CITY OF SARASOTA FIREFIGHTERS PENSION FUND ACTUARIAL VALUATION REPORT SEPTEMBER

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1 Agenda Item 6.2. CITY OF SARASOTA FIREFIGHTERS PENSION FUND ACTUARIAL VALUATION REPORT SEPTEMBER 30, 2013

2 OUTLINE OF CONTENTS REPORT OF SEPTEMBER 30, 2013 ACTUARIAL VALUATION Pages Items - - Cover Letter Valuation Results, Commentary and Statement by Enrolled Actuary A-1 Actuarial Valuation Process A-2 Observed Experience A-3 Comments A-4 Conclusion and Statement by Enrolled Actuary Detailed Valuation Results B-1 Funding Objective and Contribution Rates B-2/3 Contribution Requirement B-4/5 Funding Progress Indicators B-6 Experience Gain/(Loss) B-7/8 Unfunded Actuarial Accrued Liability B-9 B-10 Actuarial Balance Sheet Cash Flow Projection Summary of Benefit Provisions and Valuation Data C-1/2 Benefit Provisions C-3 Financial Data C-4 C-5 Funding Value of Assets Funding and Share Reserves C-6/12 Participant Data Actuarial Cost Method, Actuarial Assumptions and Definitions of Technical Terms D-1/4 D-5/10 D-11/12 Actuarial Valuation Process Actuarial Assumptions Definitions of Technical Terms Financial Disclosures under GASB Statement No. 25 and No. 27 E-1 Actuarial Accrued Liability E-2 Schedule of Employer Contributions E-3 Required Supplementary Information F-1/4 Summary of Valuation Results in State Format City of Sarasota Firefighters Pension Fund

3 January 20, 2014 The Board of Trustees City of Sarasota Firefighters Pension Fund Sarasota, Florida The results of the September 30, 2013 Actuarial Valuation of the City of Sarasota Firefighters Pension Fund are presented in this report. The purpose of the annual valuation is to measure the System s funding progress, to determine the City s contribution rate for the fiscal year beginning October 1, 2014 in accordance with established funding policies, and to determine actuarial information for Governmental Accounting Standards Board (GASB) Statements No. 25 and No. 27. The results of the valuation may not be applicable for other purposes. Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period or additional cost or contribution requirements based on the plan s funded status); and changes in plan provisions or applicable law. Due to the limited scope of this assignment, we did not perform an analysis of the potential range of future measurements. A summary of valuation results, comments, conclusions, and our statement by enrolled actuary are contained in Section A. Detailed valuation results are contained in Section B. The valuation was based upon information, furnished by the City Pension Department and the Fund Auditor, concerning individual participants, terminated participants, retired participants and beneficiaries, plan benefits and financial transactions and assets. Data was checked for reasonableness and missing information, but was not otherwise audited. This information is summarized in Section C. Descriptions of the actuarial valuation process, actuarial assumptions and definitions of technical terms are contained in Section D. Governmental Accounting Standards Board Statement No. 25 and No. 27 information is contained in Section E. A summary of valuation results in the State format is contained in Section F. 1917

4 The Board of Trustees January 20, 2014 Page 2 This report has been prepared by actuaries who have substantial experience valuing public employee retirement systems. We certify that the information contained in this report is accurate and fairly presents the actuarial position of the City of Sarasota Firefighters Pension Fund as of the valuation date. All calculations have been made in conformity with generally accepted actuarial principles and practices, and with the Actuarial Standards of Practice issued by the Actuarial Standards Board. It is our opinion that the actuarial assumptions used for the valuation produce results which are reasonable and in compliance with applicable State statutes. Brad Lee Armstrong and Heidi G. Barry are members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained herein. The signing actuaries are independent of the plan sponsor. Respectfully submitted, Brad Lee Armstrong, ASA, EA, MAAA Heidi G. Barry, ASA, MAAA BLA:sc

5 SECTION A VALUATION RESULTS, COMMENTARY AND STATEMENT BY ENROLLED ACTUARY

6 ACTUARIAL VALUATION PROCESS An actuarial valuation is the process by which a balance between revenues (participant contributions, employer contributions, and investment income) and obligations (benefits and expenses) is determined and funded condition is measured. The flow of activity constituting the valuation may be summarized as follows: A. Covered person information about: each person receiving pension payments each former participant with a vested pension not yet payable each former participant who is not vested and has not claimed a member contribution refund each active participant B. Financial Information (assets, revenues, and expenditures) C. Benefit Provisions (Retirement Ordinance) D. Actuarial Assumptions about the volume and incidence of future activities E. Actuarial Cost Method (entry age) for allocating benefit costs to time periods F. Mathematical linking of the person information, financial information, benefit provisions, experience estimates and actuarial cost method G. Determination of: contribution rate for the plan year current funded condition Items A, B and C are furnished by the pension office and constitute the current knowns about the Fund. Since the majority of activities will occur in the future, estimates must be made about these future activities (Item D). Under the Entry Age Actuarial Cost Method, each year s differences between projected and actual Fund activities (experience gains/losses) reduce/increase the Unfunded Actuarial Accrued Liability. This treatment of experience gains/losses leaves the Normal Cost unaffected by year-to-year experience fluctuations and thereby more likely to satisfy the level contribution Funding Objective set out on page B-1. Normal Cost changes occur only in response to changes in benefits, actuarial assumptions and/or age at hire patterns. City of Sarasota Firefighters Pension Fund A-1

