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HomeMy WebLinkAboutAgenda Fire Pension 050317 PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND Meeting of Wednesday May 3, 2017 Location: City Hall, Council Chambers Palm Beach Gardens City Hall 10500 North Military Trail Palm Beach Gardens, FL 33410 Time: 1 PM AGENDA 1. Call Meeting to Order 2. Public Comments 3. Minutes: • Regular Meeting Held on November 2, 2016 • Regular Meeting Held on March 6, 2017 4. 9/30/2016 Actuarial Valuation Report Presentation: Foster & Foster (Doug Lozen) 5. 9/30/2016 Audited Financial Statements Presentation: KSDT (Eric Leventhal) 6. Investment Monitor Report: AndCo Consulting (Dan Johnson) • SMID Cap Comparison • IPS 7. Attorney Report: Sugarman & Susskind, P.A. (Pedro Herrera) • BanCorpSouth, Inc. Litigation Update 8. Administrative Report: Resource Centers (Audrey Ross) • Disbursements • Benefit Approvals • Financial Statements 9. Old Business 10. New Business • KTMC Brochure 11. Next Meeting Previously Scheduled Monday July 10, 2017 at 1PM 12. Adjourn PLEASE NOTE: Should any interested party seek to appeal any decision made by the Board with respect to any matter considered at such meeting or hearing, he will need a record of the proceedings, and for such purpose he may need to insure that a verbatim record of the proceedings is made, which record includes the testimony and evidence upon which the appeal is to be based. In accordance with the Americans With Disabilities Act of 1990, persons needing a special accommodation to participate in this meeting should contact The Resource Centers, LLC no later than four days prior to the meeting. THE RESOURCE CENTERS , LLC 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL 33410 Phone (561) 624-3277 Fax (561) 624-3278 WWW .RESOURCE CENTERS .COM CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND ACTUARIAL VALUATION REPORT AS OF OCTOBER 1, 2016 CONTRIBUTIONS APPLICABLE TO THE CITY'S PLAN/FISCAL YEAR ENDING SEPTEMBER 30, 2018 13420 Parker Commons Blvd., Suite 104 Fort Myers, FL 33912 (239) 433-5500 Fax (239) 481-0634 www.foster-foster.com April 21, 2017 Board of Trustees City of Palm Beach Gardens Firefighters’ Pension Fund Resource Centers, LLC 4360 Northlake Blvd., Suite 206 Palm Beach Gardens, FL 33410 Re: City of Palm Beach Gardens Firefighters’ Pension Fund Dear Board: We are pleased to present to the Board this report of the annual actuarial valuation of the City of Palm Beach Gardens Firefighters’ Pension Fund. The valuation was performed to determine whether the assets and contributions are sufficient to provide the prescribed benefits and to develop the appropriate funding requirements for the applicable plan year. Please note that this valuation may not be applicable for any other purposes. The valuation has been conducted in accordance with generally accepted actuarial principles and practices, including the applicable Actuarial Standards of Practice as issued by the Actuarial Standards Board, and reflects laws and regulations issued to date pursuant to the provisions of Chapters 112, and 175, Florida Statutes, as well as applicable federal laws and regulations. In our opinion, the assumptions used in this valuation, as adopted by the Board of Trustees, represent reasonable expectations of anticipated plan experience. Future actuarial measurements may differ significantly from the current measurements presented in this report for a variety of reasons including: changes in applicable laws, changes in plan provisions, changes in assumptions, or plan experience differing from expectations. In conducting the valuation, we have relied on personnel, plan design, and asset information supplied by the City of Palm Beach Gardens, financial reports prepared by the custodian bank, and the actuarial assumptions and methods described in the Actuarial Assumptions section of this report. While we cannot verify the accuracy of all this information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial accuracy of the information and believe that it has produced appropriate results. This information, along with any adjustments or modifications, is summarized in various sections of this report. The undersigned is familiar with the immediate and long-term aspects of pension valuations and meets the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. All of the sections of this report are considered an integral part of the actuarial opinions. To our knowledge, no associate of Foster & Foster, Inc. working on valuations of the program has any direct financial interest or indirect material interest in the City of Palm Beach Gardens, nor does anyone at Foster & Foster, Inc. act as a member of the Board of Trustees of the City of Palm Beach Gardens Firefighters’ Pension Fund. Thus, there is no relationship existing that might affect our capacity to prepare and certify this actuarial report. If there are any questions, concerns, or comments about any of the items contained in this report, please contact me at 239-433-5500. Respectfully submitted, Foster & Foster, Inc. By: ______________________ _ Douglas H. Lozen, EA, MAAA Enrolled Actuary #17 -7778 DHL/lke Enclosures TABLE OF CONTENTS Section Title Page I Introduction a. Summary of Report 5 b. Contribution Impact of Annual Changes 7 c. Changes Since Prior Report 8 d. Comparative Summary of 9 Principal Valuation Results II Valuation Information a. Reconciliation of Unfunded Actuarial Accrued Liabilities 14 b. Detailed Actuarial Gain/Loss Analysis 15 c. Actuarial Assumptions and Methods 16 d. Valuation Notes 19 III Trust Fund 20 IV Member Statistics a. Statistical Data 27 b. Age and Service Distribution 28 c. Valuation Participant Reconciliation 29 V Summary of Plan Provisions 30 VII Governmental Accounting Standards Board Disclosure Information 33 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 4 SUMMARY OF REPORT The regular annual actuarial valuation of the City of Palm Beach Gardens Firefighters’ Pension Fund, performed as of October 1, 2016, has been completed, and the results are presented in this Report. The contribution amounts developed in this valuation are applicable to the plan/fiscal year ended September 30, 2018. The contribution requirements, compared with amounts developed in the October 1, 2015, actuarial valuation, are as follows: Valuation Date Applicable Plan/Fiscal Year End 10/1/2016 9/30/2018 10/1/2015 9/30/2017 Total Required Contribution % of Total Annual Payroll 64.68% 53.11% Member Contributions (Est.) % of Total Annual Payroll 6.00% 6.00% City and State Required Contribution % of Total Annual Payroll 58.68% 47.11% State Contribution ¹ 511,056 511,056 % of Total Annual Payroll 6.80% 6.80% Balance from City ¹ % of Total Annual Payroll 51.88% 40.31% ¹ State Contribution shown is an amount based on 6.80% of the October 1, 2016 valuation payroll. For budgeting purposes, the required Sponsor Contribution (City and State) is 47.11% of Pensionable Earnings for the fiscal year ending September 30, 2017, and 58.68% for the fiscal year ending September 30, 2018. The precise City requirement is the applicable Sponsor percentage, less State Contributions equal to 6.80% of Pensionable Payroll realized for the applicable fiscal year. Please also note that there is a $12 City shortfall for the fiscal year ended September 30, 2016. Experience during the last twelve months was less favorable than expected, relative to the Plan’s actuarial assumptions. The primary sources of unfavorable experience included average increases in Pensionable Compensation that exceeded the assumption by more than 6%, lower than expected employee turnover, unfavorable retirement experience, and a 7.45% investment return (Actuarial Asset Basis), falling short of the 7.65% assumption. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 5 In addition to the net actuarial loss realized for the year, a significant portion of the funding increase is due to a reduction in the investment return assumption from 7.65% to 7.45% (as approved by the Board at the November 6, 2013 Board Meeting), in addition to adoption of the state-mandated mortality assumption under Chapter 2015-157, Laws of Florida. The balance of this Report presents additional details of the actuarial valuation and the general operation of the Fund. The undersigned would be pleased to meet with the Board to discuss the Report and answer any questions concerning its contents. Respectfully submitted, FOSTER & FOSTER, INC. By:____________________________ Douglas H. Lozen, EA, MAAA By:____________________________ Drew D. Ballard, EA, MAAA City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 6 (1) Contribution Determined as of October 1, 2015 40.31% (2)Summary of Contribution Impact by component: Change in Available State Money 0.0% Investment Return (Actuarial Asset Basis)0.3% Salary Increases 3.1% Payroll Change Effect on UAAL Amortization -1.5% Active Decrements 1.6% Inactive Mortality 0.2% Assumption Changes 9.2% Change in Normal Cost Rate -1.0% Other -0.3% Total Change in Contribution 11.57% (3)Contribution Determined as of October 1, 2016 51.88% CONTRIBUTION IMPACT OF ANNUAL CHANGES City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 7 CHANGES SINCE PRIOR VALUATION Plan Changes There were no changes in benefits since the prior valuation. Actuarial Assumption/Method Changes • As mandated by Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed from the RP-2000 Combined Healthy Tables to the mortality tables for special risk employees used by the Florida Retirement System actuary in the July 1, 2015 actuarial valuation. • The investment return assumption has been decreased from 7.65% to 7.45%. One additional reduction from 7.45% to 7.25% will take place with performance of the October 1, 2017 valuation. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 8 COMPARATIVE SUMMARY OF PRINCIPAL VALUATION RESULTS New Assump Old Assump 10/1/2016 10/1/2016 10/1/2015 A. Participant Data Number Included Actives 91 91 96 Service Retirees 18 18 14 DROP Retirees 22 22 18 Beneficiaries 0 0 1 Disability Retirees 5 5 5 Terminated Vested 4 4 3 Total 140 140 137 Total Annual Payroll $7,771,546 $7,771,546 $7,565,506 Payroll Under Assumed Ret. Age 7,515,525 7,515,525 7,108,558 Annual Rate of Payments to: Service Retirees 1,313,380 1,313,380 1,122,296 DROP Retirees 1,679,219 1,679,219 1,370,978 Beneficiaries 0 0 0 Disability Retirees 118,217 118,217 118,217 Terminated Vested 121,080 121,080 90,766 B. Assets Actuarial Value (AVA)¹82,077,152 82,077,152 74,423,562 Market Value (MVA)¹80,631,588 80,631,588 72,470,355 C. Liabilities Present Value of Benefits Actives Retirement Benefits 49,460,447 46,509,525 46,654,096 Disability Benefits 431,355 392,777 378,523 Death Benefits 425,960 186,341 193,973 Vested Benefits 3,341,610 3,130,175 2,989,557 Refund of Contributions 32,446 32,384 22,859 Service Retirees 21,628,270 20,185,963 17,250,127 DROP Retirees¹31,246,434 29,347,648 23,323,776 Beneficiaries 0 0 0 Disability Retirees 1,277,869 1,141,776 1,156,125 Terminated Vested 1,579,856 1,471,545 940,073 Share Plan Balances 9,164,553 9,164,553 8,580,169 Total 118,588,800 111,562,687 101,489,278 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 9 New Assump Old Assump C. Liabilities - (Continued)10/1/2016 10/1/2016 10/1/2015 Present Value of Future Salaries 49,836,277 49,818,166 46,768,515 Present Value of Future Member Contributions 2,990,177 2,989,090 2,806,111 Normal Cost (Retirement)1,915,367 1,800,926 1,771,652 Normal Cost (Disability)25,364 23,100 22,097 Normal Cost (Death)20,321 8,843 9,704 Normal Cost (Vesting)176,492 165,263 159,306 Normal Cost (Refunds)9,039 9,022 5,802 Total Normal Cost 2,146,583 2,007,154 1,968,561 Present Value of Future Normal Costs 15,221,704 14,220,177 13,555,347 Accrued Liability (Retirement)35,481,945 33,389,925 34,109,862 Accrued Liability (Disability)299,238 272,847 269,978 Accrued Liability (Death)305,340 133,288 140,527 Accrued Liability (Vesting)2,368,786 2,220,183 2,151,380 Accrued Liability (Refunds)14,805 14,782 11,914 Accrued Liability (Inactives) ¹55,732,429 52,146,932 42,670,101 Share Plan Balances 9,164,553 9,164,553 8,580,169 Total Actuarial Accrued Liability (AL)103,367,096 97,342,510 87,933,931 Unfunded Actuarial Accrued Liability (UAAL)21,289,944 15,265,358 13,510,369 Funded Ratio (AVA / AL)79.4%84.3%84.6% D. Actuarial Present Value of Accrued Benefits Vested Accrued Benefits Inactives ¹55,732,429 52,146,932 42,670,101 Share Plan Balances 9,164,553 9,164,553 8,580,169 Actives 19,198,587 17,581,894 19,880,550 Member Contributions 5,052,753 5,052,753 5,333,428 Total 89,148,322 83,946,132 76,464,248 Non-vested Accrued Benefits 1,781,562 1,715,573 1,415,671 Total Present Value Accrued Benefits (PVAB) 90,929,884 85,661,705 77,879,919 Funded Ratio (MVA / PVAB)88.7%94.1%93.1% Increase (Decrease) in Present Value of Accrued Benefits Attributable to: Plan Amendments 0 0 Assumption Changes 5,268,179 0 New Accrued Benefits 0 3,885,508 Benefits Paid 0 (1,985,587) Interest 0 5,881,865 Other 0 0 Total 5,268,179 7,781,786 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 10 New Assump Old Assump Valuation Date 10/1/2016 10/1/2016 10/1/2015 Applicable to Fiscal Year Ending 9/30/2018 9/30/2018 9/30/2017 E. Pension Cost Normal Cost (with interest) $2,226,543 $2,083,928 $2,043,858 % of Total Annual Payroll ²29.63 27.73 28.75 Administrative Expenses (with interest)94,540 94,631 88,051 % of Total Annual Payroll ²1.26 1.26 1.24 Payment Required to Amortize Unfunded Actuarial Accrued Liability over 20 years (as of 10/1/2016, with interest)2,539,608 1,990,164 1,643,344 % of Total Annual Payroll ²33.79 26.48 23.12 Total Required Contribution 4,860,691 4,168,723 3,775,253 % of Total Annual Payroll ²64.68 55.47 53.11 Expected Member Contributions 450,932 450,932 426,513 % of Total Annual Payroll ²6.00 6.00 6.00 Expected City & State Contribution 4,409,759 3,717,791 3,348,740 % of Total Annual Payroll ²58.68 49.47 47.11 F. Past Contributions Plan Years Ending:9/30/2016 City and State Requirement 3,605,305 Actual Contributions Made: Members (excluding buyback)455,983 City 3,088,524 State 516,781 Total 4,061,288 G. Net Actuarial (Gain)/Loss 2,699,668 ¹ The asset values and liabilities for DROP Members include accumulated DROP and Share Balances as of 9/30/2016 and 9/30/2015. ² Contributions developed as of 10/1/2016 are expressed as a percentage of total annual payroll at 10/1/2016 of $7,515,525. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 11 H. Schedule Illustrating the Amortization of the Total Unfunded Actuarial Accrued Liability as of: Projected Unfunded Year Accrued Liability 2016 21,289,944 2017 20,245,234 2018 19,122,691 2023 12,123,759 2027 8,909,783 2032 3,211,525 2036 0 I. (i) 3 Year Comparison of Actual and Assumed Salary Increases Actual Assumed Year Ended 9/30/2016 11.82%5.15% Year Ended 9/30/2015 0.29%5.13% Year Ended 9/30/2014 1.61%5.00% (ii) 3 Year Comparison of Investment Return on Actuarial Value Actual Assumed Year Ended 9/30/2016 7.45%7.65% Year Ended 9/30/2015 9.80%7.85% Year Ended 9/30/2014 10.89%8.05% (iii) Average Annual Payroll Growth (a) Payroll as of:10/1/2016 $7,771,546 10/1/2006 9,205,470 (b) Total Increase -15.58% (c) Number of Years 10.00 (d) Average Annual Rate -1.68% City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 12 STATEMENT BY ENROLLED ACTUARY This actuarial valuation was prepared and completed by me or under my direct supervision, and I acknowledge responsibility for the results. To the best of my knowledge, the results are complete and accurate, and in my opinion, the techniques and assumptions used are reasonable and meet the requirements and intent of Part VII, Chapter 112, Florida Statutes. There is no benefit or expense to be provided by the plan and/or paid from the plan's assets for which liabilities or current costs have not been established or otherwise taken into account in the valuation. All known events or trends which may require a material increase in plan costs or required contribution rates have been taken into account in the valuation. _____________________________ Douglas H. Lozen, EA, MAAA Enrolled Actuary #17-7778 Please let us know when the report is approved by the Board and unless otherwise directed we will provide copies of the report to the following offices to comply with Chapter 112 Florida Statutes: Mr. Keith Brinkman Bureau of Local Retirement Systems Post Office Box 9000 Tallahassee, FL 32315-9000 Ms. Sarah Carr Municipal Police and Fire Pension Trust Funds Division of Retirement Post Office Box 3010 Tallahassee, FL 32315-3010 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 13 RECONCILIATION OF UNFUNDED ACTUARIAL ACCRUED LIABILITIES (1) Unfunded Actuarial Accrued Liability as of October 1, 2015 $13,510,369 (2) Sponsor Normal Cost developed as of October 1, 2015 1,542,048 (3) Expected administrative expenses for the year ended September 30, 2016 84,807 (4) Expected interest on (1), (2) and (3)1,154,754 (5) Sponsor contributions to the System during the year ended September 30, 2016 3,605,305 (6) Expected interest on (5)120,983 (7) Expected Unfunded Actuarial Accrued Liability as of September 30, 2016 (1)+(2)+(3)+(4)-(5)-(6)12,565,690 (8) Change to UAAL due to Assumption Changes 6,024,586 (9) Change to UAAL due to Actuarial (Gain)/Loss 2,699,668 (10) Unfunded Accrued Liability as of October 1, 2016 21,289,944 Type of Date Years 10/1/2016 Amortization Base Established Remaining Amount Amount Prior Experience 10/1/1993 7 $10,006,785 $1,755,257 Benefit Change 10/1/2002 16 2,138,293 216,984 Experience Loss 10/1/2006 17 686,074 67,452 Assum/Method Chg 10/1/2006 17 (2,153,240)(211,697) Experience Gain 10/1/2007 17 (288,932)(28,407) Experience Loss 10/1/2008 17 1,366,951 134,393 Experience Loss 10/1/2009 17 857,586 84,314 Experience Loss 10/1/2010 17 448,683 44,113 Experience Loss 10/1/2011 17 3,863,620 379,854 Benefit Change 10/1/2011 17 (2,252,884)(221,494) Experience Loss 10/1/2012 17 273,548 26,894 Experience Gain 10/1/2013 7 (2,689,389)(471,737) Assumption Change 10/1/2013 17 1,548,293 152,221 Experience Gain 10/1/2014 8 (2,121,068)(336,370) Assumption Change 10/1/2014 18 1,675,771 160,114 Experience Gain 10/1/2015 9 (2,717,391)(395,628) Assumption Change 10/1/2015 19 1,922,990 179,042 Experience Loss 10/1/2016 10 2,699,668 365,199 Assumption Changes 10/1/2016 20 6,024,586 547,901 21,289,944 2,448,405 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 14 (1) Unfunded Actuarial Accrued Liability (UAAL) as of October 1, 2015 $13,510,369 (2) Expected UAAL as of October 1, 2016 12,565,690 (3)Summary of Actuarial (Gain)/Loss, by component: Investment Return (Actuarial Asset Basis)153,874 Salary Increases 1,644,894 Active Decrements 871,533 Inactive Mortality 98,254 Other (68,887) Increase in UAAL due to (Gain)/Loss 2,699,668 Assumption Changes 6,024,586 (4)Actual UAAL as of October 1, 2016 $21,289,944 DETAILED ACTUARIAL (GAIN)/LOSS ANALYSIS City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 15 ACTUARIAL ASSUMPTIONS AND METHODS Mortality Rate Healthy Lives: Female: RP2000 Generational, 100% Annuitant White Collar, Scale BB. Male: RP2000 Generational, 10% Annuitant White Collar / 90% Annuitant Blue Collar, Scale BB. Disabled Lives: Female: 60% RP2000 Disabled Female set forward two years / 40% Annuitant White Collar with no setback, no projection scale. Male: 60% RP2000 Disabled Male setback four years / 40% Annuitant White Collar with no setback, no projection scale. The assumed rates of mortality were mandated by Chapter 2015-157, Laws of Florida. This law mandates the use of the assumptions used in either of the two most recent valuations of the Florida Retirement System (FRS). The above rates are those outlined in the July 1, 2015 FRS actuarial valuation report for special risk employees. We feel this assumption sufficiently accommodates future mortality improvements. Previously, the RP 2000 Combined Healthy – Sex Distinct and the RP2000 Disabled Table for Disabled Lives. Retirement Rates Age Probability of Retirement 50 5.00% 51 5.00 52 50.00 53 10.00 54 10.00 55 100.00 For those Members who attain 25 years of Credited Service, regardless of Age, the probability of retirement is 100%. These rates are reasonable given the retirement provisions in the plan. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 16 Termination Rates Age Years of Service % Separating from Employment Within the Next Year All Ages 0 15.00% 1 10.00 2 9.00 3 8.00 4 7.00 25 5 & Over 7.00 30 5.90 35 4.40 40 3.00 45 2.10 50 1.70 55 1.00 We feel these rates are consistent with those utilized for plans containing other Florida municipal firefighters. Interest Rate 7.45% (previously 7.65%) per year compounded annually, net of investment related expenses. This is supported by the target asset class allocation of the trust and the expected long-term return by asset class. Salary Increases Age Increase 20 8.20% 30 5.60 40 5.20 50 4.70 60 4.50 This is based on the results of an actuarial experience study delivered on November 1, 2013. Final Pay Load For Members hired prior to October 1, 2011, active liabilities are increased by 3.00% to account for assumed payments of unused sick and annual leave time. Members hired on and after October 1, 2011 are valued with no final pay load. Cost of Living Adjustments 1.00% increase for members who are Age 53, 2.00% increase for members who are Age 54, and 3.00% increase for members who are Age 55 and greater. For those members who were not eligible for Normal Retirement as of September 12, 2012, the COLA beginning at age 55 is based on 3.00% for service prior to September 12, 2012, and 1.50% for service thereafter. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 17 Payroll Growth Assumption 0.00%, in compliance with Part VII of Chapter 112, Florida Statutes. Administrative Expenses $91,145 annually. This assumption is equal to the amount paid out of the trust in the prior year. Actuarial Value of Assets The Actuarial Value of Assets is calculated by recognizing 25% of the difference between the Market Value of Assets and the expected Market Value of Assets. Funding Method Projected Unit Credit Cost Method. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 18 VALUATION NOTES Total Annual Payroll is the projected annual rate of pay as of the valuation date of all covered Members. Present Value of Benefits is the single sum value on the valuation date of all future benefits to be paid to current Members, Retirees, Beneficiaries, Disability Retirees and Vested Terminations. Normal (Current Year's) Cost is determined for each participant as the present value of the increase in the accrued benefit for the plan year, utilizing projected salary. Projected Unit Credit Actuarial Cost Method (Level Percent of Compensation) is the method used to determine required contributions under the Plan. The use of this method involves the systematic funding of the Normal Cost (described above) and the Unfunded Accrued (Past Service) Liability. The actuarial accrued liability is the present value of accrued benefits, utilizing projected salary for active Plan Participants. Unfunded Actuarial Accrued Liability (UAAL) is the difference between the actuarial accrued liability (described above) and the actuarial value of assets. Under the Projected Unit Credit Actuarial Cost Method, an actuarial gain or loss, based on actual versus expected UAAL, is determined in conjunction with each valuation of the plan. Total Required Contribution is equal to the Normal Cost plus an amount sufficient to amortize the Unfunded Accrued Liability over no more than 30 years. The required amount is adjusted for interest according to the timing of contributions during the year. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 19 ASSETS COST VALUE MARKET VALUE Cash and Cash Equivalents: Money Market 2,364,165.43 2,364,165.43 Total Cash and Equivalents 2,364,165.43 2,364,165.43 Receivables: Additional City Contributions 11.70 11.70 State Contributions 114,371.66 114,371.66 From Broker for Investments Sold 90,858.76 90,858.76 Investment Income 134,096.80 134,096.80 Total Receivable 339,338.92 339,338.92 Investments: U. S. Bonds and Bills 4,781,578.21 4,842,771.15 Federal Agency Guaranteed Securities 3,806,066.11 3,848,203.64 Corporate Bonds 6,244,886.45 6,275,329.75 Stocks 23,082,935.62 26,407,768.42 Mutual Funds: Fixed Income 4,510,088.27 3,918,292.60 Equity 19,542,510.61 24,089,260.32 Pooled/Common/Commingled Funds: Real Estate 8,808,131.99 8,808,131.99 Total Investments 70,776,197.26 78,189,757.87 Total Assets 73,479,701.61 80,893,262.22 LIABILITIES Payables: Investment Expenses 82,385.23 82,385.23 Administrative Expenses 11,476.87 11,476.87 To Broker for Investments Purchased 167,812.17 167,812.17 Total Liabilities 261,674.27 261,674.27 NET POSITION RESTRICTED FOR PENSIONS 73,218,027.34 80,631,587.95 STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2016 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 20 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2016 Market Value Basis ADDITIONS Contributions: Member 455,982.88 City 3,088,524.05 State 568,403.22 Total Contributions 4,112,910.15 Investment Income: Net Realized Gain (Loss)1,388,358.99 Unrealized Gain (Loss)3,075,946.75 Net Increase in Fair Value of Investments 4,464,305.74 Interest & Dividends 2,054,492.04 Less Investment Expense¹(393,742.63) Net Investment Income 6,125,055.15 Total Additions 10,237,965.30 DEDUCTIONS Distributions to Members: Benefit Payments 1,361,131.33 Lump Sum DROP Distributions 126,762.58 Lump Sum Share Distributions 217,871.41 Self- Directed DROP Benefits 279,822.11 Refunds of Member Contributions 0.00 Total Distributions 1,985,587.43 Administrative Expense 91,144.59 Total Deductions 2,076,732.02 Net Increase in Net Position 8,161,233.28 NET POSITION RESTRICTED FOR PENSIONS Beginning of the Year 72,470,354.67 End of the Year 80,631,587.95 ¹Investment related expenses include investment advisory, custodial and performance monitoring fees. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 21 Plan Year Ending Gain/(Loss)2016 2017 2018 2019 09/30/2013 2,088,861 0 0 0 0 09/30/2014 2,072,082 518,019 0 0 0 09/30/2015 (4,681,951)(2,340,975)(1,170,487)0 0 09/30/2016 503,189 377,392 251,594 125,798 0 Total (1,445,564)(918,893)125,798 0 Market Value of Assets, 09/30/2015 72,470,355 Contributions Less Benefit Payments & Admin Expenses 2,036,178 Expected Investment Earnings ¹5,621,866 Actual Net Investment Earnings 6,125,055 09/30/2016 Actuarial Investment Gain/(Loss)503,189 ¹ Expected Investment Earnings = 0.0765 * (72,470,355 + 0.5 * 2,036,178) (1) Market Value of Assets, 09/30/2016 80,631,588 (2) Gains/(Losses) Not Yet Recognized (1,445,564) (3) Actuarial Value of Assets, 09/30/2016, (1) - (2)82,077,152 (A) 09/30/2015 Actuarial Assets:74,423,562 (I) Net Investment Income: 1. Interest and Dividends 2,054,492 2. Realized Gains (Losses) 1,388,359 3. Change in Actuarial Value 2,568,304 4. Investment Expenses (393,743) Total 5,617,412 (B) 09/30/2016 Actuarial Assets:82,077,152 Actuarial Assets Rate of Return = 2I/(A+B-I):7.45% Market Value of Assets Rate of Return:8.25% Actuarial Gain/(Loss) due to Investment Return (Actuarial Asset Basis)(153,874) 10/01/2016 Limited Actuarial Assets:82,077,152 Amounts Not Yet Recognized by Valuation Year Development of Investment Gain/(Loss) Development of Actuarial Value of Assets ACTUARIAL ASSET VALUATION September 30, 2016 Actuarial Assets for funding purposes are developed by recognizing the total actuarial investment gain or loss for each Plan Year over a four year period. In the first year, 25% of the gain or loss is recognized. In the second year 50%, in the third year 75%, and in the fourth year 100% of the gain or loss is recognized. The actuarial investment gain or loss is defined as the actual return on investments minus the actuarial assumed investment return. Actuarial Assets shall not be less than 80% nor greater than 120% of Market Value of Assets. Gains/(Losses) Not Yet Recognized City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 22 SEPTEMBER 30, 2016 Actuarial Asset Basis REVENUES Contributions: Member 455,982.88 City 3,088,524.05 State 568,403.22 Total Contributions 4,112,910.15 Earnings from Investments: Interest & Dividends 2,054,492.04 Net Realized Gain (Loss)1,388,358.99 Change in Actuarial Value 2,568,303.75 Total Earnings and Investment Gains 6,011,154.78 EXPENDITURES Distributions to Members: Benefit Payments 1,361,131.33 Lump Sum DROP Distributions 126,762.58 Lump Sum Share Distributions 217,871.41 Self- Directed DROP Benefits 279,822.11 Refunds of Member Contributions 0.00 Total Distributions 1,985,587.43 Expenses: Investment related¹393,742.63 Administrative 91,144.59 Total Expenses 484,887.22 Change in Net Assets for the Year 7,653,590.28 Net Assets Beginning of the Year 74,423,561.67 Net Assets End of the Year²82,077,151.95 ¹Investment related expenses include investment advisory, custodial and performance monitoring fees. ²Net Assets may be limited for actuarial consideration. CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 23 Beginning of the Year Balance 1,815,652.07 Plus Additions 1,369,071.75 Investment Return Earned 204,100.36 Less Distributions (126,762.58) End of the Year Balance 3,262,061.60 Notes: Additions for three members are on the Normal Form and will be adjusted, if necessary, during year ending September 30, 2017. Investment Return for three members has not been included and will be reported with the return for year ending September 30, 2017. DEFERRED RETIREMENT OPTION PLAN ACTIVITY October 1, 2015 to September 30, 2016 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 24 9/30/2015 Balance (from October 1, 2016 valuation report)8,580,169.10 Adjustment from Prior Year Balance (133,848.78) Plus Additions 220,949.27 Investment Return Earned 715,154.32 Less Distributions (217,871.41) 9/30/2016 Balance 9,164,552.50 ¹ Information provided by Resource Centers, LLC. October 1, 2015 to September 30, 2016 SHARE PLAN RECONCILIATION ¹ City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 25 (1) Total Required Contribution Rate 53.44% (2) Pensionable Payroll Derived from Member Contributions $7,599,714.67 (3) Total Required Contribution (1) x (2)4,061,287.52 (4) Less Actual Member Contributions (455,982.88) (5) Less Allowable State Contribution (516,780.59) (6) Equals Required City Contribution for Fiscal 2016 3,088,524.05 (7) Less 2015 Prepaid Contribution 0.00 (8) Less Actual City Contributions (3,088,512.35) (9) Equals City's Shortfall/(Prepaid) Contribution as of $11.70 September 30, 2016 RECONCILIATION OF CITY'S SHORTFALL/(PREPAID) CONTRIBUTION FOR THE FISCAL YEAR ENDED (FYE) SEPTEMBER 30, 2016 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 26 STATISTICAL DATA 10/1/2013 10/1/2014 10/1/2015 10/1/2016 Actives Number 105 101 96 91 Average Current Age 42.6 41.9 42.1 41.4 Average Age at Employment 28.5 28.5 28.4 27.7 Average Past Service 14.1 13.4 13.7 13.7 Average Annual Salary $82,724 $80,620 $78,807 $85,402 Service Retirees Number 9 13 14 18 Average Current Age N/A N/A 54.5 55.8 Average Annual Benefit $75,167 $78,982 $80,164 $72,966 DROP Retirees Number 8 13 18 22 Average Current Age N/A N/A 54.2 54.8 Average Annual Benefit $73,309 $76,090 $76,165 $76,328 Beneficiaries Number 1 1 1 0 Average Current Age N/A N/A N/A N/A Average Annual Benefit ¹$31,584 $31,584 $31,584 N/A Disability Retirees Number 5 5 5 5 Average Current Age N/A N/A 52.1 53.1 Average Annual Benefit $23,643 $23,643 $23,643 $23,643 Terminated Vested Number 3 3 3 4 Average Current Age N/A N/A 48.3 49.9 Average Annual Benefit $30,255 $30,255 $30,255 $30,270 ¹ Annual benefit is based on remaining portion of 120 month guarantee. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 27 AGE AND SERVICE DISTRIBUTION PAST SERVICE AGE 0 1 2 3 4 5-9 10-14 15-19 20-24 25-29 30+ Total 15 - 19 0 0 0 0 0 0 0 0 0 0 0 0 20 - 24 0 0 2 0 0 0 0 0 0 0 0 2 25 - 29 2 0 2 0 1 0 0 0 0 0 0 5 30 - 34 1 1 1 0 1 1 7 0 0 0 0 12 35 - 39 1 0 0 1 1 2 9 3 0 0 0 17 40 - 44 0 0 0 1 0 1 10 3 2 0 0 17 45 - 49 0 0 0 0 0 0 8 10 7 0 0 25 50 - 54 0 0 0 0 0 0 2 3 6 1 0 12 55 - 59 0 0 0 0 0 0 0 0 1 0 0 1 60 - 64 0 0 0 0 0 0 0 0 0 0 0 0 65+0 0 0 0 0 0 0 0 0 0 0 0 Total 4 1 5 2 3 4 36 19 16 1 0 91 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 28 VALUATION PARTICIPANT RECONCILIATION 1. Active lives a. Number in prior valuation 10/1/2015 96 b. Terminations i. Vested (partial or full) with deferred benefits (1) ii. Non-vested or full lump sum distribution received 0 c. Deaths i. Beneficiary receiving benefits 0 ii. No future benefits payable 0 d. Disabled 0 e. Retired (1) f. DROP (7) g. Continuing participants 87 h. New entrants 4 i. Total active life participants in valuation 91 2. Non-Active lives (including beneficiaries receiving benefits) Service Retirees, Vested Receiving Receiving Receiving DROP Death Disability Vested Benefits Benefits Benefits Benefits Deferred Total a. Number prior valuation 14 18 1 5 3 41 Retired 4 (3) 0 0 0 1 DROP 0 7 0 0 0 7 Vested Deferred 0 0 0 0 1 1 Death, With Survivor 0 0 0 0 0 0 Death, No Survivor 0 0 0 0 0 0 Disabled 0 0 0 0 0 0 Refund of Contributions 0 0 0 0 0 0 Rehires 0 0 0 0 0 0 Expired Annuities 0 0 (1) 0 0 (1) Data Corrections 0 0 0 0 0 0 b. Number current valuation 18 22 0 5 4 49 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 29 SUMMARY OF PLAN PROVISIONS (Through Ordinance 9, 2016) Eligibility Full-time certified Firefighters. Credited Service Total years and fractional parts of years of employment with the City as a Firefighter while making Member contributions. Salary Total compensation, excluding overtime and payments for unused accrued sick and annual leave for salary earned after September 13, 2012. Average Final Compensation Average Salary for the 5 best years of the 10 years immediately preceding retirement or termination. Member Contributions 6.00% of Salary. City and State Contributions Remaining amount required in order to pay current costs and amortize unfunded past service cost, if any, as provided in Part VII, Chapter 112, F.S. Normal Retirement Date Earlier of: 1) Age 52 with 10 years of Credited Service, or 2) Attainment of 25 years of Credited Service, regardless of Age. Benefit 3.00% of Average Final Compensation times Credited Service, not to exceed 75% of Average Final Compensation. Form of Benefit Ten Year Certain and Life Annuity (options available). Early Retirement Eligibility Age 50 with 10 years of Credited Service. Benefit Accrued benefit, reduced 3.00% per year that the benefit commencement date precedes age 52. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 30 Vesting Schedule 25% after 5 years of Credited Service, then 15% for each additional year until 100% after 10 years of Credited Service. Benefit Amount Member will receive the vested portion of his (her) accrued benefit payable at age 50 (reduced) or age 52. Disability Eligibility Service Incurred Covered from Date of Employment. Non-Service Incurred 10 years of Credited Service. Exclusions Disability resulting from use of drugs, illegal participation in riots, service in military, etc. Benefit Service Incurred 60% of Average Final Compensation, but not less than 2.00% of Average Final Compensation times Credited Service. Non-Service Incurred 2.50% of Average Final Compensation times Credited Service. Duration Payable for life (with 120 payments guaranteed) or until recovery (as determined by the Board). Optional forms of payment are available. Death Benefits 10 or more years of Monthly accrued benefit payable to designated Credited Service beneficiary for 10 years at otherwise Early (reduced) or Normal (unreduced) Retirement Date. Less than 10 years of Refund of Member contributions. Credited Service Post-Retirement Benefits payable to beneficiary in accordance with option selected at retirement. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 31 Cost of Living Adjustment Eligibility Normal and Early Retirees and Beneficiaries (including Vested Terminated Retirees). COLA is not payable to Disability Retirees. Amount 1.00% increase for members who are Age 53, 2.00% increase for members who are Age 54, and 1.50% increase for members who are Age 55 and greater. Deferred Retirement Option Plan Eligibility Satisfaction of Normal Retirement requirements. Participation Maximum participation period of 60 months. Rate of Return At the Member’s option, a fixed rate, actual rate of investment return for the Plan, or returns generated by self-directed accounts. Distribution Cash lump sum (options available) at termination of employment. Chapter 175/185 Share Accounts Allocation Ordinance 27, 1998 established a Share Plan for all Active Members. Premium tax monies received in excess of the base amounts, less the sum of the amounts below are allocated annually to each individual Share Account based on Credited Service, determined as of September 30: • 2.00% of salary. • The lessor of 4.80% of salary or $507,634.00. Investment Earnings Net rate of investment return realized by the Plan for the preceding Plan Year. Vesting Schedule Active Members who terminate employment with less than 5 years of Credited Service forfeit their Share. Distribution Active Members with 5 or more years of Credited Service will be paid a lump sum upon separation from service. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 32 GASB 67 STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2016 ASSETS Cash and Cash Equivalents: Money Market Total Cash and Equivalents Receivables: Additional City Contributions State Contributions From Broker for Investments Sold Investment Income Total Receivable Investments: U. S. Bonds and Bills Federal Agency Guaranteed Securities Corporate Bonds Stocks Mutual Funds: Fixed Income Equity Pooled/Common/Commingled Funds: Real Estate Total Investments Self-Directed DROP Accounts Total Assets LIABILITIES Payables: Investment Expenses Administrative Expenses To Broker for Investments Purchased Total Liabilities NET POSITION RESTRICTED FOR PENSIONS¹ ¹The Assets values and Liabilities included accumulated DROP Balances MARKET VALUE 2,364,165 2,364,165 12 114,371 90,859 134,097 339,339 4,842,771 3,848,204 6,275,330 26,407,768 3,918,293 24,089,260 8,808,132 78,189,758 698,752 81,592,014 82,385 11,477 167,812 261,674 81,330,340 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 33 GASB 67 ADDITIONS Contributions: Member 455,983 City 3,088,524 State 568,403 Total Contributions 4,112,910 Investment Income: Net Increase in Fair Value of Investments 4,492,162 Interest & Dividends 2,054,492 Less Investment Expense¹(393,743) Net Investment Income 6,152,911 Total Additions 10,265,821 DEDUCTIONS Distributions to Members: Benefit Payments 1,361,131 Lump Sum DROP Distributions 126,763 Lump Sum Share Distributions 217,871 Self- Directed DROP Distributions 97,752 Refunds of Member Contributions 0 Total Distributions 1,803,517 Administrative Expense 91,145 Total Deductions 1,894,662 Net Increase in Net Position 8,371,159 NET POSITION RESTRICTED FOR PENSIONS Beginning of the Year 72,959,181 End of the Year 81,330,340 ¹Investment related expenses include investment advisory, custodial and performance monitoring fees. STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2016 Market Value Basis City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 34 GASB 67 Plan Description Plan Administration Plan Membership as of October 1, 2015: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 38 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 3 Active Plan Members 96 137 Benefits Provided - 2.0% of salary Vesting: Benefit: Member will receive the vested portion of his (her) accrued benefit payable at age 50 (reduced) or age 52. 10 or more years of Credited Service: Monthly accrued benefit payable to designated beneficiary for 10 years at otherwise Early (reduced) or Normal (unreduced) Retirement Date. Benefit: Service Incurred 60% of Average Final Compensation, but not less than 2.0% of Average Final Compensation times Credited Service. Non-Service Incurred 2.5% of Average Final Compensation times Credited Service. Schedule: 25% after 5 years of Credited Service, then 15% for each additional year until 100% after 10 years of Credited Service. Disability: Eligibility Service Incurred: Covered from Date of Employment. Eligibility Non-Service Incurred: 10 years of Credited Service. Death Benefits: Less than 10 years of Credited Service: Refund of Member contributions. Cost of Living Adjustment: Vesting Schedule: Active Members who terminate employment with less than 5 years of Credited Service forfeit their Share. Allocation: Ordinance 27, 1998 established a Share Plan for all Active Members. Premium tax monies received in excess of the base amounts, less the sum of the amounts below, is allocated annually to each individual Share Account based on Credited Service, determined as of September 30: Eligibility: Normal and Early Retirees and Beneficiaries (including Vested Terminated Retirees). COLA is not payable to Disability Retirees. Amount: 1.0% increase for Members who are Age 53, 2.0% increase for Members who are Age 54, and 1.5% increase for Members who are Age 55 and greater. - The lesser of 4.8% of salary or $507,634.00 Investment Earnings: Net rate of investment return realized by the Plan for the preceding Plan Year. Chapter 175/185 Share Accounts: Early Retirement: Eligibility: Age 50 with 10 years of Credited Service. Benefit: Accrued benefit, reduced 3.0% per year that the benefit commencement date precedes age 52. (For the Year Ended September 30, 2016) NOTES TO THE FINANCIAL STATEMENTS The Plan provides retirement, termination, disability and death benefits. Normal Retirement: Date: Earlier of: 1) Age 52 with 10 years of Credited Service, or 2) attainment of 25 years of Credited Service, regardless of Age. Benefit: 3.0% of Average Final Compensation times Credited Service, not to exceed 75% of Average Final Compensation. The City of Palm Beach Gardens Firefighters' Pension Fund is a single-employer defined benefit pension plan administered by a Board of Trustees which acts as the administrator of the Fund. The Board consists of 5 trustees, 2 of whom are appointed by the City, 2 of whom are full-time Firefighters who are elected by a majority of the Members of the Fund and a fifth Trustee who is chosen by a majority of the first 4 Trustees. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 35 GASB 67 Contributions Member Contributions; 6.0% of Salary. Investments Investment Policy: The following was the Board's adopted asset allocation policy as of September 30, 2016: Asset Class Target Allocation Domestic Equity 50% International Equity 10% Domestic Fixed Income 20% Global Fixed Income 5% Real Estate 10% Alternative 5% Total 100% Concentrations: Rate of Return: Deferred Retirement Option Program The DROP balance as September 30, 2016 is $3,960,813¹. ¹ Additions for three members are on the Normal Form and will be adjusted, if necessary, during year ending September 30, 2017. The Plan did not hold investments in any one organization that represent 5 percent or more of the Pension Plan's Fiduciary Net Position. For the year ended September 30, 2016, the annual money-weighted rate of return on Pension Plan investments, net of Pension Plan investment expense, was 8.22 percent. Rate of Return: At the Member’s option, a fixed rate, actual rate of investment return for the Plan, or returns generated by self- directed accounts. Investment Return for three members has not been included and will be reported with the return for year ending September 30, 2017. Eligibility: Satisfaction of Normal Retirement requirements. Participation: Maximum participation period of 60 months. City and State Contributions: Remaining amount required in order to pay current costs and amortize unfunded past service cost, if any, as provided in Chapter 112, Florida Statutes. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 36 GASB 67 The components of the Net Pension Liability of the Sponsor on September 30, 2016 were as follows: Total Pension Liability 104,309,008$ Plan Fiduciary Net Position (81,330,340)$ Sponsor's Net Pension Liability 22,978,668$ Plan Fiduciary Net Position as a percentage of Total Pension Liability 77.97% Actuarial Assumptions: Inflation 2.50% Salary Increases Age based Discount Rate 7.45% Investment Rate of Return 7.45% Mortality Rate Healthy Lives: Female: RP2000 Generational, 100% Annuitant White Collar, Scale BB. Male: RP2000 Generational, 10% Annuitant White Collar /90% Annuitant Blue Collar, Scale BB. Mortality Rate Disabled Lives: Female: 60% RP2000 Disabled Female set forward two years / 40% Annuitant White Collar with no setback, no projection scale. Male: 60% RP2000 Disabled Male setback four years / 40% Annuitant White Collar with no setback, no projection scale. The date of the most recent experience study for which significant assumptions are based upon is not available. Asset Class Domestic Equity 7.50% International Equity 8.50% Domestic Fixed Income 2.50% Global Fixed Income 3.50% Real Estate 4.50% Alternative 6.00% The Total Pension Liability was determined by an actuarial valuation as of October 1, 2015 updated to September 30, 2016 using the following actuarial assumptions: NET PENSION LIABILITY OF THE SPONSOR 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. 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, 2016 are summarized in the following table: Long Term Expected Real Rate of Return For 2016 the inflation rate assumption of the investment advisor was 2.50%. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 37 GASB 67 Discount Rate: The Discount Rate used to measure the Total Pension Liability was 7.45 percent. 1% Decrease Current Discount Rate 1% Increase 6.45%7.45%8.45% Sponsor's Net Pension Liability 36,614,699$ 22,978,668$ 11,964,508$ 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. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 38 GASB 67 09/30/2016 09/30/2015 09/30/2014 Total Pension Liability Service Cost 1,637,466 1,760,152 1,741,473 Interest 7,174,074 6,786,918 6,280,207 Share Plan Allocation 51,623 222,133 304,698 Changes of benefit terms - - - Differences between Expected and Actual Experience (1,684,439) (1,460,746) - Changes of assumptions 5,890,763 2,004,899 1,772,793 Benefit Payments, including Refunds of Employee Contributions (1,803,517) (1,935,428) (1,844,859) Net Change in Total Pension Liability 11,265,970 7,377,928 8,254,312 Total Pension Liability - Beginning 93,043,038 85,665,110 77,410,798 Total Pension Liability - Ending (a)104,309,008$ 93,043,038$ 85,665,110$ Plan Fiduciary Net Position Contributions - Employer 3,088,524 3,746,995 2,866,126 Contributions - State 568,403 726,993 843,533 Contributions - Employee 455,983 445,465 475,442 Net Investment Income 6,152,911 835,212 6,977,925 Benefit Payments, including Refunds of Employee Contributions (1,803,517) (1,935,428) (1,844,859) Administrative Expense (91,145) (84,807) (88,142) Net Change in Plan Fiduciary Net Position 8,371,159 3,734,430 9,230,025 Plan Fiduciary Net Position - Beginning 72,959,181 69,224,751 59,994,726 Plan Fiduciary Net Position - Ending (b) $ 81,330,340 $ 72,959,181 $ 69,224,751 Net Pension Liability - Ending (a) - (b)22,978,668$ 20,083,857$ 16,440,359$ Plan Fiduciary Net Position as a percentage of the Total Pension Liability 77.97%78.41%80.81% Covered Employee Payroll¹7,599,715$ 9,695,082$ 7,924,041$ Net Pension Liability as a percentage of Covered Employee Payroll 302.36%207.16%207.47% Notes to Schedule: Changes of assumptions: SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS assumption from 7.85% to 7.65%. Furthermore the inflation assumption has been lowered from 4.50% to 3.00%. Last 10 Fiscal Years by the Florida Retirement System for special risk employees. For measurement date 09/30/2015, amounts reported as changes of assumptions resulted from lowering the investment return For measurement date 09/30/2016, amounts reported as changes of assumptions resulted from lowering the investment return assumption from 7.65% to 7.45%. Furthermore the inflation assumption rate was lowered from 3.00% to 2.50%, matching the long-term inflation assumption utilized by the Plan's investment consultant. Also, as a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used ¹ The Covered Employee Payroll numbers shown are in compliance with GASB 82, except for the 09/30/2015 measurement period which includes DROP payroll. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 39 GASB 67 09/30/2014 09/30/2013 Total Pension Liability Service Cost 1,741,473 1,540,354 Interest 6,280,207 5,827,406 Share Plan Allocation 304,698 - Changes of benefit terms - - Differences between Expected and Actual Experience - - Changes of assumptions 1,772,793 - Benefit Payments, including Refunds of Employee Contributions (1,844,859) (1,613,497) Net Change in Total Pension Liability 8,254,312 5,754,263 - Total Pension Liability - Beginning 77,410,798 71,656,535 Total Pension Liability - Ending (a)85,665,110$ 77,410,798$ -$ Plan Fiduciary Net Position Contributions - Employer 2,866,126 3,347,645 Contributions - State 843,533 750,073 Contributions - Employee 475,442 497,684 Net Investment Income 6,977,925 6,392,179 Benefit Payments, including Refunds of Employee Contributions (1,844,859) (1,613,497) Administrative Expense (88,142) (99,667) Net Change in Plan Fiduciary Net Position 9,230,025 9,274,417 Plan Fiduciary Net Position - Beginning 59,994,726 50,720,309 Plan Fiduciary Net Position - Ending (b) $ 69,224,751 $ 59,994,726 Net Pension Liability - Ending (a) - (b)16,440,359$ 17,416,072$ Plan Fiduciary Net Position as a percentage of the Total Pension Liability 80.81%77.50% Covered Employee Payroll¹7,924,041$ 8,294,732$ Net Pension Liability as a percentage of Covered Employee Payroll 207.47%209.97% Notes to Schedule: Changes of assumptions: with future valuations according to the following schedule: Valuation Date Investment Return Assumption 10/1/2015 7.65% 10/1/2016 7.45% 10/1/2017 7.25% decreased from 2.9% to 0.7% (the actual ten-year payroll growth as of 10/1/2014). This decrease was made for the purpose of compliance with Part VII of Chapter 112, Florida Statutes. • The investment return assumption has been decreased from 8.05% to 7.85%. Further reductions will be implemented SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS Last 10 Fiscal Years For measurement date 09/30/2014, amounts reported as changes of assumptions resulted from: • The payroll growth assumption, utilized for amortization of the Unfunded Actuarial Accrued Liability (UAAL) has been ¹ The Covered Employee Payroll numbers shown are in compliance with GASB 82, except for the 09/30/2015 measurement period which includes DROP payroll. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 40 GASB 67 09/30/2016 09/30/2015 09/30/2014 09/30/2013 Actuarially Determined Contribution 3,605,305 3,460,519 3,404,960 3,443,143 Contributions in relation to the Actuarially Determined Contributions 3,605,305 4,251,855 3,404,960 3,911,687 Contribution Deficiency (Excess)-$ (791,336)$ -$ (468,544)$ Covered Employee Payroll¹7,599,715$ 9,695,082$ 7,924,041$ 8,294,732$ Contributions as a percentage of Covered Employee Payroll 47.44%43.86%42.97%47.16% Notes to Schedule Valuation Date:10/01/2014 Methods and assumptions used to determine contribution rates: Funding Method:Projected Unit Credit Cost Method. Amortization Method: Remaining Amortization Period: Mortality Rates: Interest Rate: Retirement Rates: Age Probability of Retirement 50 5% 51 5% 52 50% 53 10% 54 10% 55 100% Actuarial Value of Assets: Cost of Living Adjustments: Salary Increases*:Age Increase 20 3.7% 30 1.1% 40 0.7% 50 0.2% 60 0.0% *Expected increase in salary in addition to 4.5% inflation assumption. SCHEDULE OF CONTRIBUTIONS Last 10 Fiscal Years Actuarially determined contribution rates are calculated as of October 1, two years prior to the end of the fiscal year in which contributions are reported. 