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

1,475,610 6,521,387 INCREASE IN PLAN NET POSITION 3,302,487 1,049,558 1,162,510 5,514,555 NET POSITION RESTRICED FOR PENSIONS Beginning of year 40,664,267 19,886,645 14,359,988 74,910,900 End of year $ 43,966,754 $ 20,936,203 $ 15,522,498 $ 80,425,455 66  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 9. DEFINED CONTRIBUTION PENSION PLAN City of Fort Walton Beach Defined Contribution Plan In December 2009, City Council closed the General Employees’ Defined Benefit Pension 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 $189,085 and $189,085, respectively, for the year ending September 30, 2017. 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 $2,387,457 at September 30, 2017. Contributions made by plan members during the year ended September 30, 2017, were $84,092. 67  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 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 October 1, 2016: Inactive Plan Members or Beneficiaries Current Receiving Benefits 172 Inactive Plan Members Entitled to But Not Yet Receiving Benefits - Active Plan Members 157 329 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. Net OPEB Liability The City’s net OPEB liability was measured as of September 30, 2016. The total OPEB liability used to calculate the net OPEB liability was determined as of that date. The total OPEB liability was “rolled- back” from September 30, 2016, using a discount rate of 3.71%, thus producing no experience gain or loss from the period ending September 30, 2016. Actuarial Assumptions The Total OPEB Liability was determined by an actuarial valuation as of October 1, 2016, using the following actuarial assumptions: Inflation 3.00% Salary Increases See Assumptions and Methods Discount Rate 3.06% Investment Rate of Return 0.00% For general employees, mortality rates were based on the RP-2000 mortality tables. For female lives, 100% of the white collar table was used. For male lives, a 50% white collar table, 50% blue collar table blend was used. All tables include fully generational adjustments for mortality improvements using improvement scale BB. For disabled lives, mortality rates were based on the RP-2000 sex- distinct disabled mortality tables with female lives set forward two years, male lives set back four years. Disabled mortality has not been adjusted for mortality improvements. 68  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Net OPEB Liability – Continued For police and fire employees, mortality rates were also based on various RP-2000 mortality tables. For female lives, 100% of the white collar table was used. For male lives, a 10% white collar table, 90% blue collar table blend was used. All tables include fully generational adjustments for mortality improvements using improvement scale BB. For disabled female lives, a blend of 60% of the RP- 2000 disabled female mortality table set forward two years and 40% of the white collar table with no setback was used. For disabled male lives, a blend of 60% of the RP-2000 disabled male mortality table set back four year and 40% of the white collar table with no setback was used. Disabled mortality has not been adjusted for mortality improvements. 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 3.06%. 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 Net OPEB Liability Increase (Decrease) Total OPEB Plan Fiduciary Net OPEB Liability Net Position Liability (a) (b) (a) – (b) Balances at September 30, 2016 $ 5,261,882 $ - $ 5,261,882 Changes for the year: Service cost 85,100 - 85,100 Interest 195,814 - 195,814 Changes of assumptions 702,672 - 702,672 Contributions – employer - 141,727 (141,727) Benefit payments (139,227) (139,227) - Administrative expense - (2,500) 2,500 Net changes 844,359 - 844,359 Reporting period ending September 30, 2017 $ 6,106,241 $ - $ 6,106,241 Sensitivity of the Net OPEB Liability to Changes in the Discount Rate: Current 1% Decrease Discount Rate 1% Increase 2.06% 3.06% 4.06% Net OPEB liability $ 7,464,541 $ 6,106,241 $ 5,072,539 69  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2017 11. OTHER POST EMPLOYMENT BENEFITS (OPEB) – CONTINUED Sensitivity of the Net OPEB Liability to Changes in the Healthcare Trend Rates: Healthcare Cost 1% Decrease Trend Rates 1% Increase 3.00%-7.75% 4.00%-8.75% 5.00%-9.75% Net OPEB liability $ 5,208,317 $ 6,106,241 $ 7,277,281 OPEB Plan Fiduciary Net Position The plan is unfunded, so the OPEB plan’s fiduciary net position is $0. OPEB Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to OPEB For the year ended September 30, 2017, the City will recognize OPEB expense of $423,948. On September 30, 2017, 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 - - Changes of assumptions 562,138 - Total $ 562,138 $ - Amounts reported as deferred outflows of resources and deferred inflows of resources related to OPEB will be recognized in OPEB