7 OBSERVED EXPERIENCE Observed Experience The County s/city s contribution requirement for the fiscal year beginning October 1, 2014 is $7,802,557, a decrease of $806,396 from the fiscal year beginning October 1, The funded condition, as measured by the ratio of the funding value of assets to the actuarial accrued liability is 70.6%, an increase from last year s 64.7%. The funded condition should move towards 100% over the long term, contingent upon timely receipt of required contributions and overall long-term experience in line with expectations. The key elements affecting the overall experience were: A recognized rate of investment return on funding value of assets of 12.0% versus 7.50% projected. Investment return will likely dominate overall experience for the remainder of the life of the Pension Fund. 0 withdrawals versus 0 expected. 0 disability retirements versus 0 expected. 6 normal retirements versus 16 expected. Reported pay increases of 5.2% versus 3.9% expected. 4 pension recipients removed versus 5 expected. The net result of all fiscal and demographic activity was an experience gain of $4.7 million. This was amortized over 8 years. This reduced the combined County s/city s required contribution by about $0.8 million. City of Sarasota Firefighters Pension Fund A-2

8 COMMENTS Comment A The results presented in this report are based on a closed active participant group (no new participants). The consolidation with the Sarasota County/City Firefighters was effective January 1, The active participant group is assumed to decline whenever there is a termination due to any cause. This means that contribution requirements will have larger fluctuations relative to group size than were experienced for the prior open group. Also, the impact of active member experience will have less and less impact on Pension Fund experience. Comment B It is the actuary s opinion that the Fund is not fully funded under Chapter (2) and should expect continued receipt of state premium tax monies until fully funded. Comment C The Florida Division of Retirement holds the position that Share Account distributions for retirements prior to April 7, 2003 may be funded by Chapter 175 premium tax monies up to $438,496 annually. These distributions have exceeded $438,496 for the last five years and this situation is expected to continue for the foreseeable future in the absence of benefit changes. The County/City portion of the contribution requirement includes $79,118 in anticipation of this trend. Comment D The unfunded actuarial accrued liability is being amortized as a level dollar amount over a closed 8-year period from the fiscal year ending September 30, 2015 to the fiscal year ending September 30, Comment E As of September 30, 2013, the market value of assets exceeded the funding value of pension fund assets by $9,531,409. If the market value of assets were used in this valuation, the local employer contribution requirement would have been $1,686,821 lower and the funded ratio would have been 76.7%. The funded ratio based on the market value of assets in the prior valuation would have been 68.0%. This favorable condition means that projected employer contributions are expected to decrease substantially as can be seen in the projection on page B-10, assuming all assumptions are met going forward. City of Sarasota Firefighters Pension Fund A-3

9 CONCLUSION AND STATEMENT BY ENROLLED ACTUARY Comment F As of September 30, 2013, the Plan Funding Reserve was $32,309 as shown on page C-5. If a positive balance exists, it can be used to offset future employer contributions. The reserve is not separately accounted for in this report between the City and the County. Conclusion Pension Fund experience and contribution requirements are expected to fluctuate from year-to-year. The expectation inherent in the funding of a pension fund is that year-to-year fluctuations will tend to cancel over periods of 5 to 10 years and result in realizing long-term assumptions. There are still expected to be mortality and investment experience gains and losses and expenses even after there are no active participants. It is the actuary s opinion that the required contribution rates determined by this actuarial valuation are sufficient to meet the Fund s funding objective, presuming continued timely receipt of required contributions. Statement by Enrolled Actuary This actuarial valuation and/or cost determination 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. Brad Lee Armstrong, ASA, MAAA, EA [ ] 1/20/2014 Date City of Sarasota Firefighters Pension Fund A-4

10 SECTION B DETAILED VALUATION RESULTS

11 FUNDING OBJECTIVE The basic funding objective of the Pension Fund is to avoid transfer of the cost of benefit obligations between generations of taxpayers. The annual actuarial valuation measures the relationship between Pension Fund obligations and assets and determines the contribution rates for the ensuing year. The Pension Fund is supported by member contributions, County/City contributions, and investment income from Pension Fund assets. CONTRIBUTION RATES The Pension Fund is supported by participant contributions, County/City contributions, receipts pursuant to Chapter 175, Florida Statutes and investment income on Pension Fund assets. Contributions which satisfy the funding objective are determined by the annual actuarial valuation and are sufficient to: (1) Cover the costs allocated to the current year (normal cost) by the actuarial cost methods described in Section D; and (2) finance over a period of future years the actuarial cost not covered by present assets and anticipated future normal cost (unfunded actuarial accrued liability). Contribution requirements for the plan and fiscal year beginning October 1, 2014 are shown on page B-2. City of Sarasota Firefighters Pension Fund B-1

