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

RESTRICED FOR PENSIONS Beginning of year 51,452,004 23,484,778 19,602,418 94,539,200 End of year $ 59,958,231 $ 27,615,543 $ 23,682,902 $ 111,256,676 68  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 9. DEFINED CONTRIBUTION PENSION PLAN City of Fort Walton Beach Defined Contribution Plan In December 2009, City Council closed the General Employees’ Defined Benefit Plan. All general, full-time employees hired on or after January 1, 2010, are members of the Defined Contribution Retirement Plan (Plan). The Plan is a money purchase defined contribution retirement plan administered by ICMA Retirement Corporation, with the City serving as trustee. All funds are held in the ICMA Retirement Corporation Governmental Money Purchase Plan & Trust in the name of each participant. The City finance director serves as the coordinator for the Plan. The Plan requires a 5% payroll contribution by the employee with a 5% employer (City) match. Employees can increase their contribution; however, only an additional 2½% is eligible for City match. Members of the General Employees’ Defined Benefit Pension Plan, who were not fully or partially vested at the time the Plan was opened, were permitted to transfer their contributions to the Plan as a one-time, irrevocable election. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the city has no liability for investment losses. The authority for establishing and amending the Plan’s provisions lies with the City Council. The City Council also has the authority for amending contribution requirements. Contributions made to the Plan by the employees and by the City were $269,187 and $269,187, respectively, for the fiscal year ending September 30, 2021. The City’s contributions vest 20% each year beginning after one year of employment. Participants are fully vested after 5 years of service. 10. DEFERRED COMPENSATION PLAN The City offers employees a deferred compensation plan created in accordance with Internal Revenue Code Section 457 (Plan). The Plan is a tax-deferred supplemental retirement program that allows City employees to contribute a portion of their salary, before federal income taxes, to a retirement account. The assets are held in trust for the employees’ benefit. The Plan participants individually select and make changes in funding options, which are made available by the independent plan administrator. Since participants select the investment fund or funds in which their deferred compensation accounts are invested, the City has no liability for investment losses. The City’s fiduciary responsibility is to administer the Plan properly and to assure the investment alternatives made available are reasonable. Assets of the Plan have a fair value of $2,838,456 at September 30, 2021. Contributions made by Plan members during the fiscal year ended September 30, 2021, were $66,526. 69  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) Plan Description The Fort Walton Beach’s Retiree Health Care Plan (the Plan) is a single employer defined benefit postemployment health care plan that covers eligible retired employees of the City. The Plan, which is administered by the City, allows employees who retire and meet retirement eligibility requirements under one of the City’s retirement plans to continue medical, dental, and life insurance coverage as a participant in the City’s plan. Plan Membership as of September 30, 2020: Inactive Plan Members or Beneficiaries Current Receiving Benefits 123 Inactive Plan Members Entitled to But Not Yet Receiving Benefits - Active Plan Members 256 379 Benefits Provided The benefits provided are the same as those provided for active employees. Spouses and dependents of eligible retirees are also eligible for medical coverage. All employees of the City are eligible to receive postemployment health care benefits. Contributions Retirees participating in the group insurance plans offered by the City are required to contribute 100% of the active premiums. In future years, contributions are assumed to increase at the same rate as premiums. Total OPEB Liability The City’s total OPEB liability was measured as of September 30, 2020. The total OPEB liability was determined by an actuarial valuation. The measurement period for OPEB expense was October 1, 2019 to September 30, 2020. The reporting period is October 1, 2020 to September 30, 2021. Actuarial Assumptions The total OPEB liability was determined by an actuarial valuation as of September 30, 2020 using the following actuarial assumptions: Inflation 2.50% Salary Increases Service based Discount Rate 2.14% Initial Trend Rate 7.00% Ultimate Trend Rate 4.00% Years to Ultimate 54 70  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Total OPEB Liability – Continued Actuarial Assumptions – Continued For general employees, mortality rates were based on the Pub-2010 mortality tables with fully generational improvement using Scale MP-2018. For female lives, the headcount-weighted PubG- 2010 female employee table was used. For male lives, the headcount-weighted PubG-2010 male below median income employee table, set back one year, was used. For disabled female lives, 100% of the Disabled Female table was used, set forward three years. For disabled male lives, 100% of the Disabled Male table was used, set forward three years. For police and fire employees, mortality rates were also based on the Pub-2010 mortality tables with fully generational improvement using Scale MP-2018. For both males and females, the PubS.H-2010 below median income employee table, set forward one year, was used. For both disabled males and females, the 80% PubG.H-2010 and 20%PubS.H-2010 for Disabled Retirees was used. Discount Rate Given the City’s decision not to fund the program, all future benefit payments were discounted using a high-quality municipal bond rate of 2.14%. The high-quality municipal bond rate was based on the week closest but not later than the measurement date of the Bond Buyer 20-Bond Index as published by the Federal Reserve. The 20-Bond Index consists of 20 general obligation bonds that mature in 20 years. The average rating of the 20 bonds is roughly equivalent to Moody's “Aa2” rating and S&P's “AA” rating. Change in Total OPEB Liability Increase (Decrease) Total OPEB Plan Fiduciary Total OPEB Liability Net Position Liability (a) (b) (a) – (b) Balances at September 30, 2020 $ 6,274,415 $ - $ 6,274,415 Changes for the year: Service cost 230,648 - 230,648 Interest 228,430 - 228,430 Differences between expected and actual experience (1,195,507) - (1,195,507) Changes of assumptions 1,699,860 - 1,699,860 Contributions – employer - 253,893 (253,893) Benefit payments (250,893) (250,893) - Administrative expense - (3,000) 3,000 Net changes 712,538 - 712,538 Reporting period ending September 30, 2021 $ 6,986,953 $ - $ 6,986,953 71  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Change in Total OPEB Liability – Continued Sensitivity of the Total OPEB Liability to Changes in the Discount Rate Current 1% Decrease Discount Rate 1% Increase 1.14% 2.14% 3.14% Total OPEB liability $ 8,276,702 $ 6,986,953 $ 5,977,993 Sensitivity of the Total OPEB Liability to Changes in the Healthcare Trend Rates Healthcare Cost 1% Decrease Trend Rates 1% Increase 3.00%-6.00% 4.00%-7.00% 5.00%-8.00% Total OPEB liability $ 6,097,531 $ 6,986,953 $ 8,129,145 OPEB Plan Fiduciary Net Position The plan is unfunded, so the OPEB plan’s fiduciary net position is $0. OPEB Expense and Deferred Outflows/Inflows of Resources Related to OPEB For the year ended September 30, 2021, the City recognized OPEB expense of $603,687. On September 30, 2021, the City reported deferred outflows of resources and deferred inflows of resources related to OPEB from the following sources: Deferred Deferred Outflows of Inflows of Resources Resources Differences between Expected and Actual experience $ - $ 1,279,062 Changes of assumptions 1,952,911 127,811 Employer contributions subsequent to the measurement date 228,302 - Total $ 2,181,213 $ 1,406,873 72  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2021 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED OPEB Expense