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

person to the Police Board as its fifth Trustee. 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. 58  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2022 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – PORF – Continued Plan Membership as of October 1, 2020: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 46 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 18 Active Plan Members 48 112 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 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% of payroll until a 75% maximum accrual is attained and then 0.5% thereafter. The State of Florida is required to contribute 7.3% of payroll and the City is required to contribute the difference between the actuarially determined rate and the contribution rate of the participants and the State of Florida. For the year ended September 30, 2022, the City was required to contribute 39.8% of payroll. Net Pension Liability – PORF 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 Service based Discount rate 7.00% Investment rate of return 7.00% 59  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2022 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – PORF – Continued Actuarial Assumptions – Continued 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 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, 2020, FRS valuation report for special risk employees, with appropriate risk and collar adjustments made based on plan demographics. The other significant actuarial assumptions used in the October 1, 2020, valuation were based on the results of an actuarial experience study dated June 4, 2018. 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%. 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 45.00% 7.50% International equity 15.00% 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% Alternative 5.00% 6.05% Total 100.00% 60  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2022 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – PORF – Continued 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. 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, 2021 (Valuation Date of 10/01/2020) $ 30,010,502 $ 23,529,763 $ 6,480,739 Changes: Service cost 699,264 - 699,264 Interest 2,142,668 - 2,142,668 Contributions – employer - 1,232,753 (1,232,753) Contributions – state - 223,280 (223,280) Contributions – employee - 147,074 (147,074) Net investment income - 4,499,980 (4,499,980) Differences between expected and actual experience 476,947 - 476,947 Changes of assumptions 682,631 682,631 Benefit payments, including refunds of employee contributions (1,900,983) (1,900,983) - Administrative expenses - (52,862) 52,862 Net changes 2,100,527 4,149,242 (2,048,715) Balances at September 30, 2022 (Measurement Date of 9/30/2021) $ 32,111,029 $ 27,679,005 $ 4,432,024 As of the measurement date, the Plan’s fiduciary net position as a percentage of the total pension liability was 86.20%. 61  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2022 8. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – PORF – Continued 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 $ 8,349,886 $ 4,432,024 $ 1,189,250 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. Pension Expense and Deferred Outflows/Inflows of Resources Related to Pensions – PORF For the year ended September 30, 2022, the City recognized pension expense of $606,204. 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 and State contributions subsequent to measurement date $ 1,550,980 $ - Net difference between projected and actual earnings on pension plan investments - 2,362,618 Changes of assumptions 681,200 - Differences between Expected and Actual experience 428,664 105,742 Total