12 CONTRIBUTIONS TO FINANCE BENEFITS OF THE PENSION FUND FOR THE FISCAL YEAR BEGINNING OCTOBER 1, 2014 TO BE CONTRIBUTED DURING THE FISCAL YEAR ENDING SEPTEMBER 30, 2015 Contributions for Dollars As a Percent of Valuation Payroll Normal Cost Normal retirement pensions $ 49, % Early retirement pensions % Disability pensions Service connected 10, % Non-service connected 1, % Survivor pensions Pre-retirement Service connected 1, % Non-service connected % Post-retirement 4, % Termination benefits Deferred service pensions 2, % Refunds of participant contributions 1, % Total Normal Costs 71, % Unfunded Actuarial Accrued Liability (1) Retired participants and beneficiaries % Active and vested terminated participants 5,919, % Total unfunded actuarial accrued liability 5,919, % Administrative and Investment Expenses (based on FYE 13) 894, % Total Calculated Contribution Requirement 6,886, % Adjustments to Calculated Contribution Requirement Division of retirement compliance % FS (5) compliance 867, % Total adjustments 867, % Total Adjusted Contribution Requirement 7,753, % Participant portion 30, % Chapter 175 portion (based on projected FYE 15) (79,118) -6.09% County/City portion (2) $7,802, % FS requires County/City contributions to be deposited not less frequently than quarterly. Member contributions, which are in addition to the County/City contributions, must be deposited immediately after each pay period. FS requires that Chapter 175 monies be deposited within 5 days of receipt. (1) Please refer to page B-8 for the financing of the UAAL. (2) The Plan funding Reserve is shown on page C-5. If a positive balance exists, it can be used to offset future employer contributions. Reserve is not separately accounted for in this report between the City and the County. City of Sarasota Firefighters Pension Fund B-2

13 DETERMINING DOLLAR CONTRIBUTIONS We recommend that the County/City use the following procedure to meet their contribution requirement. The County and City s share of the required contributions is $7,802,557. Assuming a payment every two weeks corresponding to pay periods, the total bi-weekly contribution for both entities should be $300,098. The required contributions shown above include $79,118 for potential Account distributions in September 2015, calculated using 114 eligible participants times % (1/185) times projected Chapter 175 receipts of $840,050 ($781,442*1.075) minus $438,496. If Chapter 175 receipts are greater than projected during the fiscal year ending September 30, 2014, there may be additional required contributions. City of Sarasota Firefighters Pension Fund B-3

14 FUNDING PROGRESS INDICATORS There is no single all-encompassing measure of a pension plan s funding progress and current funded status. A traditional indicator has been the relationship of the funding value of assets to actuarial accrued liability - a measure that is influenced by the choice of actuarial cost method. This relationship is shown on page B-7. We believe a better understanding of funding progress and status can be achieved using the following indicators which are less dependent on the actuarial cost method: Indicator (1) - The actuarial present value of gains or losses realized in the operation of the Pension Fund. Gains and losses are expected to cancel each other over a period of years but sizable year-to-year fluctuations are common. Further details on the derivation of the gain/(loss) are shown on page B-6. Indicator (2) - The ratio of funding value of assets to the actuarial accrued liability using the entry age actuarial cost method. The ratio is expected to increase over time but the basic trend may be interrupted by benefit improvements. City of Sarasota Firefighters Pension Fund B-4

15 FUNDING PROGRESS INDICATORS - HISTORICAL COMPARISON ($ AMOUNTS IN MILLIONS) Valuation Date Indicator (1) Gain/(Loss) Funding Value of Assets Indicator (2) AAL Percent Funded Unfunded AAL Indicator (3) Active Participant Payroll Percent of Payroll# September 30, 1997 (b) -.- $ 64.8 $ (7.6) $5.44 (139.7) (c) (5.8) 5.44 (106.6) (a) (1.9) 5.44 (34.9) September 30, 1998 (b) (6.5) 5.70 (114.0) (d) (3.4) 5.70 (59.6) September 30, (2.7) 5.10 (52.9) September 30, 2000 (2.8) September 30, 2000 (2.8) September 30, 2001 (5.7) September 30, 2002 (10.6) September 30, 2003 (b) (7.3) September 30, 2003 (a) (7.3) September 30, 2004 (b) (4.0) September 30, 2004 (a) (4.0) September 30, September 30, September 30, September 30, 2008 (4.9) September 30, 2009 (a) (7.4) ,190.5 September 30, 2010 (1.3) ,068.0 September 30, 2011 (b) (6.6) ,398.1 September 30, 2011 (a) (6.6) ,616.1 September 30, 2012 (b) ,889.5 September 30, 2012 (a) ,127.9 September 30, ,507.7 AAL represents actuarial accrued liability calculated using the entry age actuarial cost method. (a) After changes in actuarial assumptions, actuarial cost method and termination of dedicated bond portfolio. (b) Before changes in actuarial assumptions and/or benefits and/or cost methods. (c) After change in investment return assumption for retired participants before 10/1/88, before addition of lump sum load assumption. (d) After changes in benefit provisions, accelerated recognition of assets and establishment of a contribution reserve. # For closed groups, this figure can become highly misleading. City of Sarasota Firefighters Pension Fund B-5

