Fort Walton Beach — Annual Comprehensive Financial Report, September 30, 2023 — reading text

The State of Florida is required to contribute 7.8% of payroll and the City is required to contribute the difference between the actuarially determined rate and the contribution rate of the participants and the State of Florida. For the year ended September 30, 2023, the City was required to contribute 44.3% of payroll. Net Pension Liability – FRF The measurement date is September 30, 2022. The measurement period for the pension expense was October 1, 2021 to September 30, 2022. The reporting period is October 1, 2022 through September 30, 2023. The City’s net pension liability was measured as of September 30, 2022. The total pension liability used to calculate the net pension liability was determined as of that date. 61  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2023 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – FRF – Continued Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2021, updated to September 30, 2022, using the following actuarial assumptions: Inflation 2.50% Salary increases Service based Discount rate 7.00% Investment rate of return 7.00% Mortality rates for healthy lives were obtained from the PubS.H-2010 table and were projected generationally with Scale MP-2018 with the following adjustments: Males – (Below Median) for Employees and Healthy Retirees set forward one-year Females – (Below Median) for Employees and Healthy Retirees set forward one-year Mortality rates for disabled lives were obtained from the PubH-2010 table and were projected generationally with Scale MP-2018 with the following adjustments: Males – 80% PubG.H-2010 for Disabled Retirees / 20% PubS.H-2010 for Disabled Retirees Females – 80% PubG.H-2010 for Disabled Retirees / 20% PubS.H-2010 for Disabled Retirees The above mortality assumption rates were mandated by Chapter 2015-157, Laws of Florida. This mandate requires the use of assumptions used by the Florida Retirement System (FRS). The above rates are those outlined in Milliman’s July 1, 2021, FRS valuation report for special risk employees, with appropriate adjustments made based on plan demographics. The most recent actuarial experience study used to review the other significant assumptions was dated June 8, 2022. The long-term expected rate of return on pension plan investments was determined using a building- block method in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expenses and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. For 2022, the inflation rate assumption of the investment advisor was 2.50%. 62  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2023 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – FRF – Continued Actuarial Assumptions – Continued Best estimates of arithmetic real rates of return for each major asset class included in the Pension Plan's target asset allocation as of September 30, 2022, are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 47.50% 7.50% International equity 15.00% 8.50% Broad market fixed income 17.50% 2.50% Fixed income (non-core) 2.50% 2.50% Global fixed income 2.50% 3.50% Real estate 10.00% 4.50% Infrastructure 5.00% 4.50% Total 100.00% Discount Rate The discount rate used to measure the total pension liability was 7.00%. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that sponsor contributions will be made at rates equal to the difference between actuarially determined contribution rates and the member rate. Based on those assumptions, the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. 63  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2023 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – FRF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (a) (b) (a) – (b) Balances at September 30, 2022 (Valuation Date of 10/01/2021) $ 31,894,238 $ 23,759,893 $ 8,134,345 Changes: Service cost 768,244 - 768,244 Interest 2,229,203 - 2,229,203 Changes of assumptions 103,378 - 103,378 Differences between expected and actual experience 790,469 - 790,469 Contributions – employer - 1,390,710 (1,390,710) Contributions – state - 256,006 (256,006) Contributions – employee - 233,380 (233,380) Contributions – buy back 22,695 22,695 - Net investment income - (3,520,580) 3,520,580 Benefit payments, including refunds of employee contributions (1,633,458) (1,633,458) - Administrative expenses - (64,300) 64,300 Net changes 2,280,531 (3,315,547) 5,596,078 Balances at September 30, 2023 (Measurement Date of 9/30/2022) $ 34,174,769 $ 20,444,346 $ 13,730,423 As of the measurement date, the Plan’s fiduciary net position as a percentage of the total pension liability was 59.82%. Sensitivity of the Net Pension Liability to changes in the Discount Rate Current Discount 1% Decrease Rate 1% Increase 6.00% 7.00% 8.00% Sponsor's net pension liability $ 18,367,045 $ 13,730,423 $ 9,948,539 Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan financial report. A separate audited financial report of the Plan is not available. 64  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2023 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions – FRF For the year ended September 30, 2023, the City recognized a pension expense of $2,543,368. On September 30, 2023, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources City and State contributions subsequent to measurement date $ 1,770,370 $ - Net difference between projected and actual earnings on pension plan investments 2,579,857 - Changes of assumptions 687,205 - Differences between expected and actual experience 948,075 - Total $ 5,985,507 $ - Deferred outflows of resources related to pensions of $1,770,370 resulting from the City’s and State’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending September 30, 2024. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pensions will be recognized in pension expense as follows: Year ended September 30: 2024 $ 1,205,690 2025 834,471 2026 958,016 2027 1,216,960 $ 4,215,137 Pension Expense For the fiscal year ended September 30, 2023, the City recognized an aggregate pension expense of $4,663,393 on all defined benefit pension plans. 65  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2023 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Fund Financial Statements The following are the financial statements for the individual pension trust funds (GERF, PORF and FRF) for the year ended September 30, 2023: COMBINING STATEMENT OF PLAN NET POSITION Employee Retirement Funds Total General Police Employee