Fort Walton Beach — Comprehensive Financial Report September 30, 2015 — reading text

who retire following a vested terminated status or disability retirees. 51  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2015 7. DEFINED BENEFIT PENSION PLANS – CONTINUED Plan Description – General Employees’ Retirement Fund (GERF) – Continued Funding Policy and Contributions Both the City and the employees (at a rate of 5.0% of payroll) make contributions to the Plan. For fiscal year 2015, employees contributed $209,567 to the Plan. The City is required to contribute at an actuarially determined rate: the contribution rate for 2015 was 30.7% of payroll. The annual required contributions for the current fiscal year was determined as part of the October 1, 2013 actuarial valuation updated to September 30, 2014 using the entry age normal actuarial cost method. Net Pension Liability – GERF Effective October 1, 2014, the City implemented provisions of GASB Statement No. 68, Accounting and Reporting for Pensions – an amendment of GASB Statement No. 27, which significantly changed the City’s accounting for pension amounts. The information below is presented in accordance with this new standard. The City’s net pension liability was measured as of September 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. Actuarial Assumptions The total pension liability was determined by an actuarial valuation as of October 1, 2013 updated to September 30, 2014 using the following actuarial assumptions: Inflation 3.00% Salary Increases 3.50% - 6.50% Discount Rate 7.90% Investment Rate of Return 7.90% Mortality rates for non-disabled lives are obtained from the RP 2000 Sex Distinct Healthy Mortality Table without projection. For disabled lives, the Social Security Study #74 Mortality Table without projection was utilized. 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. 52  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2015 7. DEFINED BENEFIT PENSION PLANS – CONTINUED Net Pension Liability – GERF – 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, 2014 are summarized in the following table: Long Term Expected Asset Class Target Allocation Real Rate of Return Domestic Equity 55.00% 7.5% International Equity 10.00% 8.5% Domestic Core Fixed Income 25.00% 2.5% Real Estate 10.00% 2.5% Total 100% Discount Rate The discount rate used to measure the total pension liability was 7.90 percent. 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 – GERF Increase (Decrease) Total Pension Plan Fiduciary Net Pension Liability Net Position Liability (Asset) (a) (b) (a) – (b) Balances at September 30, 2014 (Valuation Date of 9/30/2013) $ 41,460,324 $ 37,122,638 $ 4,337,686 Changes: Service cost 622,382 - 622,382 Interest 3,222,809 - 3,222,809 Contributions – employer - 1,296,450 (1,296,450) Contributions – employee - 212,790 (212,790) Net investment income - 3,228,153 (3,228,153) Benefit payments, including Refunds of employee contributions (2,575,304) (2,575,304) - Administrative expenses - (42,483) 42,483 Net changes during 2013-14 1,269,887 2,119,606 (849,719) Balances at September 30, 2015 (Measurement Date of 9/30/2014) $ 42,730,211 $ 39,242,244 $ 3,487,967 53  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2015 7. DEFINED BENEFIT PENSION PLANS – CONTINUED Changes in Net Pension Liability – GERF – Continued 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 $ 7,968,673 $ 3,487,967 $ (323,599) Pension Plan Fiduciary Net Position Detailed information about the pension Plan's fiduciary net position is available in a separately issued Plan actuarial report. A separate audited financial report of the Plan is not available. Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions – GERF For the year ended September 30, 2015, the City recognized pension income of $636,908. On September 30, 2015, 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 $ 1,355,041 $ - Net difference between Projected and Actual Earnings on Pension Plan investments - 271,402 Total $ 1,355,041 $ 271,402 Deferred outflows of resources related to pensions of $1,355,041 resulting from the City’s contributions subsequent to the measurement date will be recognized as a reduction of the net pension (asset)/liability in the year ending September 30, 2016. 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: 2016 $ (67,851) 2017 (67,850) 2018 (67,851) 2019 (67,850) $ (271,402) 54  CITY OF FORT WALTON BEACH, FLORIDA NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2015 7. DEFINED BENEFIT PENSION PLANS – CONTINUED 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 Fort Walton Beach 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 Fort Walton Beach City Council who shall, as a ministerial duty, appoint such 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. Plan Membership as of October 1, 2014: Inactive Plan Members or Beneficiaries Current Receiving Benefits 44 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 11 Active Plan Members 42 97 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 2015, employees contributed $101,886 to the Plan. The State of Florida makes contributions based on