16 EXPERIENCE GAIN/(LOSS) YEARS ENDED SEPTEMBER 30, 2013 AND 2012 DERIVATION Year Ended 9/30/2013 9/30/2012 (1) UAAL at start of year $53,807,717 $55,173,596 (2) Normal cost for year (County/City normal cost plus expenses) 1,221, ,496 (3) Employer contributions for year 8,482,058 6,686,464 toward defined benefits (4) Assumed investment income accrual:.075 x [(1) + ½ [(2) - (3)]] 3,763,301 4,054,034 (5) Expected UAAL before changes: [(1) + (2) - (3) + (4)] 50,310,267 53,500,662 (6) Effect of assumption changes and data corrections 0 4,071,156 (7) Effect of benefit changes 0 0 (8) Effect of cost method changes/ accounting and timing differences 0 0 (9) Expected UAAL after changes 50,310,267 57,571,818 (10) Actual UAAL at end of year 45,646,189 53,807,717 (11) Gain/(loss): (9) - (10) 4,664,078 $ 3,764,101 (12) % of AAL at start of year 3.1% 2.5% UAAL represents unfunded actuarial accrued liability. AAL represents actuarial accrued liability. City of Sarasota Firefighters Pension Fund B-6

17 UNFUNDED ACTUARIAL ACCRUED LIABILITY September 30, 2013 September 30, 2012 A. Actuarial present value of future benefits $155,472,509 $153,167,873 B. Actuarial present value of future normal costs 384, ,009 C. Actuarial accrued liability 155,088, ,546,864 D. Net assets available for funding 109,442,099 98,739,147 E. Unfunded actuarial accrued liability $ 45,646,189 $ 53,807,717 Unfunded actuarial accrued liability is not a good measure of the Fund s funded status because the amount is dependent upon the actuarial cost method. The funding progress indicators on pages B-4 and B-5 are independent of the actuarial cost method and are a better guide to funded status and funding progress. City of Sarasota Firefighters Pension Fund B-7

18 SOURCES AND FINANCING OF UNFUNDED ACTUARIAL ACCRUED LIABILITY Source of Unfunded Act. Accrued Liab. Unfunded Act. Accrued Liability Initial Amount Fin. Period Current Amount Remaining Financing Period 09/30/2014 Level $ Amorization Changes due to all causes 9/30/2013 $45,646,189 8 yrs $ 45,646,189 8 yrs $ 6,787,092 Totals $45,646,189 $6,787,092 This is a closed group effective January 1, FS (5) compliance results in level dollar amortization of the unfunded actuarial accrued liability. City of Sarasota Firefighters Pension Fund B-8

19 ACTUARIAL BALANCE SHEET - SEPTEMBER 30, 2013 Present Resources and Expected Future Resources A. Net assets available for benefits 1. Funding value (page C-4) $ 109,442,099 B. Actuarial present value of expected future local Employer and Chapter 175 contributions 1. For normal costs 305, For unfunded actuarial accrued liability 45,646, Total 45,951,435 C. Actuarial present value of expected future participant contributions 78,975 D. Total Present and Expected Future Resources $155,472,509 Actuarial Present Value of Expected Future Benefit Payments and Reserves A. To retired participants and beneficiaries $137,020,168 B. To vested terminated participants 801,870 C. To present active participants 1. Allocated to service rendered prior to valuation date 17,266, Allocated to service likely to be rendered after valuation date 384, Total 17,650,471 D. Total actuarial present value of expected future payments $155,472,509 City of Sarasota Firefighters Pension Fund B-9

20 CASH FLOW PROJECTION BASED ON CURRENT ASSUMPTIONS AND METHODS - SEPTEMBER 30, 2013 ($ in Thousands) Fiscal Year Employer Contributions Employee Contributions Admin./Invest. Expenses Benefit Payments Net Cash Flow Actuarial Value of Assets (End of FY) 2013/14 $8,609 $68 $928 $10,009 ($2,261) $122, /15 7, ,712 (3,857) 130, /16 6, ,092 (5,703) 134, /17 5, ,036 11,339 (6,710) 138, /18 5, ,075 11,574 (7,007) 141, /19 5, ,116 11,803 (7,253) 144, /20 5, ,157 12,024 (7,485) 147, /21 5, ,201 12,235 (7,745) 150, /22 5, ,246 12,435 (8,120) 153, /23 1, ,293 12,620 (12,292) 151,786 Based on the September 30, 2013 actuarial valuation. City of Sarasota Firefighters Pension Fund B-10

