Fort Walton Beach — Annual Comprehensive Financial Report, September 30, 2022 — reading text

are a percentage (2.75% or 2.50%) of final average earnings times the years of credited service with maximum of 75% or 100% of current compensation depending on vested status at April 5, 1999. Benefits are reduced by 3% for each year by which the early retirement date precedes the age of 62. Varied benefits exist for service and non-service-connected disabilities as well as death in the line of duty or other pre-retirement death. In accordance with the annual increase in CPI-U as measured in December, all retirees are entitled to an adjustment payable each April 1, subject to a minimum of 0% and a maximum of 3%. The adjustment does not apply to members who retire following a vested terminated status or disability retirees. Funding Policy and Contributions Contributions to the Plan are established based on an actuarially determined rate recommended by an independent actuary. For the year ended September 30, 2022, the participants’ contribution rate was 5.0%. The City is required to contribute the remaining amount necessary to fund the normal cost and amortize the unfunded actuarial accrued liability over not more than 15 years. For the year ended September 30, 2022, the City was required to contribute $580,847. 54  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2022 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability (Asset) – GERF The measurement date is September 30, 2021. The measurement period for the pension expense was October 1, 2020 to September 30, 2021. The reporting period is October 1, 2021 through September 30, 2022. The city’s net pension liability was measured as of September 30, 2021. The total pension liability used to calculate the net pension liability was determined as of that date. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2020 updated to September 30, 2021 using the following actuarial assumptions: Inflation 2.50% Salary Increases 3.50% - 6.50% Discount Rate 7.00% Investment Rate of Return 7.00% Mortality rates for healthy lives were obtained from the PubG.H-2010 table and were projected generationally with Scale MP-2018 with the following adjustments: Males – (Below Median) for Employees and Healthy Retirees set back one-year Females – Employees and Healthy Retirees Mortality rates for disabled lives were obtained from the PubG.H-2010 table and were projected generationally with Scale MP-2018 with the following adjustments: Males – Disabled Retirees with three-year set forward Females – Disabled Retirees with three-year set forward 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, 2020, FRS valuation report for non-special risk employees, with appropriate risk and collar adjustments made based on plan demographics. 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 2021, the inflation rate assumption of the investment advisor was 2.50%. 55  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2022 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability (Asset) – GERF – Continued Actuarial Assumptions – Continued 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, 2021 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic equity 55.00% 7.50% International equity 10.00% 8.50% Broad market fixed income 20.00% 2.50% Fixed income (non-core) 2.50% 2.50% Global fixed income 2.50% 3.50% Real estate 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. 56  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2022 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Change in Net Pension Liability (Asset) – GERF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2021 (Valuation Date of 10/01/2020) $ 51,735,875 $ 51,481,652 $ 254,223 Changes: Service cost 330,178 - 330,178 Interest 3,677,931 - 3,677,931 Differences between expected and actual experience 275,286 - 275,286 Changes of assumptions 1,521,135 - 1,521,135 Contributions – employer - 1,024,247 (1,024,247) Contributions – employee - 136,164 (136,164) Net investment income - 10,772,183 (10,772,183) Benefit payments, including refunds of employee contributions (3,366,874) (3,366,874) - Administrative expenses - (48,305) 48,305 Net changes 2,437,656 8,517,415 (6,079,759) Balances at September 30, 2022 (Measurement Date of 9/30/2021) $ 54,173,531 $ 59,999,067 $ (5,825,536) As of the measurement date, the Plan’s fiduciary net position as a percentage of the total pension liability was 110.75%. 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% Sponsor's net pension liability (asset) $ (196,318) $ (5,825,536) $ (10,597,686) 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. 57  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2022 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions – GERF For the year ended September 30, 2022, the City recognized a pension expense of $427,255. On September 30, 2022, 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 $ 580,847 $ - Net difference between projected and actual earnings on pension plan investments - 5,961,178 Total $ 580,847 $ 5,961,178 Deferred outflows of resources related to pensions of $580,847 resulting from the City’s contributions subsequent to the measurement date will be recognized as a change in the net pension asset for the year ending September 30, 2023. 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: 2023 $ (1,589,615) 2024 (1,281,423) 2025 (1,670,876) 2026 (1,419,264) $ (5,961,178) 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