Committee Minutes

PENSION AND INSURANCE COMMITTEE MINUTES
Wednesday, November 5, 2003
Council Chambers

The meeting was called to order at 2:10 p.m.

Committee Members Present: Mayor Brown, Gerald Hamerlik, Curt Kreun, Vince
Liddy, Maureen Storstad.
Committee Members Absent:
Staff Members: John Schmisek, Charlie Bunce

Mayor announced that if anyone wishes to speak to any issue to please do so
before the vote is taken on that item by asking to be recognized by the chair,
coming to the front podium, and giving their name and address for the record.

Matter of approval of minutes from the September 10, 2003 meeting.

Motion to approve the mintues by Storstad, second Liddy. Aye: All. Motion
carried.

Matter of Updates to Committee.

Mark Hall, Alerus Financial, informed the committee that the transfer of assets
from Bremer Trust had taken place on October 21, 2003. He stated that the
participants should be receiving PIN numbers for on-line access today in the
mail and participant statements as of October 31, 2003 would follow shortly.
He stated that they are also in the process of compiling complete transfer
information to provide to Human Resources which will detail the transfer of
assets.

Matter of Post-Employment Health Plan Proposals.

Lt. Bob Johnson, representing the Retirement Working Group distributed to the
Committee a revised executive summary of their review of the plan proposals.
Johnson stated that there were two proposals received – from Nationwide
Retirement and ICMA-RC. He stated that upon review and research by the
committee, the proposal from ICMA-RC appears to best satisfy the requirements
that the City had set forth in the request for proposals.

Hamerlik inquired when this benefit, if approved, would be ready and
operational. Johnson replied that the group hopes to work with Human Resources
and ICMA-RC to have the plan available January 2004.

Johnson reiterated to the committee that this benefit would be at no cost to
the City and would be entirely optional to all city employees, with a number of
different ways that employees could elect to participate in the plan.

Liddy inquired whether the concerns on IRS eligibility had been addressed.
Johnson stated that he had been in contact with Ronda Kingsley of the IRS
office in Fargo, one of 2 individuals that work with these items in the
region. He stated that the IRS had provided correspondence detailing the
reason why ICMA-RC is able to offer terms on this plan that Nationwide was not
able to. It appears that the main difference is that Nationwide Retirement is
a for profit corporation, whereas ICMA-RC is a not for profit, which allows
them more flexibility in their programs. Johnson stated that he could provide
a copy of the correspondence to the City Attorney for his review of the
contract, as well as to the Committee and Human Resources. Hamerlik stated
that the contract would require review and approval by the City Attorney, as
any contract for the City requires.

Hamerlik moved, Kreun seconded, to recommend that Council approve that the
employee group currently working on this item be afforded the opportunity to
work out a contract with ICMA-RC and bring such contract to COW after reviewed
and approved by the City Attorney. Aye: All. Motion Carried.

Matter of Request for Health Insurance by Grant Employee.

Schmisek stated that the committee had before it copies of a letter from the
Grand Forks Historic Preservation Commission requesting that the City allow its
director to be covered under the City’s group health plan. He stated that the
City also had correspondence from Human Resources with background information
on how this type of employee has been handled in the past.

Margaret O’Leary, Director of Grand Forks Historic Preservation Commission,
addressed the committee. She stated that she used to be covered by health
insurance through her spouse, but due to a job change he was no longer afforded
insure and the cobra continuation of that policy was nearing its end. She
stated that it was important to have health care at her age, and securing it
independently was difficult.

Hamerlik inquired as to her actual employment status. Schmisek stated that she
is not a city employee, but a state grant funded position. He stated that her
actual contract is with the state and the City has no control over her
selection, hours, compensation, or any part of her position. O’Leary stated
that the she works under funding from the Mayor’s Office and her position is
required under City Code, though she is funded by a grant from the state. She
stated that her payroll is actually done with the City payroll. O’Leary stated
that the issue is very time sensitive to her, as the open enrollment period for
NDPERS ends on November 17, and after such date she could not join until the
following year. O’Leary stated that the full cost of granting the request
would be born by her, with no cost to either the City or the Grand Forks
Historic Preservation Commission.

The committee discussed various other groups which have employees participating
in our group plan with NDPERS for which we also do not control selection and
hours and some of the other grant type agreements that the City has. Several
of these groups remit the cost of covering their employees to the City.
Hamerlik made a motion, Kreun seconded, to recommend to City Council that the
Historic Preservation Commission Director be allowed to enter our NDPERS group
plan provided there is no cost to the City and that the City receives
appropriate legal and insurance company approval. Aye: All. Motion carried.

Matter of Aeltus CORE Account.