21 SECTION C SUMMARY OF BENEFIT PROVISIONS AND VALUATION DATA

22 SUMMARY OF PROVISIONS CONSIDERED FOR ACTUARIAL VALUATION (AS OF OCTOBER 1, 2013) PARTICIPATION All firefighters subject to civil service rules of the classified service for firefighters. AVERAGE COMPENSATION One twelfth (1/12) of average salary for the highest 3 years of credited service during the last 10 years of credited service. Salary means total compensation except allowances for clothing and equipment, including amounts deferred under deferred compensation plans. Salary includes lump sum payments for up to 500 hours of accumulated vacation. A year is any period of 12 consecutive months. STANDARD FORM OF PAYMENT The standard form of payment is 66 2/3 % Joint and Survivor for married members and life only with 10 years certain for unmarried members. NORMAL RETIREMENT Eligibility. Age 50 with 10 or more years of credited service; or, any age with 25 or more years of credited service. Pension Amount. Three percent (3.0%) of average compensation multiplied by credited service, but not to exceed one hundred percent (100%) of average compensation if hired after 1/1/80 and subject to the provisions of section 415 of the Internal Revenue Code. The normal form of benefit is a benefit payable for life with 10 Years Certain. VESTED TERMINATION PRIOR TO NORMAL RETIREMENT ELIGIBILITY Eligibility. Termination of participation after 10 or more years of credited service. Pension Amount. A monthly pension equal to AFC times 2.5% times years of service, payable at age 50 or, if the terminated participant so elects, payment of accumulated participant contributions with interest. Pension is payable upon satisfying an age and service requirement for normal retirement. If the terminated participant dies prior to retirement, payments to the spouse under the standard form of payment shall commence when the terminated participant would have reached age 50 years. DISABILITY - SERVICE CONNECTED Eligibility. Total and permanent disability, incurred in the performance of duty as a firefighter, for duty as a firefighter. City of Sarasota Firefighters Pension Fund C-1

23 Pension Amount. Seventy-five percent (75%) of average compensation but not less than the amount of accrued normal retirement pension, payable under the standard form of payment. DISABILITY - NON SERVICE CONNECTED Eligibility. Total and permanent disability for duty as a firefighter. Pension Amount. 2.5% of average compensation multiplied by credited service, payable under the standard form of payment. PRE-RETIREMENT SURVIVOR BENEFITS Service Connected Death. The amounts under the standard form of payment based on the deceased participant s accrued normal retirement pension calculated using the larger of actual credited service or 25 years. Non-Service Connected Death. The amounts payable under the standard form of payment based on the deceased participant s accrued non-service connected disability retirement pension. PARTICIPANT CONTRIBUTIONS 8% of salary. NON-EMPLOYEE CONTRIBUTIONS Chapter 175, Florida Statutes. Monies allocated to the Pension Fund pursuant to Chapter 175, Florida Statutes, being premium taxes collected in certain forms of casualty insurance written on property in the County/City of Sarasota. County/City of Sarasota. Amounts determined actuarially in accordance with Chapter 175 and Chapter 112, Florida Statutes. Amounts are shared by an Interlocal agreement as of April 7, POST-RETIREMENT PENSION ADJUSTMENTS Pensions are adjusted at the end of each February by 3.5%. The adjustment will be prorated if the participant retired during the preceding calendar year. SHARE ACCOUNTS AND SUPPLEMENTAL DISTRIBUTIONS A percentage of the actuarial gains and Chapter 175 receipts are distributed to individuals retired or terminated prior to April 7, City of Sarasota Firefighters Pension Fund C-2

24 ACCOUNTING INFORMATION SUBMITTED FOR VALUATION Revenues and Expenditures Year Ended Year Ended 9/30/2013 9/30/2012 Revenues: a. Participant contributions $ 135,698 $ 156,313 b. Local Employer contributions 8,482,058 6,686,464 c. Chapter 175 receipts 781, ,398 d. Investment income -int., divs. & amortz. 3,005,091 2,526,668 -net appreciation in fair value 13,437,990 15,473,437 -real estate separate account 585, ,649 e. Other 225, ,551 f. Total revenues 26,653,695 26,438,480 Expenditures: a. Refunds of participant contributions (1,027) 0 b. Benefits paid 10,010,042 10,837,632 c. Share account distribution 584, ,108 d. Administrative expenses 146, ,930 e. Investment expenses 747, ,914 f. Total expenditures 11,487,891 12,286,584 Net Income: Total revenues minus total expenditures 15,165,804 14,151,896 Audit adjustment - prior years $ 0 $ 0 Summary of Assets September 30, 2013 September 30, 2012 Cash $ 1,074,225 $ 450,881 Debt Securities Short term 3,021,330 3,064,934 Bonds -government 5,182,290 2,452,717 -corporate 18,431,230 19,762,262 -mortgage backed securities 559,650 1,499,649 -other 1,289,128 1,652,349 Equity Securities Stocks -common 81,351,367 67,885,245 -preferred 0 0 Foreign Equities 0 0 Real Estate Investment Funds 12,688,787 11,253,266 Miscellaneous 23,388 91,277 Accrued Income 398, ,010 Deferred Revenue (32,309) (99,337) Deferred Chapter 175 Funds (270,122) 0 Net Receivables (Payables) (4,744,432) (4,593,549) Total Assets w/o Reserves $118,973,508 $103,807,704 City of Sarasota Firefighters Pension Fund C-3

