as of December 31, 2019 in which the SFDRA had a 132.8% Funding Coverage Percentage (FCP), which would have allowed for an increase of 6% of $525 per year of service.  At that time, the SFDRA acknowledged that despite the guidelines, the COVID-19 pandemic had brought economic uncertainty and requested a smaller increase of 3% of $250 per year of service and deferred 3% to 2021.  

The current request, includes the 3% previously deferred from 2020, plus the allowable current increase based on guidelines. As of December 31, 2020 the SFDRA had a 136.6% Funding Coverage Percentage (FCP), which allows for an increase of 6% per year of service.  The total request of 9% amounts to $800 per year of service.

Below is a recap of the pension benefit guideline.

The recommended 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 professional 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 protection 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 SFDRA pension has been above the 100 percent since 2013 and the city has not contributed any additional funds since 2014.