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Firefighters' DRAFT Audit 09-30-19CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS' PENSION TRUST FUND Pension Trust Fund of the City of Okeechobee, Florida FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION September 30, 2019 C O N T E N T S P A G E Independent Auditors' Report 1-2 Statement of Fiduciary Net Position 3 Statements of Changes in Fiduciary Net Position 4 Notes to Financial Statements 5-16 Required Supplementary Information 17-19 Schedules of Investment and Administrative Expenses 20 DRAFT INDEPENDENT AUDITORS' REPORT To the Board of Trustees March 9, 2020 Municipal Firefighters' Pension Trust Fund City of Okeechobee, Florida Report on the Financial Statements We have audited the accompanying financial statements of the City of Okeechobee, Florida Municipal Firefighters' Pension Trust Fund (a Pension Trust Fund of the City of Okeechobee, Florida) (the Plan) as of and for the year ended September 30, 2019 and the related notes to the financial statements, which collectively comprise the Plan’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Plan’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net position of the City of Okeechobee, Florida Municipal Firefighters' Pension Trust Fund as of September 30, 2019 and the changes in fiduciary net position for the year then ended in accordance with accounting principles generally accepted in the United States of America. DRAFT Other Matters Required Supplementary Information Our audit was conducted for the purpose of forming an opinion on the Plan’s basic financial statements as a whole. Accounting principles generally accepted in the United States of America require presentation of the required supplementary information on pages 17 - 20 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of American which generally consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. The City of Okeechobee, Florida Municipal Firefighters’ Pension Trust Fund has not presented the Management’s Discussion and Analysis that the Governmental Accounting Standards Board has determined is necessary to supplement, although not required to be a part of the basic financial statements. Other Information The accompanying Schedule of Investment and Administrative Expenses is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information is the responsibility of the Plan’s management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. That Schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or the basic financial statements themselves and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion the information is fairly stated in all material respects in relation to the basic financial statements as a whole. Certified Public Accountants Fort Pierce, Florida DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND STATEMENT OF FIDUCIARY NET POSITION September 30, 2019 Read Accompanying Notes to Financial Statements -3- Contributions Receivables Employee 1,653$ Employer 21,901 Due from General Employee Fund 652 Investments: (at fair value) Cash Equivalents 62,797 Mutual Funds - Fixed Income 1,598,851 Mutual Funds - Equity 2,714,695 TOTAL INVESTMENTS 4,376,343 TOTAL ASSETS 4,400,549 Accounts Payable 13,062 TOTAL LIABILITIES 13,062 FIDUCIARY NET POSITION - RESTRICTED FOR PENSION BENEFITS 4,387,487$ LIABILITIES ASSETS DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND STATEMENT OF CHANGES IN FIDUCIARY NET POSITION Year Ended September 30, 2019 Read Accompanying Notes to Financial Statements -4- ADDITIONS Contributions: State Contributions 52,810$ Employee Contributions 23,945 Employer Contributions 83,988 Total Contributions 160,743 Investment Income: Net Appreciation in Fair Value of Investments 29,736 Interest and Dividends 132,159 161,895 Less: Investment Expenses (21,000) Net Investment Income 140,895 TOTAL ADDITIONS 301,638 DEDUCTIONS Benefits Paid to Participants 141,381 Refunds on Termination 8,400 Administrative Expenses 43,675 TOTAL DEDUCTIONS 193,456 CHANGE IN FIDUCIARY NET POSITION 108,182 FIDUCIARY NET POSITION - RESTRICTED FOR PENSION BENEFITS Beginning of Year 4,279,305 End of Year 4,387,487$ DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 5 - NOTE A - REPORTING ENTITY The Municipal Firefighters' Pension Trust Fund (Fund) of the City of Okeechobee, Florida (the City), is a single-employer, defined-benefit contributory pension trust established by a city ordinance and the provisions of Florida Statutes, Chapter 175, for the benefit of the City's firefighters. The fund is under the supervision of a five-member local independent Board of Trustees, who are selected for office under the provisions of Chapter 175; two firefighters, two City residents and a fifth member elected by the other four members constitute the pension board. The City and the Plan participants are obligated to fund all Plan costs based upon actuarial valuations. The board of Trustees may make amendments to the Plan after approval of the plan sponsor and within the guidelines of applicable Florida Statutes. The accounts of the Fund are included in the financial statements of the City of Okeechobee, Florida, as an integral part of those financial statements. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS Basis of Accounting The Fund's accounting records and financial statements are prepared using the accrual basis of accounting. Under the accrual basis of accounting, revenues, which include contributions and investment income, are recognized when they are earned and collection is reasonably assured, and expenses are recognized when the liability is incurred. All administrative costs are financed through current income and investment earnings. Benefits paid to members and contribution refunds are recognized when due and payable in accordance with the terms of the Plan. Gains and losses from the sale or exchange of investments are recognized on the transaction date. An independent investment manager and custodial bank handles all investments and check writing duties. The accompanying financial statements are presented in accordance with generally accepted accounting principles established by the Governmental Accounting Standards Board (GASB) Statement 67, Financial Reporting for Pension Plans and the Codification of Governmental Accounting and Financial Reporting Standards which covers the reporting requirements for defined benefit pensions established by a governmental employer. The City of Okeechobee Municipal Firefighters’ Pension Trust Fund (Plan) is a single employer pension plan as defined by GASB 67. The accompanying financial statements include solely the accounts of the Plan which include all programs, activities and functions relating to the accumulation and investment of the assets and related income necessary to provide the service, disability and death benefits required under the terms of the enabling ordinance and the amendments thereto. It is important to note that the disclosures related to GASB 67 are accounting measurements, not actuarial measurements of the funded status of the Plan, and are not used to develop employer contribution rates. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 6 - NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PLAN ASSET MATTERS (CONTINUED) Valuation of Investments Investments are reported at fair value. Short-term, highly liquid investments are reported at cost, which approximates market value and considered to be cash equivalents. Securities traded on a national exchange are valued at the last reported sales price. Shares of mutual funds, including proprietary funds and common & collective funds are valued at quoted market prices which represent net asset value based on the underlying investments. Gains and losses from the sale or exchange of investments are recognized on the transaction date. There were no investments in, loans to, or leases with parties related to the pension plan as of or for the year ended September 30, 2019. Federal Income Taxes The Plan has not applied for a favorable determination letter from the Internal Revenue Service indicating that the Plan is qualified and exempt from Federal income taxes. The Board believes that the Plan is designed and continues to operate in compliance with the applicable requirements of the Internal Revenue Code. In 2013, the City Council approved amendments to the Plan to insure they are in compliance with recent changes in the Internal Revenue Code which apply to tax qualified pension plans. The amendments include revisions to the limitations on benefit options and various distribution requirements. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Risk and Uncertainties Contributions to the Plan and the actuarial information included in the RSI are reported based on certain assumptions pertaining to the interest rates, inflation rates and member compensation and demographics. Due to the changing nature of these assumptions, it is reasonably possible that changes in these assumptions may occur in the near term and could be material to the financial statements. Subsequent Events Management has performed an analysis of the activities and transactions subsequent to September 30, 2019, to determine the need for any adjustments to and/or disclosures within the audited financial statements for the year ended September 30, 2019. Management has performed their analysis through March 9, 2020. Subsequent to year end investment securities were subject to reductions in value based on impacts of the coronavirus pandemic affecting the U.S. and world economy. Events in an affected area my cause additional volatility in the global markets, which may have impact on the fair value of investments that are not directly linked to the affected area. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 7 - NOTE C - PLAN CONTRIBUTIONS AND OTHER INFORMATION The City is required to fund the plan according to any contribution deficit as determined by actuarial valuation for the plan beyond the contributions by employees and the State Insurance Premium Tax Contribution. The City had a required pension contribution of $88,554 for the year ended September 30, 2019, as calculated in the 2017 actuarial valuation. The City funded the plan for $83,988 for the year ended September 30, 2019. The City had a prepaid contribution of $30,216 as determined by the 2018 actuarial valuation coming into the fiscal year. The City has a $28,046 prepaid contribution as of October 1, 2019 which can be used to offset the required contribution in future years. Contributions were based on a covered payroll of $478,900 and a total payroll of $649,463 in 2019. The covered payroll approximates 73% of total payroll for the year. Contributions were made in accordance with applicable Florida Statutes and meeting the actuarially determined contribution requirements as based on the benefit structure established within the Plan as approved by the plan sponsor. The actuarially determined pension contribution for the year ended September 30, 2019 was $139,143 as calculated in the 2017 actuarial valuation for the City and State combined. The plan covering the City's firefighters is also funded by the State of Florida from a tax on fire insurance premiums collected. State contributions to this plan totaled $52,810 during the current year. Plan members are required to contribute 5% of their annual covered payroll. The City is required to contribute an amount equal to the difference between the normal cost as calculated for the plan year from the applicable actuarial valuation less the member contributions for covered payroll for the year plus state contributions. Pursuant to Chapter 175 of the Florida Statutes, a premium tax on certain casualty insurance contracts written on properties within the City of Okeechobee is collected by the State and is remitted to the Fund. The City is required to contribute the remaining amounts necessary to finance the benefits through periodic contributions of actuarially determined amounts. The required employer contribution for the fiscal year ended September 30, 2019 was determined by the September 30, 2017 actuarial valuation. For the current year the City was contributing at the rate of 17.72% of covered payroll based on the 2017 actuarial valuation. The plan previously established an additional plan component, the Share Plan, to provide special benefits in the form of supplemental retirement, termination, death and disability benefits in addition to the benefits provided previously under terms of the plan ordinances, which may be funded from the State insurance premium monies when certain limits are met. See details in the 2019 actuarial valuation regarding the limited used of State insurance premium monies. The City and employees contributions for the year ended September 30, 2019 are as follows: CITY EMPLOYEES Firefighters 83,988$ 23,945$ DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 8 - NOTE C - PLAN CONTRIBUTIONS AND OTHER INFORMATION (CONTINUED) At September 30, 2019, the Plan included 5 retirees receiving or entitled to receive benefits, plus 1 beneficiary receiving benefits. There are 2 DROP participants. There are 10 active current employees of which 5 are vested and 5 are non-vested. Principal actuarial assumptions used in the valuation of October 1, 2019, are summarized as follows: Mortality- RP 2000 Combined Health Participant Mortality Table (for preretirement mortality) and the RP-2000 Mortality Table for Annuitants (for post-retirement mortality), with mortality improvements projected to all future years after 2000 using Scale BB. For males, the base mortality rates include a 90% blue collar adjustment and a 10% white collar adjustment. For females, the base mortality rates include a 100% white collar adjustment. Asset valuation method - Four year smoothed market. Interest - 7% per year compounded annually, after paying investment management fees. Retirement age - 55 with 10 years service, or 25 years of service regardless of age, or immediately, if over assumed retirement age. Salary increases - 7% until the assumed retirement age. Funding method - Aggregate actuarial cost method. Administrative expense (other than investment management fees) - Actual expenses incurred for the preceding plan year. Inflation rate – 2.75% Cost of living increase - .5% every other year Net Pension Liability of the Sponsor (GASB Statement No. 67): Total pension liability 4,073,426$ Fiduciary net position 4,386,834 Sponsor's fiduciary net pension liability (313,408) Fiduciary net position as a percentage 107.69% There is an immaterial difference in the fiduciary net position as calculated above when compared to the financial statements net position due to various accruals recorded subsequent to year end. The plan currently uses mortality tables that vary by age, gender, and health status. The healthy mortality rates also contain a provision to reflect future mortality improvements. The projection of cash flows used to determine the discount rate assumed that contributions will be made at the current rates and statutorily required rates, actuarially determined. Based on these assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments of the current plan members. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 9 - NOTE C - PLAN CONTRIBUTIONS AND OTHER INFORMATION (CONTINUED) The net pension liability of the Plan decreased during the year which was a favorable trend, however, the fiduciary net position as a percentage of the total pension liability decreased in the current year which was an unfavorable trend. NOTE D – PENSION BENEFITS The funded ratio is 107.69% this year compared to 108.62% last year which was an unfavorable decrease. The projection of benefits for financial reporting purposes does not explicitly incorporate the potential effects of legal or contractual funding limitation. Historical information from 2010 through 2019 is presented as supplementary information on pages 17 - 19. The pension plan provides retirement, death, and disability benefits for its participants. Each person employed by the City Fire Department as a full-time firefighter becomes a member of the Plan as a condition of his employment. Participation is mandatory. Normal retirement is provided for at age 55 (previously 60) and 10 years of service, or at 25 years of service regardless of age. The benefit is calculated at 3% of average monthly earnings times years of continuous service with the City. The plan allows for a cost of living adjustment of .5% in odd-numbered years after drawing benefits for a complete year. Benefits are payable by monthly annuity for 10 years certain and life thereafter with other options available. Early retirement is provided for at age 50 and 10 years of participation. Death and disability benefits are also available through the plan. Disability benefits for service related disabilities are paid to the participant for life. Benefits are calculated as the amount of accrued normal retirement pension benefit, subject to a minimum benefit not less than 42% of participant’s final average compensation. The Plan refunds accumulated employee contributions upon termination of employment with less than 10 years of service. This amount has not been determined for September 30, 2019 for participants in this service range. After 10 years of service the pension benefit is accrued to date of termination and payable at normal retirement age if employee contributions are left in the fund. The Plan allows for a deferred retirement option plan whereupon the employee could retire from the pension plan but continue employment with the City for an additional five years. The retirement benefit is immediately calculated and the monthly benefit is deposited in to the DROP account. An election is made to either earn interest at the rate of 6.5% per annum or credited or debited with an investment return or loss approximating the other assets in the fund. Once a participant elects this option, he is no longer eligible for disability or pre-retirement benefits. Additional information about the DROP can be obtained from the Board. Members of the Fund also participate in a supplemental Share Plan which is funded by insurance premium taxers received pursuant to Florida Statute 175.351. Florida Statutes define the Share Plan and the methodology for funding the plan. The Share Plan is in addition to any other benefits and nothing herein shall in any way affect any other benefits that now exist. The Board DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 10 - NOTE D – PENSION BENEFITS (CONTINUED) of Trustees administers all assets of the Share Plan. Membership of the Share Plan consists of all firefighters in active service excluding retired members and people who have entered the DROP. Each year, as determined by the legally recognized collective bargaining unit, the premium tax monies are allocated to the share accounts maintained for each firefighter, and the accounts earn interest over time. Upon retirement members receive their share of the account balance. NOTE E – INVESTMENTS Salem Trust Company periodically holds uninvested cash in its capacity as custodian for the Plan. These funds exist temporarily as cash in the process of collection from the sale of securities and providing liquid resources for the payment of benefits and expenses. The plan follows the investment guidelines as established within the ordinance. The Pension Trust Fund is authorized to invest in the local government surplus funds trust fund, obligations of the U.S. Government or agencies thereof, banking institutions