25 DERIVATION OF FUNDING VALUE OF PENSION FUND ASSETS A. Funding Value Beginning of Year $93,588,920 $98,739,147 B. Market Value End of Year * 103,807, ,973,508 C. Market Value Beginning of Year * 89,655, ,807,704 D. Non-Investment Net Cash Flow: (EE+ER cont.)-(ret Ben.+Refunds+Adm. Exp.) (3,716,944) (1,115,066) E. Investment Income E1. Market Total: B-C-D 17,868,840 16,280,870 E2. Assumed Rate 7.75% 7.50% E3. Amount for Immediate Recognition: E2 * (A+D/2) 7,109,110 7,363,621 E4. Amount for Phased-In Recognition: E1-E3 10,759,730 8,917,249 F. Phased-In Recognition of Investment Income F1. Current Year: E4/3 3,586,577 2,972,416 F2. First Prior Year (2,104,595) 3,586,577 2,972,416 F3. Second Prior Year 276,079 (2,104,596) 3,586,576 2,972,417 F4. Total Recognized Investment Gain/(Loss) 1,758,061 4,454,397 6,558,992 2,972,417 G. Preliminary Funding Value End of Year: A+D+E3 98,739, ,442,099 G1. Upper Corridor Limit: 115% x B 136,819,534 G2. Lower Corridor Limit: 85% x B 101,127,482 H. Adjustment to Remain within 15% Corridor 0 0 I. Final Funding Value End of Year 98,739, ,442,099 J. Difference between Market & Funding Value 5,068,557 9,531,409 K. Recognized Rate of Return 9.67% 12.04% L. Ratio of Funding to Market Value 95.1% 92.0% M. Market Rate of Return 20.35% 15.77% *The Reserves on page C-5 are excluded from liabilities and assets throughout this report, beginning in 2008 derivation. The Funding Value of Assets recognizes assumed investment income (line E2) fully each year. Differences between actual and assumed investment income (line E3) are phased-in over a closed 3-year period. During periods when investment performance exceeds the assumed rate, Funding Value of Assets will tend to be less than market value. During periods when investment performance is less than the assumed rate, Funding Value of Assets will tend to be greater than market value. The Funding Value of Assets is unbiased with respect to Market Value. At any time it may be either greater or less than Market Value. If actual and assumed rates of investment income are exactly equal for 2 consecutive years, the Funding Value will become equal to Market Value. City of Sarasota Firefighters Pension Fund C-4

26 PLAN FUNDING RESERVE Final Balance as of 9/30/12 $ 99,337 Chapter 175 funds received or receivable during FYE ,442 Subtotal as of 9/30/13 880,779 Disbursed to eligible retirees (114 members) (481,501) Allocated to active members (342,946) Allocated to Employer Contributions (8,506,081) Preliminary Balance as of 9/30/13 $ (8,449,749) Credit for FYE 2013 Contributions from County/City 8,482,058 Final Balance as of 9/30/13 $ 32,309 * * This amount is available to offset current or future fiscal year local employer contribution requirements. SHARE ACCOUNT RESERVE Share Account Balance as of 9/30/12 $ 1,436,081 Chapter 175 funds credited 0 Disbursed to retirees (214,179) Interest earned 102,889 Addition due to experience 0 Share Account Balance as of 9/30/13 $ 1,324,791 Unallocated Chapter 175 funds 3,336,328 Reserve Liability as of 9/30/13 $ 4,661,119 City of Sarasota Firefighters Pension Fund C-5

27 RETIRED PARTICIPANT AND BENEFICIARY DATA HISTORICAL COMPARISON Added Removed Net Increase End of Year Expected Deaths Year Annual COLA Annual Annual Annual Annual Ended No. Pensions, Adjustments, No. Pensions, No. Pensions, No. Pensions,, No. Pensions, 9/30/ $ 930,596 $ 13,143 2 $ 59, $ 884, $2,670, $ 31,148 9/30/ , , , , ,520, ,058 9/30/ , , , , ,134, ,451 9/30/ , , , , ,475, ,905 9/30/ , , , , ,970, ,362 9/30/ , , , , ,202, ,989 9/30/ , , , , ,543, ,997 9/30/ , , , , ,050, ,527 9/30/ , , , , ,364, ,154 9/30/ , , , , ,577, ,777 9/30/ , , , , ,174, ,605 9/30/ , , , , ,536, ,964 9/30/ , , , , ,493, ,821 9/30/ , , , , ,896, ,465 9/30/ , , , , ,504, ,845 Expected for 9/30/ $ 206,898 City of Sarasota Firefighters Pension Fund C-6