Schmisek stated that this item had been heard previously for information
purposes with the annual report of Aeltus at the June 4, 2003 Pension and
Insurance Committee meeting. Mr. Haberern provided the additional information
that was included in the committee members packets for their consideration on
this item.

The committee inquired whether Alerus Financial as trustee for the plan had any
concerns regarding this change in investment allocation. Shari
Hensrud-Ellingson, Alerus Financial, stated that they have reviewed this
proposed change and see no detriments to the plan from approving it. She
stated that adding the CORE account further diversifies the assets, thereby
lowering the volatility that can result from market changes.

Motion by Liddy, second by Storstad, to recommend that Council approve the
addition of the CORE account to the asset allocation as recommended by Aeltus
Investment Management, and to authorize appropriate staff to sign the
authorizing documents. Aye: All. Motion carried.

Matter of Increase in Defined Contribution Plan Contribution Percentage.

Schmisek called on Carol Diamond Gerszewski, President of the Employee Reps
group to report on this item. Gerszewski stated that the employee reps group
conducted a survey of Defined Contribution Plan participants as per request of
this committee. She stated that of the approximately 150 participants in the
plan, 70 had returned their surveys. Of those, 11 favored no increase, while
59 were in favor of an increase in the contribution percentage, with 8 in favor
of an increase to 5%, 13 an increase to 6%, 1 an increase to 7%, and 37 an
increase to 8%. She stated that just today she was notified by Ed Grossbauer,
the Fire Department Rep, that the Fire Department had not turned in new surveys
but that they had done a departmental survey back in February and at that time
all of their participants in the plan were in favor of an increase and all
preferred the 8% contribution rate.

Storstad stated that she had reviewed the information that has been provided by
Deloitte and Touche and that it appears there is no good comparison between the
plans, since there are so many variable factors. She did note that in all of
the models the 4% seems to be low for those at age 55 retirement, and that the
information restates that the risk in the defined contribution plan is all with
the employee and not with the city. Liddy stated that he would also be in
favor of an increase to the 6% rate.

Motion by Liddy, second by Storstad, to increase the contribution rate to 6%
effective January 1, 2004
.
Hamerlik inquired as to the current estimated cost to an increase and whether
or not any portion is budgeted. Schmisek stated that since the 2004 budget has
already been approved and certified to the County and the amount budgeted in
the 4% current rate. Kreun inquired as to whether this increase should rather
be treated as a negotiated item. Grossbauer stated that he served on the
negotiation team in the past and pension was always a non-negotiable item,
subject to separate action by this Committee. Grossbauer stated that he has
been bringing requests to the committee for the last three years on the behalf
of employees and would like to see the committee take action. Hamerlik stated
that while the pension may not have been treated as a negotiable item in the
past, perhaps it should be now going forward, as it is an employee benefit.

Hamerlik inquired if there might be room in the budget to phase in the increase
over the next two years, or possibly at mid-year move to 5%, then to 6% on
January 1, 2005. Mayor Brown stated that if the committee is in agreement that
the 4% is low, that he believes they should try to move ahead with an immediate
increase of some type to bring it up to where it should be. Schmisek stated
that he has a concern from the cash flow standpoint, as the expense is not
budgeted and the budget is very tight. Kreun inquired whether there would be a
desire by the committee to alter the motion to an increase to 6% effective
January 1, 2005. Schmisek stated that depending on the cash carryover at the
end of the year there may be a possibility to fund the full increase with no
problem, but a firm determination could not be made until closer to year end so
that exact revenues and expenses for the 2003 budget would be known. Schmisek
stated that he could report to this committee in December of the exact amount
that should be available to fund the approved increase.

Liddy restated the motion to an increase in the contribution rate for the
Defined Contribution Plan to 6% effective January 1, 2004, pending availability
of funding, with a stipulation that if adequate funding is not available, the
increase will be to 5% on January 1, 2004, and a subsequent increase to 6% on
January 1, 2005 to be paid from cash carryover in 2004 or other appropriate
available revenue streams as determined by the Finance Director. Storstad
seconded. Aye: All. Motion carried.

Matter of Change in Amortization of Unfunded Liability.

Schmisek reported that during the presentation of the actuarial report at the
June 4 meeting and again at the June 24 meeting, Eric Rolling, actuary at
Deloitte & Touche, provided information to the committee on amortization of the
unfunded liability. Schmisek stated that the City currently uses a 14 year
time period for the amortization and that the norm for municipalities is
between 15 and 30 years. By changing to the 30 year amortization, the City
would decrease the amount of the annual payment on the unfunded liability,
thereby lessening the amount of volatility in the contribution amount.
Schmisek stated that this item has been reviewed by the plan trustee and they
have no adverse opinion on this matter.
Motion by Hamerlik, second by Kreun, to increase the amortization of unfunded
liability in the Defined Benefit Pension Plan to 30 years effective for the
year 2003. Aye: All. Motion carried.

