Fort Walton Beach — Annual Comprehensive Financial Report, September 30, 2025 — reading text

total pension liability was determined by an actuarial valuation as of October 1, 2023, updated to September 30, 2024, 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 56  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2025 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 2024, the inflation rate assumption of the investment advisor was 2.50%. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of the September 30, 2024, measurement date are summarized in the table below: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 42.50% 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 10.00% 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. 57  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2025 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, 2024 (Valuation Date of 10/01/2023) $ 35,603,888 $ 22,824,393 $ 12,779,495 Changes: Service cost 763,298 - 763,298 Interest 2,484,595 - 2,484,595 Share plan allocation 58,611 - 58,611 Differences between expected and actual experience 70,616 - 70,616 Contributions – employer - 1,630,438 (1,630,438) Contributions – state - 333,611 (333,611) Contributions – employee - 243,145 (243,145) Net investment income - 4,748,767 (4,748,767) Benefit payments, including refunds of employee contributions (1,745,932) (1,745,932) - Administrative expenses - (80,823) 80,823 Net changes 1,631,188 5,129,206 (3,498,018) Balances at September 30, 2025 (Measurement Date of 9/30/2024) $ 37,235,076 $ 27,953,599 $ 9,281,477 As of the measurement date, the Plan’s fiduciary net position as a percentage of the total pension liability was 75.07%. 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% City's net pension liability $ 14,245,665 $ 9,281,477 $ 5,234,060 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. 58  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2025 Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions – FRF For the year ended September 30, 2025, the City recognized actuarial pension expense of $1,595,076. On September 30, 2025, 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 $ 2,003,479 $ - Net difference between projected and actual earnings on pension plan investments - 1,345,311 Changes of assumptions 193,549 - Differences between expected and actual experience 448,559 67,035 Total $ 2,645,587 $ 1,412,346 Deferred outflows of resources related to pensions of $2,003,479 resulting from the City 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, 2026. 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: 2026 $ 185,461 2027 444,405 2028 (772,555) 2029 (627,549) $ (770,238) Pension Expense For the fiscal year ended September 30, 2025, the City recognized an aggregate pension expense of $2,864,181 on all defined benefit pension plans. 59  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2025 Fund Financial Statements The following are the financial statements for the individual pension trust funds (GERF, PORF and FRF) as of and for the year ended September 30, 2025: COMBINING STATEMENT OF PLAN NET POSITION Pension Trust Funds General Police Employees' Officers' Firefighters' Total Pension Retirement Retirement Retirement Trust Funds ASSETS Accounts receivable $ 23,497 $ 31,101 $ 40,360 $ 94,958 Investments, at market Money-market funds 1,005,147 851,902 574,318 2,431,367 U.S. Government and Agency obligations - 5,530,054 4,956,388 10,486,442 Corporate obligations - 331,884 315,554 647,438 Mutual and exchange-traded funds 52,158,865 23,338,001 20,405,410 95,902,276 Infrastructure investment funds 2,909,020 1,610,956 2,998,577 7,518,553 Real estate investment funds 4,127,222 2,507,292 2,237,029 8,871,543 Total investments, at market 60,200,254 34,170,089 31,487,276 125,857,619 TOTAL ASSETS 60,223,751 34,201,190 31,535,424 125,960,365 LIABILITIES Accounts payable