28 NORMAL AND EARLY RETIRED PARTICIPANTS New Retired Participants Averages for All Recipients During Prior Year Current Averages Attained Retirement Annual Ret. Annual Sept. 30 Number Age Age Pension No. Age Service Pension $ 44, $ 53, , , , , , , , , , , , , , , , , , , , , ,433 ALL RETIRED PARTICIPANTS AND BENEFICIARIES Historical Comparison Valuation Date % Incr. in Annual Pensions No. of Partic. Per Retired Pensions as % of Partic. Payroll Average Pensions 9/30/ $ 30,347 9/30/ ,848 9/30/ ,951 9/30/ ,932 9/30/ ,763 9/30/ ,287 9/30/ ,309 9/30/ ,493 9/30/ ,456 9/30/ ,011 9/30/ ,174 9/30/ ,979 9/30/ ,799 9/30/ ,662 9/30/ ,032 City of Sarasota Firefighters Pension Fund C-7

29 RETIRED PARTICIPANT AND BENEFICIARY DATA AS OF SEPTEMBER 30, 2013 TABULATED BY TYPE OF PENSION BEING PAID Type of Pension Being Paid No. Annual Pensions Actuarial Present Value of Pensions Age and Service Benefit terminating upon death of retirant 23 $ 1,632,963 $ 20,950,311 Automatic potential to survivor 90 6,001,170 93,776,292 Surviving Beneficiaries ,876 5,282,309 Total Age and Service 127 8,176, ,008,912 Disability Duty Disability Benefit terminating upon death of retirant 3 140,829 1,688,745 Automatic potential to survivor ,550 10,854,000 Surviving Beneficiaries 8 256,041 2,663,619 Total Duty Disability 26 1,195,420 15,206,364 Non-Duty Disability Benefit terminating upon death of retirant 1 18, ,835 Automatic potential to survivor 1 16, ,252 Surviving Beneficiaries 2 33, ,715 Total Non-Duty Disability 4 68, ,802 Total Disability Pensions 30 1,263,744 15,911,166 Death-In-Service Surviving Beneficiaries 4 64,367 1,100,090 Total Pensions Being Paid 161 $ 9,504,120 $ 137,020,168 City of Sarasota Firefighters Pension Fund C-8

30 RETIRED PARTICIPANTS AND BENEFICIARIES AS OF SEPTEMBER 30, 2013 BY ATTAINED AGES Attained Ages No. Retired Annual Pensions No. Disability Annual Pensions Surviving Beneficiaries Annual No. Pensions 14 1 $ 3,183 1 $ 3, , , , , $ 77, , , , ,869 2 $ 85, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,218 Totals 113 $7,634, $973, $896, $9,504,120 No. Total Annual Pensions City of Sarasota Firefighters Pension Fund C-9

31 VESTED TERMINATED PARTICIPANTS AS OF SEPTEMBER 30, 2013 BY ATTAINED AGES Attained Ages No. Estimated Annual Pensions 47 1 $19, ,136 Totals 2 $50,862 City of Sarasota Firefighters Pension Fund C-10

32 ACTIVE AND VESTED TERMINATED PARTICIPANTS INCLUDED IN VALUATION Vested Valuation Active Term. Date Partic. Partic. Participant Valuation Payroll Average Age Service 9/30/ $3,852, $65,293 9/30/ ,823, ,515 9/30/ ,474, ,907 9/30/ ,536, ,583 9/30/ ,657, ,271 9/30/ ,153, ,226 9/30/ ,938, ,965 9/30/ ,112, ,013 9/30/ ,720, ,913 9/30/ ,299, ,646 Number Added to and Removed from Active Participation Pay Year Ended Number Added During Year A@ E Terminations During Year Active Norm/Early Disability Died-in- Terminations Partic. Retirement Retirement Service Vested Other Total End of A E A E A E A A* A E Year 9/30/ /30/ /30/ /30/ /30/ /30/ /30/ /30/ /30/ /30/ Yr. Totals Expected for 9/30/ A Represents actual number. E Represents expected Participants with a hire date of October 1 or later of fiscal year. * Balancing item. City of Sarasota Firefighters Pension Fund C-11

33 ACTIVE PARTICIPANTS AS OF SEPTEMBER 30, 2013 BY NEAR AGE AND YEARS OF SERVICE Near Age Totals Years of Service to Valuation Date Valuation plus No. Payroll $ 468, , ,542 Totals $ 1,299,687 While not used in the financial computations, the following group averages are computed and shown because of their general interest. Group Averages: Age: 51.1 years. Service: 24.6 years. Annual Pay: $86,646 City of Sarasota Firefighters Pension Fund C-12