within the state and other such institutions within the guidelines of the state statutes which are insured by the Federal Deposit Insurance Corporation, investment agreements, direct and general long-term obligations of any state with proper credit rating and full faith and bonds issued by the State of Israel, and stocks, bonds, and commingled funds administered by National or State banks or evidences of indebtedness issued or guaranteed by a corporation organized under the laws of the United States, provided that the corporation is listed on a nationally recognized exchange and holds proper credit ratings as set forth by a major credit rating service. These equity investments are not to exceed 60% of the assets of the fund on a cost basis or 70% on market value. Temporary investment funds held by the custodian in a money market fund are classified as cash equivalents within the investment account. Investments not evidenced by securities that exist in physical or book-entry form include investments in mutual funds, domestic investment funds and commingled pooled trust fund. The Plan’s independently managed investments are segregated into a separate account. The investment manager is monitored by the Board of Trustees and an investment performance monitor. The Plan’s investments are uninsured and unregistered and are held in the custodian’s accounts in the Plan’s name as described above. The Plan carried no particular security investment that individually represented 5% or more of the Plan’s net assets available for benefits as of September 30, 2019. The Plan has no instrument that, in whole or in part, is accounted for as a derivative instrument under GASB statement No. 53, Accounting and Financial Reporting for Derivative Instruments during the current year. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 11 - NOTE E - INVESTMENTS (CONTINUED) All of the Plan’s financial investments are carried at fair value on the Statement of Fiduciary Net Position included in investments. The gain or loss on financial instruments is recognized and recorded on the Statement of Changes in Fiduciary Net Position as part of investment income. The Plan invests in a variety of investment funds. Investments in general are exposed to various risks, such as interest rate, credit, and overall volatility risk. Due to the level of risk associated with certain investments, it is reasonably possible that changes in the values of investments will occur in the near term and such changes could materially affect the amounts reported in the Statement of Fiduciary Net Position. The following is a list of the City of Okeechobee Municipal Firefighters' Pension Trust Fund investments by categories of risk as of September 30, 2019: HISTORICAL MARKETCOSTVALUE Cash equivalents 62,762$ 62,797$ Mutual Funds - Fixed Income 1,568,463 1,598,851 Mutual Funds - Equity 2,187,672 2,714,695 3,818,897$ 4,376,343$ Investment Measurement at Fair Value Fair Value Hierarchy The accounting standards break down the fair value hierarchy into three levels based on how observable the inputs are that make up the valuation. The most observable inputs are classified as Level 1 where the unobservable inputs are classified as Level 3. Level 1 inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access. As a general rule, any asset that has a daily closing price and is actively traded will be classified as a Level 1 input. Level 2 inputs are inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly. Inputs to the valuation methodology include: (1) quoted market prices for similar assets or liabilities in active markets, (2) quoted prices for identical DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 12 - NOTE E - INVESTMENTS (CONTINUED) or similar assets or liabilities in active markets, (3) inputs other than quoted prices that are observable for the asset or liability, and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. As a general rule, if an asset or liability does not fall into the requirements of a Level 1 or Level 3 input, it would default to Level 2. With Level 2 inputs, there is usually data that can be easily obtained to support the valuation, even though it is not as easily obtained as a Level 1 input would be. Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. As a general rule, Level 3 inputs are those that are difficult to obtain on a regular basis and require verification from an outside party, such as an auditor or an appraisal, to validate the valuation. Net asset value (NAV) is a common measurement of fair value for Level 1, Level 2, and Level 3 investments. A fund’s NAV is simply its assets less its liabilities, and is often reported as a per share amount for fair value measurement purposes. The Plan would multiply the NAV per share owned to arrive at fair value. Level 1 investment in funds such as mutual funds report at a daily NAV per share and are actively traded. NAV also comes in to play for Level 2 and 3 investments. As a matter of convenience (or referred to in accounting literature as a “practical expedient”), a Plan can use the NAV per share for investments in a nongovernmental entity that does not have a readily determined fair value, such as an alternative investment. Investments measured at NAV as a practical expedient would be excluded from the fair value hierarchy because the valuation is not based on actual market inputs but rather is quantified using the fund’s reported NAV as a matter of convenience. The Fund has the following recurring fair value measurement as of September 30, 2019: Quoted Prices in Active Significant Markets Other Significant for Identical Observable Unobservable Assets Inputs Inputs September 30, Investments by fair value level 2019 (Level 1) (Level 2) (Level 3) Cash equivalents - temporary investments 62,797 62,797 - - Domestic investment fund - fixed income 2,714,695 2,714,695 - Domestic investment fund - equity 1,598,851 1,598,851 - - Total investments by fair value level 4,376,343 1,661,648 2,714,695 - Fair Value Measurements Using DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 13 - NOTE E - INVESTMENTS (CONTINUED) Florida statutes and the plan investment policy authorize the Trustees to invest funds in various investments. The general investment objective of the fund is to preserve the purchasing power of the fund’s assets and earn a reasonable rate of return (after inflation) over the long term while minimizing, to the extent reasonable, the short term volatility of returns. The long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimate ranges of 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 of 2.5% to arrive at a 5.7% projected long- term real rate of return net of investment expense. 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, 2019 are summarized in the following table: PERCENT PERCENT LONG-TERM INVESTMENTS ACTUAL TARGET REAL RETURN Domestic Equity 48.0% 45.0% 7.5% International Equity 14.1% 15.0% 8.5% Domestic Fixed Income 36.5% 35.0% 2.5% Global Fixed Income 0.0%5.0% 3.5% Cash Equivalents 1.4%0.0% Total 100.0% 100.0% * net of long-term inflation assumption of 2.5% For the year ended September 30, 2019, the annual money-weighted rate of return on the pension plan investments was 2.39% as calculated by the Plan’s investment monitor and advisor. The money- weighted rate of return expresses investment performance, net of plan investment expenses, as adjusted for the changing amounts actually invested on a monthly basis. Sensitivity of the Net Pension Liability to Changes in the Discount Rate The following presents the pension liability of the City, calculated using the discount rate of 7.0%, as well as what the City’s net pension liability would be if it were calculated using a discount rate that is 1% lower (6%) or 1% higher (8%) than the current rate: 1%Current 1% Decrease Discount Increase (6%)(7%)(8%) Sponsor's net pension liability $195,787 ($313,408)($737,059) DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 14 - NOTE E - INVESTMENTS (CONTINUED) 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. The discount rate of 7% was also the rate used for the previous year’s calculation of net pension liability. Fixed income securities have inherent financial risks, including credit risk and interest rate risk. Credit risk for fixed income securities is the risk that the issuer will not fulfill its obligations. Nationally recognized statistical rating organizations (“NSROs”), such as Moody’s and Standard and Poor’s, assign credit ratings to security issuers and issues that indicate a measure of potential credit risk to investors. Fixed income securities considered investment grade are those rated at least Baa by Moody’s and BBB by Standard and Poor’s. Interest rate risk is the risk that changes in interest rates will adversely affect the fair market value of fixed income securities. Effective duration, a commonly used measure of interest rate risk, incorporates a security’s yield, coupon, final maturity, call features and other imbedded options into one number expressed in years that indicates how price-sensitive a security or portfolio of securities is to changes in interest rates. The effective duration of a security or portfolio indicates the approximate percentage change in fair value expected for a one percent change in interest rates. The longer the duration, the more sensitive the security or portfolio is to changes in interest rates. Concentration of credit risk is an increased risk of loss occurs as more investments are acquired from one issuer (i.e. lack of diversification). Custodial credit risk for deposits exists when, in the event of the failure of a depository financial institution, an entity may be unable to recover deposits, or collateral securities, that are in the possession of an outside party. At September 30, 