Matter of Fourth Amendment to the Defined Contribution Plan.

Schmisek stated that the amendment copy the Committee has incorporates any
changes as discussed at the previous committee meetings. He stated that should
the committee so move, the amendment will be revised by our legal counsel to
include the change in contribution percentage that was approved by the
committee at today’s meeting.

Motion by Kreun, second by Liddy to approve adoption of the amendment, with the
inclusion of the increase in contribution percentage, unless legal counsel
believes the two items should be split, in which case the counsel is directed
to draft a fifth amendment to the plan incorporating said increase. Aye: All.
Motion carried.

Matter of Request from Employees for Additional Years of Service in the Defined
Benefit Plan.

Schmisek stated that the committee members had received a packet of information
on this item including a chronology of events and various ordinances affecting
the part-time temporary employees and their benefits. He stated that in brief
the individuals requesting this action are employees who were all hired prior
to January 1, 1996 and thereby may only participate in the Defined Benefit
Plan. All City Council action to date has denied all but classified employees
admittance to this plan. These employees have now taken classified positions
with the City and are requesting the opportunity to increase their years of
service to include some of the time in which they worked in a nonclassified
status for the City.

Bunce stated that he had provided committee members with a memo detailing three
options for resolving this situation. He stated that the first option is to
reaffirm the City Council’s earlier action denying pension benefits until date
of classification. The second option would be to allow non-classified
employees years of service retroactive to when the City allowed other benefits
for the non-classified positions, January 1, 1995, with three options for
funding – either City funded, buy back with employee responsibility with pay
back on a 5 year term or buy back with employee responsibility with pay back on
a 7 year term. The third option would be to allow the employee to buy back to
their original date of hire, which could be prior to January 1, 1995 when other
benefits were granted, with an allowance for pro-rated benefits for those
employees working in a part-time capacity.

Hamerlik stated that he feels the committee should view the issue in two
parts: first, whether they wish to reaffirm the earlier council decision or
grant the years of service, and then secondly, the funding responsibility,
should the committee decide to recommend the years of service be granted.

The committee discussed the materials that were provided and the various
ordinances that had been passed, some as recently as within the last year and a
half, that prohibited pension participation in the Defined Benefit Plan for
non-classified employees.

Hamerlik made a motion, Kreun seconded, to recommend that Council authorize
changes in the plan document and city ordinance to accommodate the currently
qualified employees as of January 1, 2003, to allow for credit for years of
service in the Defined Benefit Plan back to January 1, 1995.

Committee members inquired if a funding mechanism for the associated cost
should be included. Hamerlik stated that his intent is to first get committee
approval of the allowance, then make a subsequent motion dealing with the
funding of the change. The committee also stipulated that the wording in the
motion is meant to allow this change to only affect those 10 employees recently
classified and specified on the list furnished by Human Resources to the
committee. Schmisek stated that intent should be clear from the wording of the
motion.

Upon call for the question: Aye: Brown, Hamerlik, Kreun, Storstad. Nay:
Liddy. Motion Carried.

The committee discussed the various funding options as listed on the
correspondence from Human Resources. Bunce stated that his recommendation to
the committee, based on how past buy backs have been conducted when they are
solely for the benefit of the participants, would be Option b under item 2 of
his memo. The committee discussed that in the past all who have gotten
accommodations were required to pay the employee share plus the normal cost and
any increase in the unfunded liability, with no cost to the City. Schmisek
stated that was correct, and gave example of when the buy back to age 55 was
done first for public safety departments, and then to all interested
employees. The committee also discussed that participation in the buy back was
a voluntary decision for each affected employee, and that a time limit for
making the option should be set.

Motion by Hamerlik, second by Storstad, to recommend that Council allow
employees designated in the prior motion to be accommodated by participation in
a buy back to January 1, 1995 with a pay back period of 5 years, with option to
elect to participate in this buy back until January 2, 2004, at a cost of 8%
interest, with employee responsibly for the entire cost and no cost to the
City. Aye: All. Motion carried.

Matter of Seventh Amendment to the Defined Benefit Plan.

Schmisek stated that this amendment was previously discussed with the committee
by representatives from Dorsey & Whitney and all changes requested by the
committee had been made. He stated that the amendment could be changed to
reflect the motions made on the last item prior to final approval by City
Council.

Motion by Kreun, second by Liddy to approve the amendment as submitted with the
addition of the motions made on the prior item, unless legal counsel deems it
more appropriate to split that item into a separate amendment. Aye: All.
Motion carried.

Motion to adjourn by Storstad, second by Kreun.

Meeting adjourned at 3:30 p.m.

Respectfully submitted,


John M. Schmisek, CPA
Director of Finance and Administrative Services

SL