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Fire district Board of Directors votes 2-1 to select firm to review pension plan

Aaron Hilmer

Bonnie Stegman
October 05, 2005 - By LAURA UHLMANSIEK

Staff Reporter

The Mehlville Fire Protection Board of Directors last week selected a financial company that will study the district's pension plan and offer options for change, including switching from defined benefit plan to defined contribution plan.

During a Sept. 26 meeting of the district's Pension Com-mittee, members heard a presentation from the district's actuarial consultant, who said the pension plan should remain at a healthy state as long as the district continues to make the recommended contributions.

But Board of Directors Chairman Aaron Hilmer said the district no longer will use revenue from the general fund and ambulance fund to meet those recommended contributions. As a result, Hilmer asked several financial companies to present options for the district's pension plan.

The Board of Directors voted 2-1 to ask American United Life to take a further look at the district's pension plan. Hilmer and Treasurer Bonnie Stegman voted in favor of the motion, while Secretary Dan Ottoline Sr. was opposed.

"In order to really get an idea of the payouts, etc., etc., we really need to proceed with one. It's not making a change," Hil-mer said. "… It's giving us a better defined idea, where we'll actually have numbers in-stead of just saying this is where we're at (with potential changes)."

Members of the Pension Committee, which is comprised of both current and re-tired employees and the three directors, said they could not support any of the three firms that presented that night. They said they wanted to work with the board first before moving ahead with a consulting firm. They also reminded the board that nothing can be done to the pension plan because a preliminary injunction still is in force. Mehlville Local 1889 of the In-ternational Association of Fire Fighters filed a lawsuit against the board after it voted to change the disability benefits, which are included in the pension plan.

"The judge has made it very clear," committee member Dan Rosenthal told the board. "There's no changes that can be made to this plan until she says ... I don't see why we need to change the plan. We can sit down and have a workshop date, whatever you want to call it. There are some options with this plan. We have a cloud coming over, and we're calling it a category five already. It's not that far along, it really isn't. I think we can work this out."

At the beginning of the meeting, Mike Zweiner, an actuarial consultant with Milliman, presented the findings of a pension plan study the district had hired the firm to conduct. The study looked at the cost of potential changes to the plan, including switching the plan to its 2000 benefit formula, eliminating the lump sum option and converting the defined benefit plan into a defined contribution plan.

The district's pension fund is designed to be funded solely by tax dollars and the return on investments, so the employees do not contribute any funds. Currently, 8.9 cents of the district's 86.5-cent tax rate are designated for the pension fund.

Each year the district's pension consultants recommend that a minimum monetary contribution go to the pension fund to keep it in a financially healthy state. Since 2003, the pension tax rate has fallen short of providing that recommended contribution and so the district has funneled money from operational funds to make up for the shortfall.

The previous board had approved using $113,000 in 2003 and $193,000 in 2004 of operational money in the general and ambulance funds to compensate for the revenue deficiency in the pension fund, Comptroller Jeff Geisler told the Call.

The district already had contributed $136,000 in 2005 before Hilmer and Steg-man were elected in April.

Hilmer and Stegman, who ran on a reform platform, have said they will not approve using operational funds to supplement the pension fund and it must stand on its own.

Zweiner said that the pension plan has an 87 percent funding ratio, which means the plan is reasonably well funded, as long as the district continues to contribute the recommended amount.

"Now that's with us supplementing the pension fund with money out of general revenue. If we don't do that, obviously that would affect the funding level, is that correct?" Stegman asked Zweiner.

"Let's say we go another year down the road and you didn't, there wasn't another contribution made, that would certainly erode that ratio pretty quickly, yes," Zwein-er said.

The three consulting firms, including John Hancock, Principal and American United Life, or AUL, were brought before the board by Mike Leara of Gateway Ad-visors.

Pension Committee members questioned Leara's experience, his relationship with Hilmer and the credibility of his business.

Leara told the Call that he has nearly 18 years of experience in financial advising and has been an independent adviser since 1999. Leara, who also serves as the Con-cord Township Republican committeeman, said that he had contacted Hilmer after the election to seek permission to study the pension plan.

When asked whether he could provide references at the meeting, Leara said that his clients are confidential, which he said is typical for the financial advising business.

"People don't want others to know where they're doing their financial business," Leara told the Call.

Leara said he has been researching pension plans for the district for free.

However, if the district decides to hire one of the firms Leara presented, then the firm will pay Leara the industry standard of 25 basis points per year, or .25 percent of the value of all assets combined. He would work as an investment consultant to district employees at no charge to the district.

Leara told the Call that he had evaluated 14 financial services firms before settling on the three he presented to the pension committee. One of the firms Leara contacted was Nationwide, the district's consultant for its 401(k) and 457 retirement plans, but he said the firm had too many additional fees. Leara told the board members he believed AUL was the best choice.

"AUL we felt was probably the best deal for the money. They offered a full range of services, They were the lower cost of the the three, so you were obtaining everything that we felt was important, combining all of the retiring assets into one group, being able to transition you from one (plan structure) to the other and having the lowest expense," Leara told the board.

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