2019, the fixed income fund was invested in a mutual fund primarily in high quality bonds and other fixed income securities including U.S. Government obligations, mortgage and asset- backed securities, corporate and municipal bonds, collateralized mortgage obligations and other securities of investment grade. This fund had an effective duration of 4.2 years and effective maturity of 8.2 years as of September 30, 2019. The Plan from time to time invests in mortgage-backed securities representing interests in pools of mortgage loans as part of its interest rate risk management strategy. The mortgage-backed securities are not used to leverage investments in fixed income portfolios. The mortgage-backed securities held by the Plan were guaranteed by federally sponsored agencies such as the Government National Mortgage Association. These investments are inside of the fixed income open-end mutual fund that the plan holds. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 15 - NOTE F – DESIGNATIONS In past years, a portion of the plan’s assets have been designated for benefits that accrue in relation to the DROP account further described in Note D. Allocations and activity in the DROP account for the year ended September 30, 2019 are presented below as determined in the actuary’s most recent accounting and valuation available for the fiscal year ended September 30, 2019. 2019 Assets at Beginning of Year 64,260$ Allocated Contributions 46,078 Retirement Benefit Payments - Interest 5,783 Total Designated Plan Assets 116,121 Undesignated Plan Net Fiduciary Position 4,271,366 Total Plan Net Fiduciary Position 4,387,487$ NOTE G - PLAN TERMINATION Although it has not expressed an intention to do so, the City may terminate the Plan in accordance with the provisions of Florida Statutes 175. In the event that the Plan is terminated or contributions to the Plan are permanently discontinued, the benefits of each participant in the Plan at the termination date would be non-forfeitable. NOTE H - PLAN CHANGES Effective October 1, 2019 valuation will is the mortality tables from the most recent FRS valuation as of 7/1/2019; updated proportion of disabilities that are assumed to be service-connected (versus non-service connected) to 85%; Firefighter member who becomes totally and permanently unable to perform useful and efficient service as a Firefighter due to a diagnosis of cancer or circumstances that arise out of treatment of such cancer will be presumed to be disabled in-line of duty. Effective October 1, 2017, the mortality assumption was changed from the RP-2000 Combined Healthy Participant Mortality Tables, using projection scale AA to the mortality assumption used by the Florida Retirement System (FRS) for Special Risk Class members in the actuarial valuation as of July 1, 2018, detailed in Florida House Bill 1309 (codified in Chapter 2015-157), which requires all public pension plans in Florida to use the same mortality rates used in either of the last two actuarial valuation reports of FRS effective no later than 10/1/2017. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND NOTES TO FINANCIAL STATEMENTS September 30, 2019 - 16 - NOTE H - PLAN CHANGES (CONTINUED) Effective August 20, 2013, the Plan was amended to change the definitions of Credited Service and Maximum Pension to comply with recent changes to the Internal Revenue Code. These changes in benefit calculations had no financial impact on the Plan. Effective October 1, 2012, the Plan was amended to reflect a change in assumption. The assumptions were changed to update the mortality rates from the 1994 Group Annuity Tables for Males and Females to the RP-2000 Combined Healthy Participant Table for Males and Females. The change will be phased in over a three year period. The required employer contribution increased approximately $9,000 as a result of the change in the mortality assumption for the coming year. Effective October 1, 2007, the Plan was amended to reflect a change in assumption. The assumptions were changed to update the mortality rates from the 1983 Group Annuity Tables for Males and Females to the 1994 Group Annuity Tables for Males and Females. During the fiscal year 2006, there was a change in the assumption for normal cost of administrative expenses from a fixed amount to actual administrative expenses for the prior year. The results of each year’s valuation will be used to determine the required contribution for the year after the valuation year, effective for the 2005/2006 plan year. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND REQUIRED SUPPLEMENTARY INFORMATION September 30, 2019 - 17 - SCHEDULE OF INVESTMENT RETURNS Fiscal year ending September 30, 2009 (0.47%) 2010 8.83% 2011 (3.53%) 2012 16.09% 2013 5.80% 2014 10.43% 2015 (2.19%) 2016 6.83% 2017 10.76% 2018 6.11% 2019 2.39% Annual Money-Weighted Rate of Return (net of investment expenses) DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND REQUIRED SUPPLEMENTARY INFORMATION September 30, 2019 - 18 - Fiscal year ending September 30,2019 2018 2017 2016 2015 2014 Total pension Iiability Service Cost $ 145,856 $ 136,825 $ 156,989 $ 156,107 $ 144,773 $ 130,539 Interest 271,341 257,407 255,218 235,684 213,154 196,106 Benefit Changes - - - - - - Difference between actual & expected experience (132,896) (162,443)(91,659)56,393 (19,771) (741) Assumption Changes - - (13,449) - 49,797 - Benefit Payments, including Refunds of Member Contributions (150,433) (123,132)(127,009) (102,590)(96,939) (142,060) Other 0 19,828 0 3,256 - - Net Change in Total Pension Liability 133,868 128,485 180,090 348,850 291,014 183,844 Total Pension Liability -Beginning 3,939,558 3,811,073 3,630,983 3,282,133 2,991,119 2,807,275 Total Pension Liability -Ending (a) $4,073,426 $3,939,558 $ 3,811,073 $ 3,630,983 $ 3,282,133 $2,991,119 Plan Fiduciary Net Position Contributions -Employer (from City & State) $ 136,798 $ 168,046 $ 157,712 $ 147,598 $ 145,525 $ 135,293 Contributions -Member 23,945 23,446 25,409 27,433 26,324 23,854 Net Investment Income 140,894 308,920 404,268 246,381 (44,021) 318,708 Benefit Payments, including Refunds of Member Contributions (150,433) (123,132)(127,009) (102,590)(96,939) (142,060) Administrative Expense (43,675) (59,878)(34,934)(31,639)(27,132) (16,233) Other - - (6,375) (1,766) - - Net Change in Plan Fiduciary Net Position 107,529 317,402 419,071 285,417 3,757 319,562 Plan Fiduciary Net Position -Beginning 4,279,305 3,961,903 3,542,832 3,257,415 3,253,658 2,934,096 Plan Fiduciary Net Position -Ending (b) $4,386,834 $4,279,305 $ 3,961,903 $ 3,542,832 $ 3,257,415 $3,253,658 Net Pension Liability -Ending (a) -(b) (313,408) (339,747)(150,830)88,151 24,718 (262,539) Plan Fiduciary Net Position as a Percentage of Total Pension Liability 107.69% 108.62%103.96%97.57%99.25% 108.78% Covered Employee Payroll * $ 478,900 $ 468,920 $ 508,180 $ 548,660 $ 526,480 $ 477,080 Net Pension Liability as a Percentage Of Covered Employee Payroll (65.44%) (72.45%)(29.68%)16.07%4.69% (55.03%) *Covered payroll was calculated by dividing the total member contributions for the fiscal year, net of any known buyback contributions, by the member contribution rate of 5%. SCHEDULE OF CHANGES IN THE EMPLOYER'S NET PENSION LIABILITY AND RELATED RATIOS GASB Statement No. 67 Source: GRS Retirement Consultant’s GASB 67 Disclosure Information dated March 18, 2019. GASB 67 was implemented in FYE 9/30/14. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND REQUIRED SUPPLEMENTARY INFORMATION September 30, 2019 - 19 - Actuarially Contribution Actual Contribution Fiscal Determined Actual Deficiency Covered as % of Year Contribution Contribution (Excess)Payroll*Covered Payroll 2010 80,594 81,687 (1,093) 461,752 17.69% 2011 97,629 97,912 (283) 457,776 21.39% 2012 98,023 95,844 2,179 429,008 22.34% 2013 103,915 111,976 (8,061) 473,939 23.63% 2014 122,212 135,293 (13,081) 477,080 28.36% 2015 138,914 145,525 (6,611) 526,480 27.64% 2016 143,632 147,598 (3,966) 548,660 26.90% 2017 170,269 157,712 12,557 508,180 31.03% 2018 167,871 168,046 (175) 468,920 35.84% 2019 139,143 136,798 2,345 478,900 28.57% Valuation Date: Notes Actuarially determined contribution rates are calculated as of the October 1 which is two years prior to the end of the fiscal year in which contributions are reported. Methods and Assumptions Used to Determine Contribution Rates: Actuarial Cost Method Aggregate Amortization Method N/A Remaining Amortization N/A Asset Valuation Method 4-year smoothed market Salary Increases 7.0%, including inflation Investment Rate of Return 7.00% Retirement Age 100% when first eligible for Normal Retirement or DROP entry. Mortality RP-2000 Combined Healthy Participant Mortality Table for males, with adjustments, and females with mortality improvement projected to all future years after 2000 using Scale BB. The postemployment and disability schedules include various mortality adjustments. Other Information: Notes See Okeechobee Firefighters' Retirement System GASB Statement No. 67 Year End (True-Up) dated February 13, 2020. SCHEDULE OF CONTRIBUTIONS GASB Statement No. 67 October 1, 2017 NOTES TO SCHEDULE OF CONTRIBUTIONS GASB Statement No. 67 * Covered payroll was calculated by dividing the total member contributions for the fiscal year, net of any known buyback contributions, by the member contribution rate of 5%. DRAFT CITY OF OKEECHOBEE, FLORIDA MUNICIPAL FIREFIGHTERS’ PENSION TRUST FUND SCHEDULE OF INVESTMENT AND ADMINISTRATIVE EXPENSES September 30, 2019 - 20 - INVESTMENT ADMINISTRATIVE EXPENSES EXPENSES Accounting Fees -$ 2,801$ Actuary Fees - 19,014 Audit Fees - 4,198 Administrator Fees 6,816 Insurance - 2,010 Custodial Fees 5,500 - Travel - 891 Legal Fees - 7,945 Performance Monitor 15,500 - g Total Investment and Administrative Expenses 21,000$ 43,675$ Percentage of Plan Net Assets 0.48%1.00% DRAFT