Fort Walton Beach — Comprehensive Financial Report September 30, 2021 — reading text

subsequent to the measurement date 25,022 16,666 6,575 48,263 Changes in assumptions related to OPEB plan 214,057 142,571 56,223 412,851 Total deferred outflows $ 598,822 $ 317,453 $ 113,127 $ 1,029,402 Deferred inflows Net difference between projected and actual earnings on pension plan investments $ 176,217 $ 94,898 $ 30,187 $ 301,302 Changes in assumptions related to pension plan - - - - Differences between expected and actual experience on pension plan actuarial assumptions - - - - Changes in assumptions related to OPEB plan 14,008 9,331 3,681 27,020 Differences between expected and actual experience on OPEB plan actuarial assumptions 140,186 93,372 36,837 270,395 Total deferred inflows $ 330,411 $ 197,601 $ 70,705 $ 598,717 8. DEFINED BENEFIT PENSION PLANS The City of Fort Walton Beach, Florida sponsors three single employer defined benefit pension plans: the General Employees' Retirement Fund (GERF), the Police Officers' Retirement Fund (PORF) and the Firefighters' Retirement Fund (FRF). These plans provide benefits for all qualifying employees of the City. The financial activity of each plan is reported as a Pension Trust Fund in the City of Fort Walton Beach, Florida's internal combined financial statements and can be found under subheading “Fund Financial Statements” of this note. There is no separate report available for the individual pension plans. Plan Description – General Employees’ Retirement Fund (GERF) Plan Administration The authority and responsibility for the establishment, amendment and administration of this Plan is vested in the City Council, and the Members thereof shall be designated as trustees of the fund. The trustees are authorized to adopt reasonable rules and regulations for the administration of the fund created by this Plan. 52  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – General Employees’ Retirement Fund (GERF) – Continued Plan Administration – Continued The Plan is a single employer defined benefit pension plan administered by the City’s Finance Director. The Finance Director shall administer this Plan for the trustees and participants, subject at all times to the limitations and conditions specified in or imposed by provisions of this Plan and the rules and regulations adopted by the City Council. The trustees and the plan administrator shall serve without additional compensation beyond that already provided by the City for their respective duties. Plan membership consists of all full-time City employees including the City Manager, Finance Director, and the Chief of Police, if they elect to participate, but not including City Council Members, police officers other than the Chief of Police, and firefighters. Effective January 1, 2010, the plan is closed to new entrants. Plan Membership as of October 1, 2019: Inactive Plan Members or Beneficiaries Current Receiving Benefits 166 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 43 Active Plan Members 63 272 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 52 with 10 years of credited service (early retirement) or at age 62 and 10 years of credited service (normal retirement). Benefits become 100% vested upon completion of 10 years of credited service. For the City Manager, Finance Director, or Department Heads, including the Chief of Police, the Member becomes vested at 20% per year, except that credited service other than that as a Charter Officer or Department Head will accrue at a rate of 10% per year. Retirement benefits are a percentage (2.75% or 2.50%) of final average earnings times the years of credited service with maximum of 75% or 100% of current compensation depending on vested status at April 5, 1999. Benefits are reduced by 3% for each year by which the early retirement date precedes the age of 62. Varied benefits exist for service and non-service-connected disabilities as well as death in the line of duty or other pre-retirement death. In accordance with the annual increase in CPI-U as measured in December, all retirees are entitled to an adjustment payable each April 1, subject to a minimum of 0% and a maximum of 3%. The adjustment does not apply to members who retire following a vested terminated status or disability retirees. Funding Policy and Contributions Contributions to the Plan are established based on an actuarially determined rate recommended by an independent actuary. For the year ended September 30, 2021, the participants’ contribution rate was 5.0%. The City is required to contribute the remaining amount necessary to fund the normal cost and amortize the unfunded actuarial accrued liability over not more than 15 years. For the year ended September 30, 2021, the City was required to contribute $1,024,247. 53  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – GERF The measurement date is September 30, 2020. The measurement period for the pension expense was October 1, 2019 to September 30, 2020. The reporting period is October 1, 2020 through September 30, 2021. The city’s net pension liability was measured as of September 30, 2020. The total pension liability used to calculate the net pension liability was determined as of that date. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2019 updated to September 30, 2020 using the following actuarial assumptions: Inflation 2.50% Salary Increases 3.50% - 6.50% Discount Rate 7.30% Investment Rate of Return 7.30% Mortality rates for healthy lives were obtained from the PubG.H-2010 table and were projected generationally with Scale MP-2018 with the following adjustments: Males – (Below Median) for Employees and Healthy Retirees set back one-year Females – Employees and Healthy Retirees Mortality rates for disabled lives were obtained from the PubG.H-2010 table and were projected generationally with Scale MP-2018 with the following adjustments: Males – Disabled Retirees with three-year set forward Females – Disabled Retirees with three-year set forward 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, 2019 FRS valuation report for non-special risk employees, with appropriate risk and collar adjustments made based on plan demographics. 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 2020, the inflation rate assumption of the investment advisor was 2.50%. 54  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – GERF – 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, 2020 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 55.00% 7.50% International equity 10.00% 8.50% Broad market fixed income 20.00% 2.50% Fixed income (non-core) 2.50% 2.50% Global fixed income 2.50% 3.50% Real estate 10.00% 4.50% Total 100.00% Discount Rate The discount rate used to measure the total pension liability was 7.30%. 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. 55  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Change in Net Pension Liability – GERF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2020 (Valuation Date of 10/01/2019) $ 50,294,277 $ 48,423,281 $ 1,870,996 Changes: Service cost 366,197 - 366,197 Interest 3,723,744 - 3,723,744 Differences between expected and actual experience 60,721 - 60,721 Changes of assumptions 618,633 - 618,633 Contributions –