7.85% per year compounded annually, net of investment related expenses. For those Members who attain 25 years of Credited Service, regardless of Age, the probability of retirement is 100%. The Actuarial Value of Assets is calculated by recognizing 25% of the difference between the Market Value of Assets and the expected Market Value of Assets. 1.0% increase for Members who are Age 53, 2.0% increase for Members who are Age 54, and 3.0% increase for Members who are Age 55 and greater. For those members who were not eligible for Normal Retirement as of September 12, 2012, the COLA beginning at age 55 is based on 3.0% for service prior to September 12, 2012, and 1.5% for service thereafter. Level Percentage of Pay, Closed. RP-2000 Table, sex distinct, without projection. 20 Years (as of 10/01/2014). ¹ The Covered Employee Payroll numbers shown are in compliance with GASB 82, except for the 09/30/2015 measurement period which includes DROP payroll. Based on a study of over 650 public safety funds, this table reflects a 10% margin for future mortality improvements. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 41 GASB 67 Payroll Growth Assumption: Final Pay Load: Termination Rates: Age Years of Service All Ages 0 1 2 3 4 25 5 & Over 30 35 40 45 50 55 Disability Rates: Age 20 25 30 35 40 45 50 It is assumed that 75% of disablements and active Member deaths are service related. 0.7% for amortization of the Unfunded Actuarial Accrued Liability. For Members hired prior to October 1, 2011, active liabilities are increased by 3% to account for assumed payments of unused sick and annual leave time. Members protected from benefit changes set forth in Ordinance 23, 2012 are valued with a 4.5% final salary load. Members hired on and after October1, 2011 are valued with no final pay load. 0.0545% % Separating form Employment Within the Next Year 7.0% 0.0580% 0.0895% 0.1210% 0.2750% 1.7% 1.0% % Become Disabled within Next Year 0.0545% 7.0% 5.9% 4.4% 3.0% 2.1% 0.4290% 15.0% 10.0% 9.0% 8.0% City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 42 GASB 67 09/30/2016 09/30/2015 09/30/2014 09/30/2013 Annual Money-Weighted Rate of Return Net of Investment Expense 8.22%1.20%11.56%12.25% SCHEDULE OF INVESTMENT RETURNS Last 10 Fiscal Years City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 43 GASB 68 General Information about the Pension Plan Plan Description Plan Membership as of October 1, 2015: Inactive Plan Members or Beneficiaries Currently Receiving Benefits 38 Inactive Plan Members Entitled to But Not Yet Receiving Benefits 3 Active Plan Members 96 137 Benefits Provided Normal Retirement: Early Retirement: Vesting: Disability: Benefit: Accrued benefit, reduced 3.0% per year that the benefit commencement date precedes age 52. Eligibility: Age 50 with 10 years of Credited Service. Eligibility Service Incurred: Covered from Date of Employment. Eligibility Non-Service Incurred: 10 years of Credited Service. Schedule: 25% after 5 years of Credited Service, then 15% for each additional year until 100% after 10 years of Credited Service. Benefit: Member will receive the vested portion of his (her) accrued benefit payable at age 50 (reduced) or age 52. NOTES TO THE FINANCIAL STATEMENTS (For the Year Ended September 30, 2017) The Plan provides retirement, termination, disability and death benefits. Date: Earlier of: 1) Age 52 with 10 years of Credited Service, or 2) attainment of 25 years of Credited Service, regardless of Age. Benefit: 3.0% of Average Final Compensation times Credited Service, not to exceed 75% of Average Final Compensation. The City of Palm Beach Gardens Firefighters' Pension Fund is a single-employer defined benefit pension plan administered by a Board of Trustees which acts as the administrator of the Fund. The Board consists of 5 trustees, 2 of whom are appointed by the City, 2 of whom are full-time Firefighters who are elected by a majority of the Members of the Fund and a fifth Trustee who is chosen by a majority of the first 4 Trustees. Each person employed by the City Fire Department as a full-time Firefighter becomes a Member of the Fund as a condition of his employment. All Firefighters are therefore eligible for Fund benefits as provided for in the Fund document and by applicable law. Benefit: Service Incurred 60% of Average Final Compensation, but not less than 2.0% of Average Final Compensation times Credited Service. Non-Service Incurred 2.5% of Average Final Compensation times Credited Service. 10 or more years of Credited Service: Monthly accrued benefit payable to designated beneficiary for 10 years at otherwise Early (reduced) or Normal (unreduced) Retirement Date. Death Benefits: Less than 10 years of Credited Service: Refund of Member contributions. Cost of Living Adjustment: Eligibility: Normal and Early Retirees and Beneficiaries (including Vested Terminated Retirees). COLA is not payable to Disability Retirees. Amount: 1.0% increase for Members who are Age 53, 2.0% increase for Members who are Age 54, and 1.5% increase for Members who are Age 55 and greater. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 44 GASB 68 Contributions Member Contributions; 6.0% of Salary. - 2.0% of salary - The lesser of 4.8% of salary or $507,634.00 City and State Contributions: Remaining amount required in order to pay current costs and amortize unfunded past service cost, if any, as provided in Chapter 112, Florida Statutes. Investment Earnings: Net rate of investment return realized by the Plan for the preceding Plan Year. Vesting Schedule: Active Members who terminate employment with less than 5 years of Credited Service forfeit their Share. Allocation: Ordinance 27, 1998 established a Share Plan for all Active Members. Premium tax monies received in excess of the base amounts, less the sum of the amounts below, is allocated annually to each individual Share Account based on Credited Service, determined as of September 30: Chapter 175/185 Share Accounts: City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 45 GASB 68 Net Pension Liability The measurement date is September 30, 2016. The measurement period for the pension expense was October 1, 2015 to September 30, 2016. The reporting period is October 1, 2016 through September 30, 2017. The Sponsor's Net Pension Liability was measured as of September 30, 2016. The Total Pension Liability used to calculate the Net Pension Liability was determined as of that date. Actuarial Assumptions: Inflation 2.50% Salary Increases Age based Discount Rate 7.45% Investment Rate of Return 7.45% Asset Class Target Allocation Long Term Expected Real Rate of Return Domestic Equity 50%7.50% International Equity 10%8.50% Domestic Fixed Income 20%2.50% Global Fixed Income 5%3.50% Real Estate 10%4.50% Alternative 5%6.00% Total 100% The date of the most recent experience study for which significant assumptions are based upon is not available. 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. 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, 2016 are summarized in the following table: Mortality Rate Healthy Lives: The Total Pension Liability was determined by an actuarial valuation as of October 1, 2015 updated to September 30, 2016 using the following actuarial assumptions: For 2016 the inflation rate assumption of the investment advisor was 2.50%. Female: RP2000 Generational, 100% Annuitant White Collar, Scale BB. Male: RP2000 Generational, 10% Annuitant White Collar /90% Annuitant Blue Collar, Scale BB. Mortality Rate Disabled Lives: Female: 60% RP2000 Disabled Female set forward two years / 40% Annuitant White Collar with no setback, no projection scale. Male: 60% RP2000 Disabled Male setback four years / 40% Annuitant White Collar with no setback, no projection scale. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 46 GASB 68 Discount Rate: The Discount Rate used to measure the Total Pension Liability was 7.45 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. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 47 GASB 68 Total Pension Liability Plan Fiduciary Net Position Net Pension Liability (a)(b)(a)-(b) Reporting Period Ending September 30, 2016 $ 93,043,038 $ 72,959,181 $ 20,083,857 Changes for a Year: Service Cost 1,637,466 - 1,637,466 Interest 7,174,074 - 7,174,074 Share Plan Allocation 51,623 - 51,623 Differences between Expected and Actual Experience (1,684,439) - (1,684,439) Changes of assumptions 5,890,763 - 5,890,763 Changes of benefit terms - - - Contributions - Employer - 3,088,524 (3,088,524) Contributions - State - 568,403 (568,403) Contributions - Employee - 455,983 (455,983) Net Investment Income - 6,152,911 (6,152,911) Benefit Payments, including Refunds of Employee Contributions (1,803,517) (1,803,517) - Administrative Expense - (91,145) 91,145 Net Changes 11,265,970 8,371,159 2,894,811 Reporting Period Ending September 30, 2017 $ 104,309,008 $ 81,330,340 $ 22,978,668 Sensitivity of the Net Pension Liability to changes in the Discount Rate. 1% Decrease Current Discount Rate 1% Increase 6.45%7.45%8.45% Sponsor's Net Pension Liability 36,614,699$ 22,978,668$ 11,964,508$ Pension Plan Fiduciary Net Position. Detailed information about the pension Plan's Fiduciary Net Position is available in a separately issued Plan financial report. Increase (Decrease) CHANGES IN NET PENSION LIABILITY City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 48 GASB 68 For the year ended September 30, 2016, the Sponsor has recognized a Pension Expense of $3,763,510. Deferred Outflows of Resources Deferred Inflows of Resources Differences between Expected and Actual Experience - 1,217,289 Changes of assumptions 2,832,235 - Net difference between Projected and Actual Earnings on Pension Plan investments 2,462,213 - Employer and State contributions subsequent to the measurement date 3,656,927 - Total 8,951,375$ 1,217,289$ OUTFLOW Year ended September 30: 2017 (524,196)$ 409,218$ 902,903$ 2018 (524,198)$ 409,219$ 902,902$ 2019 (524,198)$ 409,219$ 902,902$ 2020 (524,198)$ 845,208$ 1,277,760$ 2021 (524,198)$ (97,337)$ 90,692$ Thereafter 1,403,699$ 486,686$ -$ Payable to the Pension Plan FINAL PENSION EXPENSE AND DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS On September 30, 2016, the Sponsor reported Deferred Outflows of Resources and Deferred Inflows of Resources related to pensions from the following sources: The outcome of the Deferred Outflows of resources related to pensions resulting from Employer and State contributions subsequent to the measurement date has been recognized as a reduction of the Net Pension Liability in the year ended 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: On September 30, 2016, the Sponsor reported a payable of $12 for the outstanding amount of contributions of the Pension Plan required for the year ended September 30, 2016. FISCAL YEAR SEPTEMBER 30, 2016 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 49 GASB 68 For the year ended September 30, 2017, the Sponsor will recognize a Pension Expense of $4,338,719. Deferred Outflows of Resources Deferred Inflows of Resources Differences between Expected and Actual Experience - 2,377,532 Changes of assumptions 7,101,401 - Net difference between Projected and Actual Earnings on Pension Plan investments 1,566,309 - Employer and State contributions subsequent to the measurement date TBD - Total TBD 2,377,532$ OUTFLOW Year ended September 30: 2018 (524,198)$ 409,219$ 1,506,619$ 2019 (524,198)$ 409,219$ 1,506,619$ 2020 (524,198)$ 845,208$ 1,881,477$ 2021 (524,198)$ (97,337)$ 694,409$ 2022 (280,740)$ -$ 701,054$ Thereafter -$ -$ -$ Payable to the Pension Plan PRELIMINARY PENSION EXPENSE AND DEFERRED OUTFLOWS OF RESOURCES AND DEFERRED INFLOWS OF RESOURCES RELATED TO PENSIONS On September 30, 2016, the Sponsor reported a payable of $12 for the outstanding amount of contributions of the Pension Plan required for the year ended September 30, 2016. On September 30, 2017, the Sponsor reported Deferred Outflows of Resources and Deferred Inflows of Resources related to pensions from the following sources: Other amounts reported as Deferred Outflows of Resources and Deferred Inflows of Resources related to pensions will be recognized in Pension Expense as follows: The outcome of the Deferred Outflows of resources related to pensions resulting from Employer and State contributions subsequent to the measurement date will be recognized as a reduction of the Net Pension Liability in the year ended September 30, 2017. FISCAL YEAR SEPTEMBER 30, 2017 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 50 GASB 68 Reporting Period Ending 09/30/2017 09/30/2016 09/30/2015 Measurement Date 09/30/2016 09/30/2015 09/30/2014 Total Pension Liability Service Cost 1,637,466 1,760,152 1,741,473 Interest 7,174,074 6,786,918 6,280,207 Share Plan Allocation 51,623 222,133 304,698 Changes of benefit terms - - - Differences between Expected and Actual Experience (1,684,439) (1,460,746) - Changes of assumptions 5,890,763 2,004,899 1,772,793 Benefit Payments, including Refunds of Employee Contributions (1,803,517) (1,935,428) (1,844,859) Net Change in Total Pension Liability 11,265,970 7,377,928 8,254,312 Total Pension Liability - Beginning 93,043,038 85,665,110 77,410,798 Total Pension Liability - Ending (a) $104,309,008 $ 93,043,038 $ 85,665,110 Plan Fiduciary Net Position Contributions - Employer 3,088,524 3,746,995 2,866,126 Contributions - State 568,403 726,993 843,533 Contributions - Employee 455,983 445,465 475,442 Net Investment Income 6,152,911 835,212 6,977,925 Benefit Payments, including Refunds of Employee Contributions (1,803,517) (1,935,428) (1,844,859) Administrative Expense (91,145) (84,807) (88,142) Net Change in Plan Fiduciary Net Position 8,371,159 3,734,430 9,230,025 Plan Fiduciary Net Position - Beginning 72,959,181 69,224,751 59,994,726 Plan Fiduciary Net Position - Ending (b) $ 81,330,340 $ 72,959,181 $ 69,224,751 Net Pension Liability - Ending (a) - (b)22,978,668$ 20,083,857$ 16,440,359$ Plan Fiduciary Net Position as a percentage of the Total Pension Liability 77.97%78.41%80.81% Covered Employee Payroll¹7,599,715$ 9,695,082$ 7,924,041$ Net Pension Liability as a percentage of Covered Employee Payroll 302.36%207.16%207.47% Notes to Schedule: Changes of assumptions: For measurement date 09/30/2016, amounts reported as changes of assumptions resulted from lowering the investment return matching the long-term inflation assumption utilized by the Plan's investment consultant. Also, as a result of Chapter 2015-157, Laws of Florida, the assumed rates of mortality were changed to the assumptions used assumption from 7.85% to 7.65%. Furthermore the inflation assumption has been lowered from 4.50% to 3.00%. by the Florida Retirement System for special risk employees. For measurement date 09/30/2015, amounts reported as changes of assumptions resulted from lowering the investment return SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS Last 10 Fiscal Years assumption from 7.65% to 7.45%. Furthermore the inflation assumption rate was lowered from 3.00% to 2.50%, ¹ The Covered Employee Payroll numbers shown are in compliance with GASB 82, except for the 09/30/2015 measurement period which includes DROP payroll. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 51 GASB 68 Reporting Period Ending 09/30/2015 09/30/2014 Measurement Date 09/30/2014 09/30/2013 Total Pension Liability Service Cost 1,741,473 1,540,354 - Interest 6,280,207 5,827,406 - Share Plan Allocation 304,698 - - Changes of benefit terms - - - Differences between Expected and Actual Experience - - - Changes of assumptions 1,772,793 - - Benefit Payments, including Refunds of Employee Contributions (1,844,859) (1,613,497) - Net Change in Total Pension Liability 8,254,312 5,754,263 - Total Pension Liability - Beginning 77,410,798 71,656,535 - Total Pension Liability - Ending (a) $ 85,665,110 $ 77,410,798 $ - Plan Fiduciary Net Position Contributions - Employer 2,866,126 3,347,645 - Contributions - State 843,533 750,073 - Contributions - Employee 475,442 497,684 - Net Investment Income 6,977,925 6,392,179 - Benefit Payments, including Refunds of Employee Contributions (1,844,859) (1,613,497) - Administrative Expense (88,142) (99,667) - Net Change in Plan Fiduciary Net Position 9,230,025 9,274,417 - Plan Fiduciary Net Position - Beginning 59,994,726 50,720,309 - Plan Fiduciary Net Position - Ending (b) $ 69,224,751 $ 59,994,726 $ - Net Pension Liability - Ending (a) - (b)16,440,359$ 17,416,072$ -$ Plan Fiduciary Net Position as a percentage of the Total Pension Liability 80.81%77.50%#DIV/0! Covered Employee Payroll¹7,924,041$ 8,294,732$ -$ Net Pension Liability as a percentage of Covered Employee Payroll 207.47%209.97%#DIV/0! Notes to Schedule:0 Changes of assumptions: Valuation Date Investment Return Assumption 10/1/2015 7.65% 10/1/2016 7.45% 10/1/2017 7.25% SCHEDULE OF CHANGES IN NET PENSION LIABILITY AND RELATED RATIOS Last 10 Fiscal Years For measurement date 09/30/2014, amounts reported as changes of assumptions resulted from: • The payroll growth assumption, utilized for amortization of the Unfunded Actuarial Accrued Liability (UAAL) has been decreased from 2.9% to 0.7% (the actual ten-year payroll growth as of 10/1/2014). This decrease was made for the purpose of compliance with Part VII of Chapter 112, Florida Statutes. • The investment return assumption has been decreased from 8.05% to 7.85%. Further reductions will be implemented with future valuations according to the following schedule: ¹ The Covered Employee Payroll numbers shown are in compliance with GASB 82, except for the 09/30/2015 measurement period which includes DROP payroll. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 52 GASB 68 09/30/2016 09/30/2015 09/30/2014 09/30/2013 01/00/1900 Actuarially Determined Contribution 3,605,305 3,460,519 3,404,960 3,443,143 - Contributions in relation to the Actuarially Determined Contributions 3,605,305 4,251,855 3,404,960 3,911,687 - Contribution Deficiency (Excess) $ - $ (791,336) $ - $ (468,544) $ - Covered Employee Payroll¹7,599,715$ 9,695,082$ 7,924,041$ 8,294,732$ -$ Contributions as a percentage of Covered Employee Payroll 47.44%43.86%42.97%47.16%#DIV/0! Notes to Schedule Valuation Date:10/01/2014 Methods and assumptions used to determine contribution rates: Funding Method: Amortization Method: Remaining Amortization Period: Mortality Rates:RP-2000 Table, sex distinct, without projection. Interest Rate:7.85% per year compounded annually, net of investment related expenses. Retirement Rates: Age Probability of Retirement 50 5% 51 5% 52 50% 53 10% 54 10% 55 100% Actuarial Value of Assets: Cost of Living Adjustments: Salary Increases*:Age Increase 20 3.7% 30 1.1% 40 0.7% 50 0.2% 60 0.0% *Expected increase in salary in addition to 4.5% inflation assumption. For those Members who attain 25 years of Credited Service, regardless of Age, the probability of retirement is 100%. The Actuarial Value of Assets is calculated by recognizing 25% of the difference between the Market Value of Assets and the expected Market Value of Assets. 1.0% increase for Members who are Age 53, 2.0% increase for Members who are Age 54, and 3.0% increase for Members who are Age 55 and greater. For those members who were not eligible for Normal Retirement as of September 12, 2012, the COLA beginning at age 55 is based on 3.0% for service prior to September 12, 2012, and 1.5% for service thereafter. Based on a study of over 650 public safety funds, this table reflects a 10% margin for future mortality improvements. 20 Years (as of 10/01/2014). SCHEDULE OF CONTRIBUTIONS Last 10 Fiscal Years Level Percentage of Pay, Closed. Projected Unit Credit Cost Method. Actuarially determined contribution rates are calculated as of October 1, two years prior to the end of the fiscal year in which contributions are reported. ¹ The Covered Employee Payroll numbers shown are in compliance with GASB 82, except for the 09/30/2015 measurement period which includes DROP payroll. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 53 GASB 68 Payroll Growth Assumption:0.7% for amortization of the Unfunded Actuarial Accrued Liability. Final Pay Load: Termination Rates: Age Years of Service All Ages 0 1 2 3 4 25 5 & Over 30 35 40 45 50 55 Disability Rates: Age 20 25 30 35 40 45 50 It is assumed that 75% of disablements and active Member deaths are service related. 0.0895% 0.1210% 0.2750% 0.4290% 1.0% % Become Disabled within Next Year 0.0545% 0.0545% 0.0580% 5.9% 4.4% 3.0% 2.1% 1.7% 10.0% 9.0% 8.0% 7.0% 7.0% For Members hired prior to October 1, 2011, active liabilities are increased by 3% to account for assumed payments of unused sick and annual leave time. Members protected from benefit changes set forth in Ordinance 23, 2012 are valued with a 4.5% final salary load. Members hired on and after October1, 2011 are valued with no final pay load. % Separating form Employment Within the Next Year 15.0% City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 54 GASB 68 Net Pension Liability Deferred Inflows Deferred Outflows Pension Expense Beginning balance $ 16,440,359 $ 1,743,956 $ 5,941,127 $ - Employer and State contributions made after 09/30/2015 - - 3,656,927 - Total Pension Liability Factors: Service Cost 1,760,152 - - 1,760,152 Interest 6,786,918 - - 6,786,918 Share Plan Allocation 222,133 - - 222,133 Changes in benefit terms - - - - Differences between Expected and Actual Experience with regard to economic or demographic assumptions (1,460,746) 1,460,746 - - Current year amortization of experience difference - (243,457) - (243,457) Change in assumptions about future economic or demographic factors or other inputs 2,004,899 - 2,004,899 - Current year amortization of change in assumptions - - (639,803) 639,803 Benefit Payments (1,935,428) - - (1,935,428) Net change 7,377,928 1,217,289 5,022,023 7,230,121 Plan Fiduciary Net Position: Contributions - Employer 3,746,995 - (3,746,995) - Contributions - State 726,993 - (726,993) - Contributions - Employee 445,465 - - (445,465) Net Investment Income 5,547,937 - - (5,547,937) Difference between projected and actual earnings on Pension Plan investments (4,712,725) - 4,712,725 - Current year amortization - (435,989) (942,545) 506,556 Benefit Payments (1,935,428) - - 1,935,428 Administrative Expenses (84,807) - - 84,807 Net change 3,734,430 (435,989) (703,808) (3,466,611) Ending Balance $ 20,083,857 $ 2,525,256 $ 10,259,342 $ 3,763,510 FINAL COMPONENTS OF PENSION EXPENSE FISCAL YEAR SEPTEMBER 30, 2016 City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 55 GASB 68 Net Pension Liability Deferred Inflows Deferred Outflows Pension Expense Beginning balance $ 20,083,857 $ 2,525,256 $ 10,259,342 $ - Employer and State contributions made after 09/30/2016 - - TBD*- Total Pension Liability Factors: Service Cost 1,637,466 - - 1,637,466 Interest 7,174,074 - - 7,174,074 Share Plan Allocation 51,623 - - 51,623 Changes in benefit terms - - - - Differences between Expected and Actual Experience with regard to economic or demographic assumptions (1,684,439) 1,684,439 - - Current year amortization of experience difference - (524,196) - (524,196) Change in assumptions about future economic or demographic factors or other inputs 5,890,763 - 5,890,763 - Current year amortization of change in assumptions - - (1,621,597) 1,621,597 Benefit Payments (1,803,517) - - (1,803,517) Net change 11,265,970 1,160,243 4,269,166 8,157,047 Plan Fiduciary Net Position: Contributions - Employer 3,088,524 - (3,088,524) - Contributions - State 568,403 - (568,403) - Contributions - Employee 455,983 - - (455,983) Net Investment Income 5,666,225 - - (5,666,225) Difference between projected and actual earnings on Pension Plan investments 486,686 486,686 - - Current year amortization - (533,327) (942,545) 409,218 Benefit Payments (1,803,517) - - 1,803,517 Administrative Expenses (91,145) - - 91,145 Net change 8,371,159 (46,641) (4,599,472) (3,818,328) Ending Balance $ 22,978,668 $ 3,638,858 TBD $ 4,338,719 PRELIMINARY COMPONENTS OF PENSION EXPENSE FISCAL YEAR SEPTEMBER 30, 2017 * Employer and State contributions subsequent to the measurement date made after September 30, 2016 but made on or before September 30, 2017 need to be added. City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 56 GASB 68 Increase (Decrease) in Pension Expense Arising from the Recognition of the of Differences Between Projected and Actual Earnings on Pension Plan Investments Plan Year Ending Differences Between Projected and Actual Earnings Recognition Period (Years)2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Recognitio 1 2 3 4 5 6 7 8 9 10 11 2014 (2,179,944)$ 5 (435,988)$ (435,989)$ (435,989)$ (435,989)$ (435,989)$ -$ -$ -$ -$ -$ -$ 2015 4,712,725$ 5 -$ 942,545$ 942,545$ 942,545$ 942,545$ 942,545$ -$ -$ -$ -$ -$ 2016 (486,686)$ 5 -$ -$ (97,338)$ (97,337)$ (97,337)$ (97,337)$ (97,337)$ -$ -$ -$ -$ Net Increase (Decrease) in Pension Expense (435,988)$ 506,556$ 409,218$ 409,219$ 409,219$ 845,208$ (97,337)$ -$ -$ -$ -$ AMORTIZATION SCHEDULE - INVESTMENTS City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 57 GASB 68 Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Changes of Assumptions Plan Year Ending Changes of Assumptions Recognition Period (Years)2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Recognitio 1 2 3 4 5 6 7 8 9 10 11 2014 1,772,793$ 5.8 305,654$ 305,654$ 305,654$ 305,654$ 305,654$ 244,523$ -$ -$ -$ -$ -$ 2015 2,004,899$ 6 -$ 334,149$ 334,150$ 334,150$ 334,150$ 334,150$ 334,150$ -$ -$ -$ -$ 2016 5,890,763$ 6 -$ -$ 981,793$ 981,794$ 981,794$ 981,794$ 981,794$ 981,794$ -$ -$ -$ Net Increase (Decrease) in Pension Expense 305,654$ 639,803$ 1,621,597 $ 1,621,598 $ 1,621,598 $ 1,560,467 $ 1,315,944 $ 981,794$ -$ -$ -$ AMORTIZATION SCHEDULE - ASSUMPTION CHANGES City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 58 GASB 6830 Increase (Decrease) in Pension Expense Arising from the Recognition of the Effects of Differences between Expected and Actual Experience Plan Year Ending Differences Between Expected and Actual Experience Recognition Period (Years)2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Recognitio 2 3 4 5 6 7 8 9 10 11 12 2015 (1,460,746)$ 6 (243,457)$ (243,457)$ (243,458)$ (243,458)$ (243,458)$ (243,458)$ -$ -$ -$ -$ -$ 2016 (1,684,439)$ 6 -$ (280,739)$ (280,740)$ (280,740)$ (280,740)$ (280,740)$ (280,740)$ -$ -$ -$ -$ Net Increase (Decrease) in Pension Expense (243,457)$ (524,196)$ (524,198)$ (524,198)$ (524,198)$ (524,198)$ (280,740)$ -$ -$ -$ -$ AMORTIZATION SCHEDULE - EXPERIENCE City of Palm Beach Gardens Firefighters' Pension Fund FOSTER & FOSTER | 59 CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND YEAR ENDED SEPTEMBER 30, 2016 TABLE OF CONTENTS PAGE INDEPENDENT AUDITOR’S REPORT 1 - 3 MANAGEMENT’S DISCUSSION AND ANALYSIS 4 - 7 FINANCIAL STATEMENTS Statement of Fiduciary Net Position 8 Statement of Changes in Fiduciary Net Position 9 Notes to Financial Statements 10-20 SUPPLEMENTARY INFORMATION Schedule of Administrative Expenses 22 Schedules of Contributions from Employer and Other Contributors 23 Schedule of Investment Returns 24 Schedules of Changes in the Employer’s Net Pension Liability and Related Ratios 25 COMPLIANCE REPORT Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 27-28 1625 N. COMMERCE PARKWAY, SUITE 315, WESTON, FL 33326 TEL (954) 485-5788· FAX (954) 485-8988 · WWW.KSDT-CPA.COM INDEPENDENT AUDITOR’S REPORT To the Board of Trustees of the City of Palm Beach Gardens Firefighters’ Pension Fund We have audited the accompanying financial statements of the City of Palm Beach Gardens Firefighters’ Pension Fund, which comprise the statement of fiduciary net position as of September 30, 2016, and the related statement of changes in fiduciary net position for the year then ended, and the related notes to the financial statements. 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 and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. 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 Palm Beach Gardens Firefighters’ Pension Fund as of September 30, 2016, and the changes in its fiduciary net position for the year then ended in conformity with accounting principles generally accepted in the United States of America. 1625 N. COMMERCE PARKWAY, SUITE 315, WESTON, FL 33326 TEL (954) 485-5788· FAX (954) 485-8988 · WWW.KSDT-CPA.COM INDEPENDENT AUDITOR’S REPORT (Continued) Other Matters Prior Year Comparative Information We have previously audited the City of Palm Beach Gardens Firefighters’ Pension Fund’s 2015 financial statements, and our report dated February 12, 2016, expressed an unmodified opinion on those financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended September 30, 2015, is consistent, in all material respects, with the audited financial statements from which it has been derived. Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and analysis on pages 4-7 and the schedules of contributions from employers and other contributors, schedule of investment returns and schedules of changes in the employer’s net pension liability and related ratios on pages 23-25 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 America, which 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. Other Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The schedule of administrative expenses is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information 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 to the basic financial statements themselves, and other additional procedures in accordance with audited 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. 1625 N. COMMERCE PARKWAY, SUITE 315, WESTON, FL 33326 TEL (954) 485-5788· FAX (954) 485-8988 · WWW.KSDT-CPA.COM INDEPENDENT AUDITOR’S REPORT (Continued) Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated April 19, 2017, on our consideration of the City of Palm Beach Gardens Firefighters’ Pension Fund’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Palm Beach Gardens Firefighters’ Pension Fund’s internal control over financial reporting and compliance. Weston, Florida April 19, 2017 CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND MANAGEMENT’S DISCUSSION AND ANALYSIS -4- This section of the annual financial report presents the Management’s Discussion and Analysis (MD&A) of the City of Palm Beach Gardens Firefighters’ Pension Fund (the Plan) financial performance. This analysis provides an overview of the financial activities and funding conditions for fiscal year ended September 30, 2016. Please read it in conjunction with the Plan financial statements, which immediately follow. Overview of the Financial Statements The financial section of this annual report consists of four parts: the MD&A, the basic financial statements, notes to the financial statements and other required supplementary information. The financial statements provide both long-term and short-term information about the Plan’s overall financial status. The financial statements also include notes that explain some of the information in the financial statements and provide more detailed data. The statements are followed by a section of other supplementary information that further explains and supports the information in the financial statements. The Plan’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Under GAAP, revenues are recognized in the period in which they are earned, expenses are recognized in the period in which they are incurred and appreciation (depreciation) of assets is recognized in the Statement of Changes in Fiduciary Net Position. All assets and liabilities associated with the operation of the Plan are included in the Statement of Fiduciary Net Position. The Statement of Fiduciary Net Position reports fiduciary net position and how it has changed. A net asset is the difference between the asset and any related liabilities. It is one measurement of the financial health or current position of the Plan. Financial Highlights The Plan’s financial statements net results from operations for fiscal year 2016 reflected the following financial activities:  Total fiduciary net position was $81,344,787, which was 11% greater than 2015 total fiduciary net position.  Total contributions were $4,116,804, which was 16% lower than the 2015 contributions.  Total interest and dividend earnings were $2,017,005, which was 10% lower than the 2015 earnings.  Net investment income was $6,155,704, which was 694% greater than the 2015 income.  Total benefits paid were $1,542,582, which was 21% greater than the benefits paid during 2015.  Total contributions for the year were $4,116,804, which was 16% lower than the 2015 contributions. The amount of employer contributions varies from year to year and is actuarially determined. Participant contributions were 6% of their compensation. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) -5- Statement of Fiduciary Net Position The following condensed comparative Statement of Fiduciary Net Position is a snap shot of account balances at the fiscal year end of the Plan. It reports the assets available for future payments to retirees and any current liabilities that are owed as of the financial statement date. The resulting net asset value, or assets minus liabilities, represents the value of assets held in trust for Plan benefits. The Plan continues to be evaluated for actuarial soundness by the actuary of the Plan. It should be noted that retirement system funding is based on a long-term perspective and that temporary fluctuations in the market are to be expected.  Fiduciary net position at September 30, 2016 was $81,344,787, a 11% increase from fiduciary net position at September 30, 2015.  Total investments at September 30, 2016 were $81,252,674, a 13% increase from the investments at September 30, 2015. 2016 2015 % Change Receivables 353,787 2,194,167 (84%) Other assets - 200 (100%) Investments, at fair value 81,252,674 71,603,607 13% Total assets 81,606,461 73,797,974 11% Accounts payable 93,862 86,989 8% Accounts payable - purchase of investments 167,812 741,251 (77%) Total liabilities 261,674 828,240 (68%) Net position restricted for pensions $ 81,344,787 $ 72,969,734 11% Statement of Changes in Fiduciary Net Position The Statement of Changes in Fiduciary net position presents the effect of Plan transactions that occurred during the fiscal year. On the statement, additions to the Plan minus deductions from the plan equal net increase or decrease in fiduciary net position. The funding objective is to meet long-term obligations and fund all Plan benefits. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) -6- Statement of Changes in Fiduciary Net Position (Continued)  Revenues (additions to the fiduciary net position) for the Plan were $10,275,560, which was made up of total contributions of $4,116,804 plus net investment income of $6,155,704 and other income of $3,052.  Expenses (deductions from the fiduciary net position) decreased from $2,038,525 during 2015 to $1,900,507 during 2016. 2016 2015 % Change Total contributions $ 4,116,804 $ 4,918,575 (16%) Net investment income 6,155,704 775,398 694% Other income 3,052 2,828 8% Total additions 10,275,560 5,696,801 80% Total deductions 1,900,507 2,038,525 (7%) Net increase 8,375,053 3,658,276 129% Net position restricted for pensions – beginning 72,969,734 69,311,458 5% Net position restricted for pensions – ending $ 81,344,787 $ 72,969,734 11% Asset Allocation The table below indicates the Plan investment policy limitations and actual asset allocations as of September 30, 2016: Investment policy Actual Allocation Domestic equities 40%-60% 49% International equities 5%-15% 13% Fixed income 15%-35% 18% International fixed income 0%-10% 5% Real estate 5%-15% 11% Cash and cash equivalents 0%-5% 4% The investment guidelines provide for the appropriate diversification of the portfolio. Investments have been diversified to the extent practicable to control risk of loss resulting from over-concentration of a specific maturity, issuer, instrument, dealer or bank through which financial instruments are bought and sold. The Board of Trustees (the Board) recognizes that some risk must be assumed to achieve the Plan’s long-term investment objectives. In establishing the risk tolerances, the Plan’s ability to withstand short and intermediate term variability has been considered. However, the Plan’s financial condition enables the Board to adopt a long-term investment perspective. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued) -7- Investment Activities Investment income is vital to the Plan for current and future financial stability. Therefore, the Board has a fiduciary responsibility to act prudently when making Plan investment decisions. To assist the Board in this area, the Board retains investment managers who supervise and direct the investment of the assets. The Board also retains an investment monitor to evaluate and report on quarterly basis compliance by the investment managers with the investment policy of the Board and investment performance of the Plan. The investment policy statement was last amended in October 2015. The Board and its investment consultant review portfolio performance in compliance with the investment policy statement quarterly. Performance is evaluated both individually by money manager style and collectively by investment type and for the aggregate portfolio. Financial Analysis Summary The investment activities, for the fiscal year ended September 30, 2016 are a function of the underlying market, money managers’ performance and the investment policy’s asset allocation model. The Plan has consistently implemented a high quality, conservative approach. Contacting the Plan’s Financial Management This financial analysis is designed to provide the Board, plan participants and the marketplace credit analysts with an overview of the Plan’s finances and the prudent exercise of the Board’s oversight. If you have any questions regarding this report or you need additional financial information, please contact the administrator of the Plan: The Resource Center, LLC c/o City of Palm Beach Gardens Firefighters’ Pension Fund 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, Florida 33410 CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2016 (WITH COMPARATIVE TOTALS AS OF SEPTEMBER 30, 2015) The accompanying notes are an integral part of these financial statements. -8- 2016 2015 RECEIVABLES: Accounts receivable - employer -$ 776,824$ Accounts receivable - Chapter 175 114,372 726,993 Accounts receivable - employee 14,459 10,553 Accounts receivable - sale of investments 90,859 486,310 Accrued investment income 134,097 193,487 TOTAL RECEIVABLES 353,787 2,194,167 OTHER ASSETS - 200 INVESTMENTS, AT FAIR VALUE: Equity securities 48,469,683 43,783,124 U.S. Government obligations 4,842,771 5,859,228 Mortgage backed securities 3,471,657 3,971,395 Collateralized mortgage obligations 376,547 389,916 Corporate bonds 6,075,729 4,382,541 Foreign bonds 199,600 183,451 Fixed income balanced mutual fund 2,726,097 - Fixed income mutual funds 3,918,293 3,397,142 Real estate funds 8,808,132 8,040,236 Money market funds 2,364,165 1,596,574 TOTAL INVESTMENTS, AT FAIR VALUE 81,252,674 71,603,607 TOTAL ASSETS 81,606,461 73,797,974 ACCOUNTS PAYABLE 93,862 86,989 ACCOUNTS PAYABLE - PURCHASE OF INVESTMENTS 167,812 741,251 TOTAL LIABILITIES 261,674 828,240 NET POSITION RESTRICTED FOR PENSIONS: Net position restricted for defined benefits 68,223,275 62,218,936 Net position held in trust for DROP benefits 3,905,337 2,304,478 Net position restricted for share benefits 9,216,175 8,446,320 TOTAL NET POSITION RESTRICTED FOR PENSIONS 81,344,787$ 72,969,734$ LIABILITIES NET POSITION RESTRICTED FOR PENSIONS ASSETS CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND STATEMENT OF CHANGES IN FIDUCIARY NET POSITION YEAR ENDED SEPTEMBER 30, 2016 (WITH COMPARATIVE TOTALS FOR YEAR ENDED SEPTEMBER 30, 2015) The accompanying notes are an integral part of these financial statements. -9- 2016 2015 ADDITIONS: Contributions: Employer 3,088,512$ 3,747,003$ Chapter 175 568,403 726,993 Employee 459,889 444,579 Total contributions 4,116,804 4,918,575 Investment income: Net appreciation (depreciation) in fair value of investments 4,577,258 (1,065,309) Interest and dividend income 2,017,005 2,229,437 Total investment income 6,594,263 1,164,128 Less: investment expenses 438,559 388,730 Net investment income 6,155,704 775,398 Other income 3,052 2 , 8 2 8 TOTAL ADDITIONS 10,275,560 5,696,801 DEDUCTIONS: Benefit payments 1,542,582 1,273,518 DROP distributions 43,064 91,236 Share plan distributions 217,871 582,083 Administrative expenses 96,990 91,688 TOTAL DEDUCTIONS 1,900,507 2,038,525 NET INCREASE IN NET POSITION RESTRICTED FOR PENSION 8,375,053 3,658,276 NET POSITION RESTRICTED FOR PENSIONS - BEGINNING 72,969,734 69,311,458 NET POSITION RESTRICTED FOR PENSIONS - ENDING 81,344,787$ 72,969,734$ CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 -10- NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investment Valuation and Income Recognition Investments are reported at fair value (see Note 3). Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (See Note 4 for discussion of fair value measurements). Purchase and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year. Basis of Accounting and Use of Estimates The accompanying financial statements have been prepared using the accrual basis accounting. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, benefit obligations and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Reclassifications Certain amounts in the prior year comparative totals have been reclassified in order to be comparable with the current year presentation. NOTE 2. DESCRIPTION OF THE PLAN The following description of the City of Palm Beach Gardens Firefighters’ Pension Fund (the Plan) provides only general information. Participants should refer to the City’s ordinance for more complete information. The Plan is a single-employer combined defined benefit and money purchase plan covering all eligible firefighters. The plan was established by the City in accordance with a City ordinance and state statutes. General Management of the Plan is vested in the Board. The Board consists of five trustees, two of whom are appointed by the Council of the City of Palm Beach Gardens, Florida (the City), two of whom are full-time firefighters who are elected by a majority of the Plan participants, and a fifth trustee who is chosen by the other four trustee. The Plan is reported in the fiduciary funds (pension trust) in the City’s basic financial statements. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -11- NOTE 2. DESCRIPTION OF THE PLAN (Continued) Plan Participation Inactive Plan participants or beneficiaries currently receiving benefits 23 Inactive Plan participants entitled to but not yet receiving benefits 3 Active Plan participants 101 Total 127 Eligibility All firefighters as of the effective date, and all future new firefighters, become participants of the Plan as a condition of employment. Benefits The Plan provides normal retirement, early retirement, deferred retirement, disability retirement and death benefits. The benefit provisions are established and may be amended under the authority of City Ordinance. Normal Benefits A participant may retire with normal benefits after the earlier of age 52 with 10 years of credited service, or 25 years of credited service regardless of age. Reduced early retirement benefits are available once a participant reaches age 50 and accumulates 10 years of credited service. Normal retirement benefits are 3.0% of the participant's average final compensation times the participant’s credited service years up to a maximum of 99% (75% for participants retiring on or after September 13, 2012 who were not eligible for normal retirement or who did not have an accrued pension benefit in excess of 75% of average final compensation on that date) of average final compensation. Early retirement benefits are the same as normal retirement benefits, reduced by 3.0% for each year by which the commencement of benefits precedes age 52. Average final compensation for purposes of calculating benefits is one twelfth of the average annual salary for the best five years of the last ten years of credited service. Salary means the total compensation for services rendered to the City as a firefighter reportable on the participant's W-2 form plus all tax deferred, tax-sheltered or tax exempt items of income derived from elective employee payroll deduction or salary reduction. Notwithstanding the preceding sentence, effective September 13, 2012, salary shall exclude all overtime compensation as well as payments for unused accrued sick and annual leave; provided the salary of any participant employed on September 13, 2012 shall include payment for unused accrued sick and annual leave up to the number of hours of unused sick and annual leave accrued on September 13, 2012. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -12- NOTE 2. DESCRIPTION OF THE PLAN (Continued) Deferred Retirement Option Plan Any participant who attains 25 years of service or age 52 with 10 years of service may elect to participate in deferred retirement option plan (DROP) while continuing his or her active employment as a firefighter. Upon participation in the DROP, the participant becomes a retiree for all Plan purposes so that he or she ceases to accrue any further benefits under the Plan. Normal retirement payments that would have been payable to the participant as a result are accumulated and invested in the DROP plan to be distributed to the participant upon his or her termination of employment. Participation in the DROP plan ceases for a participant at the first to occur of (a) termination of employment or (b) 5 years of participation. Disability Benefits Eligibility for disability benefits begins from the participant's date of hire, if the disability is service connected, or after 10 years of service if non-service connected. Service-incurred disability benefits are 60% of the participant's average final compensation, and not less than 2.0% of the participant's average final compensation times his or her credited service years. Non-service incurred disability benefits are 2.5% of the participant's average final compensation times his or her credited service years up to a maximum of 50% of average final compensation. Death Benefits The death benefit for a participant who was partially or fully vested, but had not attained at least age 50, is a payment of the participant’s accrued pension benefit to the participant's beneficiary for 10 years, beginning on the date that the participant would have attained age 52 for a normal retirement benefit or age 50 for an early retirement benefit, at the option of the beneficiary. The death benefit for a participant who was not vested is a return of the participant’s contributions to the participant’s beneficiary. Termination Benefits Termination benefits for unvested participants are the return of the participant's contributions. For participants who are vested when they terminate, their vested accrued pension benefit is payable at the early or normal retirement date. Full vesting occurs at the completion of 10 years of credited service. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -13- NOTE 2. DESCRIPTION OF THE PLAN (Continued) Cost of Living Adjustments Beginning January 1, 2004, and each January 1 thereafter, all participants receiving benefits, excluding disability retirees, shall receive an age based cost of living adjustment. The amount will be 1.0% for participants who are age 53, 2.0% for participants who are age 54, and 3.0% for participants who are age 55 or greater. Effective January 1, 2013, the applicable percentage for participants who are age 55 or greater, and who were not employed and eligible for normal retirement on September 13, 2012, shall be 1.5%. Funding All participants are required to contribute 6.00% of pretax earnings. Pursuant to Florida law, the City is ultimately responsible for the actuarially soundness of the Plan. Therefore, each year, the City must contribute an amount determined by the Board in conjunction with the Plan’s actuary to be sufficient, along with the employee’s contribution, to fund the defined benefits under the Plan. Pursuant to Chapter 175, Florida Statutes, the City imposes a 1.85% tax on fire insurance premiums paid to insure real or personal property within its corporate limits. The proceeds of this tax are contributed to the Plan and allocated to the individual participants’ accounts to fund the money purchase portion of the benefits. 2.0% of each participant’s salary will be allocated from the state’s annual contribution and credited as additional participant contributions. The remainder of the state’s annual contribution will be allocated to individual participant share accounts based on years of credited service. Upon retirement, disability, death, or termination, a participant is entitled to a lump sum payment of the vested balance of his or her share account. Participant share accounts are not segregated from the other assets of the Plan. As of September 30, 2016, the balance of participant share accounts was $9,216,175. Rate of Return For the year ended September 30, 2016, the annual money-weighted rate of return on Plan investments, net of Plan investment expense, was 8.21%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -14- NOTE 3. INVESTMENTS The Plan’s policy in regard to the allocation of invested assets is established and may be amended by the Board. Plan assets are managed on a total return basis with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the Plan. The investment policy statement was last amended in October 2015. The following was the Board’s adopted asset allocation policy as of September 30, 2016: Type of Investment Target Allocation Domestic equities 40%-60% International equities 5%-15% Fixed Income 15%-35% International fixed income 0%-10% Real estate 5%-15% Cash and cash equivalents 0%-5% During the year ended September 30, 2016 the Plan’s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $4,577,258 (reported as net appreciation in fair value of investments in the accompanying Statement of Changes in Fiduciary Net Position) as follows: U.S. government obligations 140,943$ Mortgage backed (42,830) Collateralized mortgage obligation (7,067) Corporate bonds 83,569 Common stocks 1,678,881 Equity mutual funds 1,792,444 International equity securities 172,164 International bonds 1,701 Balance mutual fund 32,628 International fixed income (100,949) International equity common trust 331,666 ICMA DROP 16,637 Real estate 477,471 Total 4,577,258$ The Plan’s investment policy does not use limits on investment maturities as a means of managing its exposure to fair value losses arising from increasing interest rates. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -15- NOTE 3. INVESTMENTS (Continued) The Plan’s investments in government securities, fixed income mutual funds and corporate bonds had maturities as follows: Investment Type Fair Value Less than 1 1 to 5 6 to 10 More than 10 U.S. agencies 3,244,120$ 731,177$ 2,512,943$ -$ -$ U.S. treasuries 1,598,651 - - 1,010,405 588,246 Mortgage backed securities 3,471,657 - - 1,142,927 2,328,730 Collateralized mortgage obligations 376,547 - - 7,491 369,056 Corporate bonds 6,075,729 144,031 2,662,373 2,378,731 890,594 Fixed income mutual funds 6,644,390 139,031 2,798,757 2,280,900 1,425,702 Foreign bonds 199,600 71,987 11,175 72,545 43,893 Totals 21,610,694$ 1,086,226$ 7,985,248$ 6,892,999$ 5,646,221$ The fixed income portfolio must be comprised of securities rated within the top four grades by Moody’s or Standard & Poor’s ratings services. The Plan’s corporate bonds were rated by Moody’s Investors Services as follows: Rating Fair Value A 1,266,640$ A1 183,912 A2 689,526 A3 2,167,067 A4 86,111 AA 506,934 AA2 418,596 AA3 115,943 AAA 2,177,703 B 736,291 BA1 67,005 BA2 30,902 BAA1 1,461,040 BAA2 664,209 BAA3 481,465 BB 1,518,405 BBB 1,640,683 Unrated 7,398,262 Total 21,610,694$ The Plan limits investment in the securities of any one issuer, other than the U.S. Government and its agencies, to no more than 3% of net fiduciary position. The Plan had investments in Templeton Global Fund, a mutual fund with numerous issuers, total 4.7% of Plan assets. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -16- NOTE 3. INVESTMENTS (Continued) “Foreign currency risk” is the risk that fluctuations in currency exchange rate may affect transactions conducted in currencies other than US Dollars and the carrying value of foreign investments. The Plan’s exposure to foreign currency risk derives mainly from its investments in international equity funds. The Plan owns participation in international equity funds as well as individual securities. The investment policy limits the foreign investments to no more than 25% of the Plan’s investment balance. As of year-end, the foreign investments were 13% of total investments; however all are self- directed investments. NOTE 4. FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Plan categorizes its fair value measurements within the fair value hierarchy as established by generally accepted accounting principles. The fair value hierarchy categorizes the inputs to valuation techniques used to measure fair value into three levels based on the extent to which inputs used in measuring fair value are observable in the market as follows: Level 1- Inputs to the valuation methodology are based upon quoted prices for identical assets in active markets. Level 2- Inputs to the valuation methodology are based upon observable inputs for the assets either directly or indirectly, other than those considered Level 1 inputs, which may include quoted prices for identical assets in markets that are not considered to be active, and quoted prices of similar assets in active or inactive markets. Level 3- Inputs to the valuation methodology are based upon unobservable inputs. Following is a description of the valuation methodologies used for asset measured at fair value. Common stocks: Valued at the closing price reported on a national or international exchange. Mutual funds: Valued at the daily closing price as reported by the Plan. Mutual funds held by the Plan are open-ended mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (NAV) and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded. Government securities: Valued using pricing models maximizing the use of observable inputs for similar securities. Corporate bonds: Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing the value on yields currently available on comparable securities of issuers with similar credit ratings. When quoted prices are not available for identical or similar bonds, the bond is valued under a discounted cash flows approach that maximizes observable inputs, such as current yield of similar instruments, but includes adjustments for certain risks that may not be observable, such as credit and liquidity risks or a broker quote, if available. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -17- NOTE 4. FAIR VALUE MEASUREMENTS (Continued) Real estate: Valued at the net asset value of shares held by the Plan at year end. The Plan has investment in a private market real estate investment for which no liquid public market exists. The following table presents the Plan’s fair value hierarchy for investments at fair value as of September 30, 2016: Quoted Prices in Significant Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Total (Level 1)(Level 2)(Level 3) Investments by fair value level Equity securities: Common stocks 26,407,768$ 26,407,768$ -$ -$ Equity common trust fund 4,473,788 - 4,473,788 - Equity balanced mutual funds 1,361,005 - 1,361,005 - Mutual funds 16,227,122 16,227,122 - - Total equity securities 48,469,683 42,634,890 5,834,793 - Debt securities: U.S. treasury securities 1,598,651 1,598,651 - - U.S. agency securities 3,244,120 - 3,244,120 - Mortgage backed 3,471,657 - 3,471,657 - Collateralized mortgage obligations 376,547 - 376,547 - Corporate bonds 6,075,729 - 6,075,729 - Foreign bonds 199,600 - 199,600 - Fixed income balanced mutual funds 2,726,097 - 2,726,097 - Fixed income mutual funds 3,918,293 - 3,918,293 - Total debt securities 21,610,694 1,598,651 20,012,043 - Total investments by fair value level 70,080,377 44,233,541$ 25,846,836$ -$ Investments measured at the net asset value (NAV) (a) Real estate funds 8,808,132 Money market funds (exempt)2,364,165 Total investments 81,252,674$ Fair Value Measurements Using CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -18- NOTE 4. FAIR VALUE MEASUREMENTS (Continued) (a) As required by GAAP, certain investments that are measured at net asset value have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the total investment line item in the Statement of Fiduciary Net Position. The following table summarizes investments for which fair value is measured using the net asset value per share practical expedient, including their related unfunded commitments and redemption restrictions: Investments Measured at the NAV Redemption Unfunded Frequency (if Redemption Fair Value Commitments Currently Eligible)Notice Period Real estate fund (1)4,347,003$ -$ Quarterly 10 Days Real estate fund (2)4,461,129 - Q u a r t e r l y 9 0 D a y s Total investments measured at the NAV 8,808,132$ -$ (1) Real estate fund: The fund is an open-end diversified core real estate commingled fund that invests primarily in core institutional office, retail, industrial, and multi-family properties located throughout the United States. The investment is valued at NAV and its redemptions must be received by the fund 10 days prior to quarter end. (2) Real estate fund: The fund is an open-ended real estate investment fund investing primarily in core institutional office, retail, industrial, and multi-family properties located throughout the United States. The investment is valued at NAV and its redemptions must be received by the fund 90 days prior to quarter end. NOTE 5. RISKS AND UNCERTAINTIES The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the statement of fiduciary net position available for benefits. Plan contributions are made and the actuarial present value of accumulated plan benefits are reported based on certain assumptions pertaining to interest rates, inflation rates and employee demographics, all of which are subject to change. Due to uncertainties inherent in the estimations and assumptions process, it is at least reasonably possible that changes in these estimates and assumptions in the near term would be material to the financial statements. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -19- NOTE 6. NET PENSION LIABILITY OF THE PLAN The components of the net pension liability of the Plan at September 30, 2016 were as follows: Total pension liability 104,309,008$ Plan fiduciary net position 81,344,787 Net pension liability 22,964,221$ Plan fiduciary net position as a percentage of the total pension liability 77.98% The total pension liability was determined by an actuarial valuation as of September 30, 2016 using certain actuarial assumptions, the most significant of which were 7.45% for the investment rate of return, age based for projected salary increases and 2.5% for inflation. Mortality rates for healthy males were based on RP-2000 Generational, 10% Annuitant White Collar, 90% Anuitant Blue Collar, Scale BB. Mortality rates for healthy females were based on RP-2000 Generational, 100% Annuitant White Collar, Scale BB. The long-term expected rate of return on 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 Plan investment expense 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. Best estimates of arithmetic real rates of return for each major asset class included in the Plan’s target asset allocation as of September 30, 2016 (see the discussion of the Plan’s investment policy) are summarized in the following table: Long-term expected Asset Class real rate of return Domestic equity 10.00% International equity 11.00% Domestic bonds 5.00% International bonds 6.00% Real estate 7.00% Alternative 8.00% CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED SEPTEMBER 30, 2016 (Continued) -20- NOTE 6. NET PENSION LIABILITY OF THE PLAN (Continued) The discount rate used to measure the total pension liability was 7.45%. The projection of cash flows used to determine the discount rate assumed that plan participant contributions will be made at the current contribution rate and that employer contributions will be made at rates equal to the difference between actuarially determined contribution rates and the participant rate. Based on those assumptions, the Plan’s fiduciary net position was projected to be available to make all projected future benefit payments of current Plan participants. Therefore, the long-term expected rate of return on Plan investments was applied to all periods of projected benefit payments to determine the total pension liability. The sensitivity of the net pension liability to changes in the discount rate was measured as follows. The net pension liability of the Plan was calculated using the discount rate of 7.45%. It was also calculated using a discount rate that was 1-percentage-point lower (6.45%) and 1-percentage-point higher (8.45%) and the different computations were compared. Current 1% decrease discount rate 1% increase (6.45%)(7.45%)(8.45%) Net pension liability 36,614,699$ 22,978,668$ 11,964,508$ NOTE 7. INCOME TAXES The Plan is exempt from federal income taxes under the Internal Revenue Code and, accordingly, no provision for federal income taxes has been made. Accounting principles generally accepted in the United States of America require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by a taxing authority. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND SUPPLEMENTARY INFORMATION YEAR ENDED SEPTEMBER 30, 2016 CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND SCHEDULE OF ADMINISTRATIVE EXPENSES YEAR ENDED SEPTEMBER 30, 2016 (WITH COMPARATIVE TOTALS FOR YEAR ENDED SEPTEMBER 30, 2015) The accompanying independent auditor’s report should be read with this supplementary schedule. -22- 2016 2015 ADMINISTRATIVE EXPENSES: Accounting 14,280$ 8,525$ Actuarial fees 21,688 25,514 Administrative fees 19,583 21,976 Meetings and conferences 8,012 6,250 Insurance 11,636 5,942 Legal fees 14,849 15,941 Miscellaneous 6,942 7,540 TOTAL ADMINISTRATIVE EXPENSES 96,990$ 9 1 , 6 8 8$ CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND SCHEDULES OF CONTRIBUTIONS FROM EMPLOYER AND OTHER CONTRIBUTORS (UNAUDITED) The accompanying independent auditor’s report should be read with this supplementary schedule. -23- 2016 2015 2014 2013 Actuarilly determined employer contribution 3,605,305$ 3,460,519$ 3,404,960$ 3,443,143$ Actual employer contribution 3,605,305 4,251,855 3,404,960 3,911,687 Annual contribution deficiency (excess)-$ (791,336)$ -$ (468,544)$ Covered-employee payroll 7,599,715$ 9,695,082$ 7,924,041$ 8,294,732$ Actual contributions as a percentage of covered-employee payroll 47.44% 43.86% 42.97% 47.16% Funding method Projected Unit Cost Method Amortization method Level percentage of pay, Closed Remaining amortization period 20 Years (As of October 1, 2014) Actuarial value of assets The Actuarial Value of Assets is calculated by recognizing 25% of the difference between the Market Value of Assets and the expected Market Value of Assets. Inflation: 2.50% Salary increases Age based Interest rate 7.85% per year compounded annually, net of investment related expenses Mortality RP-2000 Table, sex distinct, without projection. This schedule is presented as required by accounting principles generally accepted in the United States of America, however, until a full 10-year trend is compiled, information is presented for those years available. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND SCHEDULE OF INVESTMENT RETURNS (UNAUDITED) The accompanying independent auditor’s report should be read with this supplementary schedule. -24- Annual money- weighted rate of return net of Year Ended investment September 30 expense 2016 8.21% 2015 0.92% 2014 11.65% 2013 14.29% 2012 17.64% 2011 (1.61%) 2010 7.78% 2009 1.01% 2008 (12.77%) This schedule is presented as required by accounting principles generally accepted in the United States of America, however, until a full 10-year trend is compiled, information is presented for those years available. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND SCHEDULE OF CHANGES IN THE EMPOYER’S NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) The accompanying independent auditor’s report should be read with this supplementary schedule. -25- 2016 2015 2014 2013 TOTAL PENSION LIABILITY: Service Cost 1,637,466$ 1,760,152$ 1,741,473$ 1,540,354$ Interest 7,174,074 6,786,918 6,280,207 5,827,406 Share Plan Allocation 51,623 222,133 304,698 - Assumption Changes (1,684,439) (1,460,746) - - Benefit Payments (1,803,517) (1,935,428) (1,844,859) (1,613,497) Changes of Assumptions 5,890,763 2,004,899 1 , 7 7 2 , 7 9 3 - NET CHANGE IN TOTAL PENSION LIABILITY 11,265,970 7,377,928 8,254,312 5,754,263 TOTAL PENSION LIABILITY - BEGINNING 93,043,038 85,665,110 77,410,798 71,656,535 TOTAL PENSION LIABILITY - ENDING 104,309,008 93,043,038 85,665,110 77,410,798 PLAN FIDUCIARY NET POSITION: Contributions - Employer and State 3,656,927 4,473,988 3,709,659 4,097,718 Contributions - Member 455,983 445,465 475,442 497,684 Net investment income 6,152,911 835,212 6,977,925 6,392,179 Benefit Payments (1,803,517) (1,935,428) (1,844,859) (1,613,497) Administrative expenses (91,145) (84,807) ( 8 8 , 1 4 2 ) ( 9 9 , 6 6 7 ) NET CHANGE IN PLAN FIDUCIARY NET POSITION 8,371,159 3,734,430 9,230,025 9,274,417 PLAN FIDUCIARY NET POSITION - BEGINNING 72,959,181 69,224,751 59,994,726 50,720,309 PLAN FIDUCIARY NET POSITION - ENDING 81,330,340 72,959,181 69,224,751 59,994,726 NET PENSION LIABILITY - ENDING 22,978,668$ 20,083,857$ 16,440,359$ 17,416,072$ PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF TOTAL PENSION LIABILITY 77.97% 78.41% 80.81% 77.50% COVERED EMPLOYEE PAYROLL 7,599,715$ 9,695,082$ 7,924,041$ 8,294,732$ NET PENSION LIABILITY AS A PERCENTAGE OF COVERED EMPLOYEE PAYROLL 302.36% 207.16% 207.47% 209.97% This schedule is presented as required by accounting principles generally accepted in the United States of America, however, until a full 10-year trend is compiled, information is presented for those years available. CITY OF PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND COMPLIANCE REPORT SEPTEMBER 30, 2016 1625 N. COMMERCE PARKWAY, SUITE 315, WESTON, FL 33326 TEL (954) 485-5788· FAX (954) 485-8988 · WWW.KSDT-CPA.COM INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Trustees of the City of Palm Beach Gardens Firefighters’ Pension Fund We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the City of Palm Beach Gardens Firefighters’ Pension Fund, as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the Plan’s basic financial statements, and have issued our report thereon dated April 19, 2017. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Plan’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Plan’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City of Palm Beach Gardens Firefighters’ Pension Fund’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the Plan’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 1625 N. COMMERCE PARKWAY, SUITE 315, WESTON, FL 33326 TEL (954) 485-5788· FAX (954) 485-8988 · WWW.KSDT-CPA.COM INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS (Continued) Compliance and Other Matters As part of obtaining reasonable assurance about whether the City of Palm Beach Gardens Firefighters’ Pension Fund’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City of Palm Beach Gardens Firefighters’ Pension Fund’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City of Palm Beach Gardens Firefighters’ Pension Fund’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Weston, Florida April 19, 2017 PALM BEACH GARDENS FIREFIGHTERS’ PENSION FUND MEETING OF MAY 3, 2017 RATIFICATION OF BENEFIT PAYMENTS APPLICATIONS TO ENTER THE DROP JOHN FLINT Years of Credited Service: 20 Years Age at Retirement: 52 Years & 2 Months Total Monthly Benefit: $4,892.21 DROP Entry/Retirement Date: February 29, 2016 Type of Benefit : DROP Form of Benefit : Standard (10 year certain) Action: _________________________________ JULIE TUMAN Years of Credited Service: 22 Years & 2 Months Age at Retirement: 52 Years Total Monthly Benefit: $6,645.63 DROP Entry/Retirement Date: July 5, 2016 Type of Benefit : DROP Form of Benefit : Standard (10 year certain) Action: _________________________________ PAUL HODGES Years of Credited Service: 25 Years Age at Retirement: 47 Years & 4 Months Total Monthly Benefit: $5,407.65 DROP Entry/Retirement Date: December 4, 2016 Type of Benefit : DROP Form of Benefit : Life Annuity Action: _________________________________ APPLICATION FOR RETIREMENT JILL WILLIS Years of Credited Service: 13 Years & 9 Months Age at Retirement: 52 Years Total Monthly Benefit: $2,526.18 Termination Date January 29, 2016 Retirement Date: April 1, 2017 Type of Benefit : Vested Deferred Form of Benefit : Life Annuity Action: _________________________________ Chairman________________________________ Secretary________________________________ Date_____5/3/2017_____________________ Fully engaged means experience across cultures, currencies and courtrooms Class aCtion litigation Firm oF the Year LegaL InteLLIgencer national law Journal PLaIntIffs’ HotLIst reCognized as leaders in the shareholder litigation FieldtHe LegaL 500 Fully committed means the trust that we’ll treat your interests like they were our own Kessler Topaz is widely recognized as a leading firm throughout the world in protecting the public against corporate fraud and other wrongdoing. Our lawyers regularly take on the foremost defense attorneys—and win—in class actions, shareholder derivative suits, antitrust litigation, direct action and other complex litigation around the globe. We are proud to have recovered tens of billions of dollars for our clients. leading litigation Firm bencHmark LItIgatIon 2 what we do All of our work is driven by a common goal: to protect investors, consumers, employees and others from fraud, abuse, misconduct and negligence by businesses and fiduciaries. We represent investors and classes worldwide, and are particularly known for our work on behalf of institutional investors. At the end of the day, we have succeeded if you recover assets you had lost as a result of business misconduct. Our lawyers can help you navigate through every stage of a dispute—from assessing potential claims, to motion practice, to trials and through appeals, to settlement negotiations and claims administration. We are skilled advocates not only in court, but also in arbitration and other alternative dispute resolution fora. In addition to obtaining financial compensation, we have been instrumental in achieving significant corporate governance reforms to prevent future violations of law. “ Counsel actively, thoroughly and impressively litigated a complex subject matter (both factually and legally), all the while confronting formidable defense counsel . . .” Securities Fraud Litigation Shareholder Derivative Actions Mergers and Acquisitions Litigation Global Securities Litigation Direct and Opt-Out Actions Fiduciary Litigation Antitrust & Unfair Business Practices Whistleblower Representation Arbitration Portfolio Monitoring and Claims Administration Corporate Governance – Honorable George H. Wu, United States District Court for the Central District of California 3 SeCURiTieS FRAUD LiTiGATiOn Kessler Topaz’s renowned shareholder litigation practice has recovered billions of dollars for defrauded investors around the world. We are aggressive, effective advocates in securities fraud claims against public companies—and their officers, directors and advisors—that misrepresent information and cause harm to their shareholders. Our sophisticated client base is composed of more than 250 institutional investors—including 100+ public pension funds—as well as Taft-Hartley funds, mutual fund managers, asset managers, insurance companies, sovereign wealth funds, hedge funds and other institutional investors in the United States and around the world. representative successes $3.2 billion Tyco international, Ltd.: landmark settlement included the largest securities class action recovery from a single corporate defendant in history $2.425 billion Bank of America/Merrill: settlement resolved allegations of fraud surrounding merger $730 million Citigroup, inc.: second largest recovery ever under Section 11 of the Securities Act $627 million Wachovia Preferred Securities and Bond/notes: one of the most significant cases arising out of the financial crisis $616 million Lehman Brothers: shareholders recover despite Lehman bankruptcy $500 million Countrywide Financial Corp.: litigation raised several issues of first impression in the Ninth Circuit “it is difficult to overstate the complexity of [the litigation],” which also “put [Plaintiffs] at the cutting edge of a rapidly changing area of law.” – The Honorable Paul Barbadoro, United States District Court for the District of New Hampshire 4 Mergers and acquisitions can offer great opportunities for shareholders to increase value. But they also present temptation for self-dealing and dishonesty by directors and officers, often at shareholder expense. We give shareholders the next best thing to a seat at the negotiating table—strong, effective representation in cases alleging unfairness in a transaction’s price or process. Each case is different, whether we seek additional merger consideration or non-monetary deal terms that increase shareholder value. Unlike many of our competitors, Kessler Topaz has proven experience bringing massive transactional cases to trial—and winning, as we did in Southern Peru Copper ($2 billion) and Dole Foods ($148 million). In matters both large and small, our creative and aggressive approach and trial readiness have helped our clients recover billions of dollars of increased merger consideration both through trial and through pre-trial settlements. RePReSenTATive SUCCeSSeS $2 billion Southern Peru Copper Corp.: both the largest trial verdict and largest damages award in Delaware Chancery Court history $148 million Dole Food Company, inc.: the second-largest post- trial verdict in merger litigation in Delaware Chancery Court history $64 million Cole Real estate investments: additional merger consideration after shareholders challenge REIT sale $26 million Harleysville Mutual: expedited injunction hearing for policyholders after mutual insurer sold to Nationwide $24 million GSi Commerce: case challenged insider dealings in eBay acquisition MeRGeR & ACqUiSiTiOn LiTiGATiOn When corporate fiduciaries abuse their power, shareholder derivative actions can balance the scales. We have recovered millions of dollars from wayward fiduciaries in both high-profile matters and smaller disputes. Our success stories involve a wide array of corporate misconduct, ranging from executive compensation abuses, to related-party transactions, to the “backdating” of stock options. RePReSenTATive SUCCeSSeS $62 million Comverse Technology, inc.: overhauled the Company’s corporate governance and internal controls $6 million Helios Closed-end Funds: recovered for mutual funds in action authorized by board of directors $4.9 million Under Armour, inc.: monetary and corporate governance relief for minority stockholders in dilutive recapitalization $3.25 million China Agritech, inc.: cash recovery for stockholders of Chinese “reverse merger” company SHAReHOLDeR DeRivATive ACTiOnS 5 . GLOBAL SeCURiTieS LiTiGATiOn investment strategies transcend national borders. Unfortunately, so does fraud. Our Global Securities Litigation group is dedicated to helping investors prosecute corporate fraud claims and recover assets around the world. international Leadership Through our border-crossing work, we have developed a deep understanding of foreign laws and procedures, as well as important relationships with lawyers and experts in more than a dozen countries. Our international experience gives clients a unique advantage in pursuing claims on a global basis. Today, global shareholder litigation continues to evolve, as new jurisdictions begin to allow multiparty or group shareholder actions and debate class action procedures. We are committed to remaining at the forefront of these developments and expanding our resources to best serve shareholders around the world. “We like the flexible and professional way Kessler Topaz has been working with us in different cases and their filing of settlement claims is invaluable.” representative successes €1.2 Billion Fortis Bank: one of the largest securities settlements outside the United States $352 million Royal Dutch Shell: landmark settlement opens doors to class recovery in the Netherlands $92 million Olympus Corporation: one of the largest securities-fraud recoveries ever achieved in Japan –Richard Gröttheim, CEO AP7 – Seventh Swedish National Pension Fund 6 . Looted pension funds, fraudulent investments and vanishing profits are the stuff of headlines—and nightmares. When trusts and their beneficiaries find themselves on the losing end of fiduciary mismanagement, we help them recover assets believed to be gone forever. Our Fiduciary Litigation group has recovered more than $1 billion for clients victimized by fiduciary failures. We have served as lead or co-lead ERISA counsel in some of the most significant cases in history. FiDUCiARy LiTiGATiOn Class action litigation is not for every investor in every case. if you’ve been injured by corporate misconduct, there may be other routes to recovery. With experience in hundreds of shareholder actions worldwide, Kessler Topaz has the skill and perspective to help you analyze the options and choose the one that’s right for you. Know your Options In a direct action, an investor or small group of investors “opt-out” of a pending or potential class action against a publicly traded company, its officers or directors, and/or its advisors. Instead of being part of a class, your fund pursues its own claim in its own lawsuit. We are litigating dozens of opt-out cases on behalf of institutional investors throughout the country and the world. DiReCT AnD OPT-OUT ACTiOnS representative successes $280 million Bny Mellon Bank, n.A.: BNY Mellon settled claims alleging that it breached its fiduciary duties under common law, and committed a breach of its contractual obligations under the securities lending agreements. $150 million JPMorgan Chase Bank, n.A.: JPMorgan settled claims for allegedly breaching its fiduciary duties under the Employee Retirement Income Security Act (ERISA). $79 million Global Crossing, Ltd.: Global Crossing settled claims that it allegedly breached its fiduciary duties. In 2004, this represented the largest recovery received in a company stock ERISA class action. $75 million AiG, inc: AIG settled claims with Transatlantic Holdings, Inc., who allegedly breached its fiduciary obligations as investment advisor. 7 “. . . the Court finds that KTMC is one of the most experienced eRiSA litigation firms in the country, with particular expertise in the area of eRiSA breach of fiduciary class actions . . .” –Vicki Miles-LaGrange, Chief United States District Judge, United States District Court for the Western District of Oklahoma AnTiTRUST & UnFAiR BUSineSS PRACTiCeS Competitive markets are at the heart of the U.S. economy. Kessler Topaz helps protect competition against those who would curtail choices, control prices or otherwise interfere with fair markets. Help for Homebuyers Our RESPA (Real Estate Settlement Procedures Act) Litigation practice is nationally known for actions that challenge unfair lending and related insurance practices. We have been selected as lead or co-lead counsel in cases against lenders and mortgage servicers that: • Refer borrowers to private mortgage insurers in return for kickbacks or fee-sharing • Force-place borrowers into grossly over- priced homeowners insurance or flood insurance in return for kickbacks In recent RESPA litigation against 13 major national lenders, we recovered millions of dollars on behalf of affected borrowers and have several actions pending. representative successes $150 million Flonase: millions recovered in pharmaceutical monopoly case $69 million Bank of America/WaMu: consolidated class recovers WaMu losses $36 million Remeron: consumers allege patent claims would create unlawful monopoly 8 For many of our clients, arbitration is an integral part of the dispute resolution process. Our lawyers are seasoned advocates in domestic and international arbitration, handling challenging disputes before panels across the United States and europe. An Approach That Works We understand the unique rules and procedures of arbitration and how to work within the arbitration context in ways that are most advantageous to our clients. Representing institutional investors, corporate entities and others, we have achieved significant arbitration results, such as a $75 million award for Transatlantic Holdings, Inc. and its subsidiaries in a subprime mortgage dispute against AIG. In addition, we advise on alternative dispute resolution methods such as mediation and can counsel you on the best options for any given situation. We combine our understanding of the arbitration process with industry knowledge, geographic reach and a commitment to the highest standards of litigation. We communicate clearly, respond quickly and strive to maintain your trust throughout the arbitration process and beyond. it takes conscience, courage and conviction to bring wrongdoing to light. Kessler Topaz knows how to use the whistleblower laws to protect and reward those who uncover wrong-doing and step forward to fight it. Champions for Whistleblowers Whistleblowers are the unsung heroes of the marketplace, often risking career and reputation harm to report illegal conduct and to do the right thing in the face of corporate fraud. If you have information about a fraud and are considering becoming a whistleblower, we can help you make a compelling case to authorities, protect yourself from retaliation and claim a share of the money the government recovers. At Kessler Topaz, you’ll find lawyers who have dedicated their careers to representing whistleblowers. Fighting corporate fraud is what we do—all day, every day. Our whistleblower team includes lawyers who have worked as federal and state prosecutors, as SEC enforcement lawyers and as litigators with decades of international experience in complex health care, pharmaceutical, securities, corporate and government contract fraud cases. Clients also have access to our renowned Investigative Services Division—which includes former law enforcement agents known for their relentless pursuit of evidence. WHiSTLeBLOWeR RePReSenTATiOn ARBiTRATiOn 9 PORTFOLiO MOniTORinG AnD CLAiMS ADMiniSTRATiOn For institutional fiduciaries, monitoring and protecting investments is as important as selecting them. But how do you keep track of a diverse, active, global securities portfolio without creating a more-than-full-time job? Our proprietary Securities Tracker program is the answer. Securities Tracker Makes it easy Offered at no cost to our institutional clients, Securities Tracker finds every securities action that impacts your fund, puts it on your radar screen early and monitors it all the way through resolution and disbursement of any recovery. Simply put, Securities Tracker is a must-have solution for fulfilling your fiduciary obligations. The Securities Tracker program includes: • New case summaries and analyses • Quarterly reports • Email alerts • Claims administration auditing and filing • Settlement chart Up-to-Date information Securities Tracker works 24/7, 365 days a year. So even when you’re at a conference, on an airplane or in another time zone, we stay on top of your portfolio. Learn more and see a demo at www.ktmc.com/securities-tracker. CORPORATe GOveRnAnCe Corporate governance doesn’t just happen in boardrooms. it affects every aspect of a business, every day. When you want to make a tangible impact on how a company is run, corporate governance is the place to start. We have helped our clients implement creative, effective governance changes in diverse areas, including: • Director nominations • Director election procedures • Required disclosures for shareholder voting • Executive compensation policies • Internal and external audit functions • Worker safety Our lawyers will listen carefully to your concerns, tailor a strategy to your unique circumstances and adhere to the highest standards of client service. “Kessler Topaz’s claims filing service is an added value to the strong litigation skills they are providing to our fund. They have helped us recover settlement dollars we would have otherwise missed and served as lead counsel for us as well.” –David H. Prince, Retirement Administrator Imperial County Employees Retirement System 10 KTMC.COM COnTACT US Darren J. Check, esquire Please direct all inquiries regarding this publication to Darren J. Check, esquire, at 610.822.2235 or dcheck@ktmc.com Fully commited means the trust that we’ll treat your interests like they were our own 280 King of Prussia Rd. Radnor, PA 19087 P 610.667.7706 F 610.667.7056 One Sansome St., Suite 1850 San Francisco, CA 94104 P 415.400.3000 F 415.400.3001