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

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. Changes in Net Pension Liability – PORF 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) $ 28,099,293 $ 22,132,402 $ 5,966,891 Changes: Service cost 546,326 - 546,326 Interest 2,143,525 - 2,143,525 Contributions – employer - 806,946 (806,946) Contributions – state - 217,473 (217,473) Contributions – employee - 132,013 (132,013) Change in excess state contributions (172,843) - (172,843) Net investment income - 2,166,715 (2,166,715) Differences between expected and actual experience (211,485) - (211,485) Changes of assumptions 46,143 46,143 Changes of benefit terms 1,428,025 - 1,428,025 Benefit payments, including refunds of employee contributions (1,868,482) (1,868,482) - Administrative expenses - (57,304) 57,304 Net changes 1,911,209 1,397,361 513,848 Balances at September 30, 2021 (Measurement Date of 9/30/2020) $ 30,010,502 $ 23,529,763 $ 6,480,739 60  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – PORF – Continued Sensitivity of the Net Pension Liability to changes in the Discount Rate Current Discount 1% Decrease Rate 1% Increase 6.20% 7.20% 8.20% Sponsor's net pension liability $ 10,032,279 $ 6,480,739 $ 3,529,297 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. Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions – PORF For the year ended September 30, 2021, the City recognized pension expense of $1,948,179. On September 30, 2021, 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 $ 1,456,033 $ - Net difference between projected and actual earnings on pension plan investments - 198,500 Changes of assumptions 326,916 62,924 Differences between Expected and Actual experience 141,906 366,968 Total $ 1,924,855 $ 628,392 Deferred outflows of resources related to pensions of $1,456,033 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, 2022. 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: 2022 $ (186,161) 2023 181,612 2024 (43,544) 2025 (111,477) $ (159,570) 61  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – Firefighters’ Retirement Fund (FRF) Plan Administration The Plan is administered by the Firefighters’ Retirement Board of Trustees (Fire Board) comprised of: a. Two members of the fund elected by a majority of the membership, b. Two City residents appointed by the City Council, c. Fifth member elected by other four and appointed by City Council as a ministerial duty. Each person employed by the City’s fire department as a full-time firefighter becomes a member of the plan as a condition of this employment. All firefighters are therefore eligible for plan benefits as provided for in the plan document and by applicable law. Plan Membership as of October 1, 2019: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 27 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 5 Active Plan Members 35 67 Benefits Provided The plan provides retirement, disability and death benefits. A member may retire at age 45 with 10 years of credited service (early retirement) or at age 55 and 10 years of credited service or 25 years of credited service regardless of age (normal retirement). Benefits become 100% vested upon completion of 10 years of credit service. The plan provides a retirement benefit which is 3.25% of average final compensation times credited service with maximum of 100% of current compensation. Benefits are reduced 0.25% for each month prior to the normal retirement date. Varied benefits exist for disability and pre-retirement death. Benefits for service retirees are adjusted for a 3% cost of living increase on the January 1 following the later of age 58 or the date of retirement. 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 8.0% of payroll. The State of Florida is required to contribute 9.2% 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, 2021, the City was required to contribute 45.1% of payroll. Net Pension Liability – FRF 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. 62  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 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, 2019 updated to September 30, 2020 using the following actuarial assumptions: Inflation 2.50% Salary increases Service based Discount rate 7.20% Investment rate of return 7.20% 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 Disable Retirees / 20% PubS.H-2010 for Disable Retirees Females – 80% PubG.H-2010 for Disable Retirees / 20% PubS.H-2010 for Disable 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, 2019 FRS valuation report for special risk employees, with appropriate risk and collar adjustments made based on plan demographics. The most recent actuarial experience study used to review the other significant assumptions was dated June 2, 2017. 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%. 63  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 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, 2020 are summarized in the following table: