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

Return Domestic equity 45.00% 7.50% International equity 15.00% 8.50% Broad market fixed income 40.00% 2.50% Total 100.00% Discount Rate The discount rate used to measure the total pension liability was 8.00%. 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. 58  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED 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, 2016 (Valuation Date of 10/01/2015) $ 24,982,724 $ 19,150,987 $ 5,831,737 Changes: Service cost 344,958 - 344,958 Interest 1,948,181 - 1,948,181 Contributions – employer - 577,564 (577,564) Contributions – state - 181,303 (181,303) Contributions – employee - 102,214 (102,214) Net investment income - 1,698,093 (1,698,093) Changes of assumptions 1,633,122 - 1,633,122 Differences between Expected and Actual experience (425,107) - (425,107) Changes of assumptions - Benefit payments, including Refunds of employee contributions (1,744,710) (1,744,710) - Administrative expenses - (44,882) 44,882 Net changes during 2015-16 1,756,444 769,582 986,862 Balances at September 30, 2017 (Measurement Date of 9/30/2016) $ 26,739,168 $ 19,920,569 $ 6,818,599 Sensitivity of the Net Pension Liability to changes in the Discount Rate: Current Discount 1% Decrease Rate 1% Increase 7.00% 8.00% 9.00% Sponsor's Net Pension Liability (Asset) $ 9,993,143 $ 6,818,599 $ 4,178,210 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. 59  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 – PORF For the year ended September 30, 2017, the City recognized pension expense of $435,413. 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 and State contributions subsequent to measurement date $ 759,614 $ - Net difference between Projected and Actual earnings on pension Plan investments 978,590 - Changes of assumptions 1,224,842 - Differences between Expected and Actual experience - 648,815 Total $ 2,963,046 $ 648,815 Deferred outflows of resources related to pensions of $759,614 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, 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 $ 452,888 2019 452,888 2020 689,726 2021 (40,885) $ 1,554,617 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. 60  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – FRF – Continued Plan Membership as of October 1, 2016: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 26 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 5 Active Plan Members 34 65 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 The City, the State of Florida, and employees (at 8.0% of salary) make contributions to the Plan. For fiscal year 2017, employees contributed $205,635 to the Plan. The State of Florida makes contributions based on tax premiums assessed on property insurance of 1.85%. For fiscal year 2017, the State contributed $204,568 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2016 was 31.9% 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 – FRF 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 2.50% Salary increases 6.50% Discount rate 8.00% Investment rate of return 8.00% 61  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – FRF – 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 date of the most recent experience study for which significant assumptions are based upon is not available. 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