Fort Walton Beach — Comprehensive Financial Report September 30, 2017 — reading text

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. 54  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 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, 2016 (Valuation Date of 10/01/2015) $ 42,864,631 $ 38,086,889 $ 4,777,742 Changes: Service cost 557,163 - 557,163 Interest 3,317,396 - 3,317,396 Differences between Expected and Actual experience 400,221 - 400,221 Changes of assumptions 4,485,495 - 4,485,495 Contributions – employer - 1,280,082 (1,280,082) Contributions – employee - 202,268 (202,268) Net investment income - 4,031,981 (4,031,981) Benefit payments, including refunds of employee contributions (2,858,889) (2,858,889) - Administrative expenses - (35,704) 35,704 Net changes during 2015-16 5,901,386 2,619,738 3,281,648 Balances at September 30, 2017 (Measurement Date of 9/30/2016) $ 48,766,017 $ 40,706,627 $ 8,059,390 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 6.90% 7.90% 8.90% Sponsor's Net Pension Liability $ 13,487,315 $ 8,059,390 $ 3,490,193 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. 55  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – GERF For the year ended September 30, 2017, the City recognized pension expense of $1,099,490. On September 30, 2017, 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 contributions subsequent to measurement date $ 1,254,097 $ - Net difference between Projected and Actual earnings on pension Plan investments 836,619 - Changes of assumptions 2,990,330 - Differences between Expected and Actual experience 266,814 358,081 Total $ 5,347,860 $ 358,081 Deferred outflows of resources related to pensions of $1,254,097 resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability for the year ending September 30, 2017. 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: 2018 $ 1,598,674 2019 1,956,755 2020 396,033 2021 (215,780) $ 3,735,682 Plan Description – Police Officers’ Retirement Fund (PORF) Plan Administration The Police Officers’ Retirement Board of Trustees (Police Board) is designated as the plan administrator. The Police Board shall consist of five Trustees, two of whom, unless otherwise prohibited by law, shall be legal residents of the City, who shall be appointed by the City Council, and two of whom shall be Members of the System, who shall be elected by a majority of the Police Officers who are Members of the System. The fifth Trustee shall be chosen by a majority of the previous four Trustees as provided for herein, and such person's name shall be submitted to the City Council who shall, as a ministerial duty, appoint such person to the Police Board as its fifth Trustee. 56  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – PORF – Continued Each person employed by the City’s police department as a full-time police officer becomes a member of the Plan as a condition of his employment. All police officers are therefore eligible for plan benefits as provided for in the plan document and by applicable law. Plan Membership as of October 1, 2016: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 48 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 15 Active Plan Members 38 101 Benefits Provided The plan provides retirement, termination, disability and death benefits. A member may retire at age 50 with 10 years of credited service or completion of 25 years of credited service (early retirement) or at age 55 or the completion of 30 years of credited service (normal retirement). Members hired between ages 45 and 50 must work 10 years. Benefits become 100% vested upon completion of 10 years of credited service. The plan provides retirement benefits in the amount of 2.75% of average final compensation times credited service. Benefits are reduced 6% for each year prior to the age of 55. Varied benefits exist for disability and pre-retirement death. Each April 1 the benefit paid to service retires is adjusted in accordance with the CPI increase during the previous year not to exceed 3%. Contributions The City, the State of Florida, and employees (at 5.0% of payroll until a 75% maximum accrual is attained and then 0.5% thereafter) make contributions to the Plan. For fiscal year 2017, employees contributed $104,557 to the Plan. The State of Florida makes contributions based on tax premiums assessed on property insurance of 0.85%. For fiscal year 2017, the State contributed $190,399 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2017 was 22.0% of payroll. The annual required contribution for the current fiscal year was determined as part of the October 1, 2015 actuarial valuation updated to September 30, 2016 using the entry age normal actuarial cost method. Net Pension Liability – PORF The City’s net pension liability was measured as of September 30, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2015 updated to September 30, 2016 using the following actuarial assumptions: Inflation 3.00% Salary increases 3.00% – 10.00% Discount rate 8.00% Investment rate of return 8.00% 57  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – PORF – Continued Actuarial Assumptions – Continued Mortality rates for healthy lives were obtained from the RP-2000 Fully Generational with Scale BB mortality table, with collar and annuitant adjustments as follows: Males – 10% Annuitant White Collar, 90% Annuitant Blue Collar. Females – 100% Annuitant White Collar. Mortality rates for disable lives were obtained from the RP-2000 mortality table without projection, with the following adjustments: Males – 60% Disabled Male with four year setback, 40% Annuitant White Collar with no setback. Females – 60% Disabled Female set forward two years, 40% Annuitant White Collar with no setback. The other significant actuarial assumptions used in the October 1, 2015 valuation were based on the results of an actuarial experience study for the period 1991-2012. 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 2016, 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 September 30, 2016 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of