34 SECTION D ACTUARIAL COST METHOD, ACTUARIAL ASSUMPTIONS AND DEFINITIONS OF TECHNICAL TERMS

35 THE ACTUARIAL VALUATION PROCESS An actuarial valuation is the mathematical process by which a pension fund contribution requirement is determined and its actuarial condition is measured. The flow of activity constituting the valuation may be summarized as follows: A. Covered Person Data, furnished by the plan administrator including: - Retired participants and beneficiaries now receiving benefits - Former participants with vested benefits not yet payable - Active participants B. + Asset Data (cash & investments), furnished by the plan administrator C. + Fund Description Data, furnished by the plan administrator D. + Assumptions about various future activities of the plan (risk elements) E. + The Actuarial Cost Method for allocating costs to time periods and determining the long-term planned pattern for employer contributions F. + Mathematically combining the Data, the Estimates of Future Activities, and the Cost Method G. = Determination of: Employer Contribution Requirement and Actuarial Condition Items A, B and C constitute the current knowns about the Fund. A good deal of fund activity which will result in benefit payments has yet to occur. Accordingly, certain assumptions must be made about future fund activity. These assumptions (Item D) may be classified as demographic or fiscal. Demographic assumptions include future mortality rates, disability rates, rates of pre-retirement withdrawal from employment, and retirement ages. Fiscal assumptions consist of future salary increases and rates of investment return. City of Sarasota Firefighters Pension Fund D-1

36 Demographic assumptions are generally selected on the basis of the Fund s historical activity, modified for expected future differences. Past activity of funds which are similar in nature to the fund being valued may be utilized if fund data or activities are insufficient to be reliable. Fiscal assumptions, on the other hand, do not lend themselves to prediction on the basis of historical activity -- the reason being that both salary increases and investment return are impacted by inflation. Inflation defies reliable prediction. Fiscal assumptions are generally selected on the basis of what would be expected to occur in an inflation-free environment and then both are increased by some provision for long-term inflation. This is a case where two wrongs may make a right. If inflation is higher than expected it will probably result in actual rates of salary increase and investment return which exceed the assumed rates. Salaries increasing faster than expected result in unexpected costs. Investment return exceeding the assumed rate result in unanticipated assets. To a large degree the additional assets will offset the additional cost over the long-term. Once items A, B, C and D are available, the actuarial valuation process begins. The first step is to determine the plan s total actuarial present value for individuals in each of the three covered person categories. Retired participants now receiving monthly payments; Vested terminated participants not yet at retirement age; Active participants. The actuarial present value is the value today after taking into account the probabilities of payment and the effect of time, of fund promises to pay benefits in the future on the basis of both service already completed and projected future service. City of Sarasota Firefighters Pension Fund D-2

37 The total actuarial present value is allocated between projected future service and completed service by the actuarial cost method (Item E) -- the individual entry age method being utilized for this valuation. The portion of the total actuarial present value allocated to projected future service is the actuarial present value of future normal costs -- normal cost being the series of annual costs, from entry age to retirement age, which will accumulate to the actuarial present value of the individual s benefit at the time of retirement or death. The remainder of the total actuarial present value is the actuarial accrued liability. At this stage determination has been made of: 1. The total actuarial present value; 2. The actuarial present value of future normal cost; and 3. The actuarial accrued liability. In the typical fund, the actuarial accrued liability may not be covered by the fund s accrued assets -- leaving an unfunded actuarial accrued liability. The next step in the valuation process is a determination of the contribution rate (Item G) required to support Fund benefits in accordance with the funding objective (page B-1). The contribution rate is determined in two basic components: 1. The normal cost component; and 2. The component which will finance (pay off) the unfunded actuarial accrued liability over the periods indicated on page B-8. Since this group closed as of January 1, 1996, the unfunded actuarial accrued liability was amortized as a level dollar amount. The characteristics of this method are shown on page D-4. City of Sarasota Firefighters Pension Fund D-3

38 LEVEL DOLLAR AMORTIZATION OF UNFUNDED ACTUARIAL ACCRUED LIABILITY* ($ AMOUNTS IN THOUSANDS) Valuation Year September 30 Payroll Projected Dollars Unfunded Level Dollars Contribution Level Dollars 2013 $1,300 $ 45,646 $7, ,227 6, ,280 6, ,037 6, ,477 6, ,574 6, ,304 6, ,638 6, ,547 6, * $ 45,646,189 over 8 years $45,646,189 City of Sarasota Firefighters Pension Fund D-4

39 ACTUARIAL ASSUMPTIONS The actuarial assumptions regarding the INFLATION rate, REAL INVESTMENT RETURN rate, and SALARY INCREASE rates are used, in combination with the other estimates, to (i) determine the present value of amounts expected to be paid in the future and (ii) establish rates of contribution which are expected to remain relatively level as a percent of total valuation payroll. The interest rate used in making the valuation was 7.50% a year compounded yearly. It is composed of inflation and real investment return. INFLATION RATE. 3.5% per annum, effective September 30, 2009 compounded annually. This is the rate at which growth in the supply of money and credit is estimated to exceed growth in the supply of goods and services. It may be thought of as the rate of depreciation of the purchasing power of the dollar. There are a number of indices for measuring the inflation rate. The recent inflation rate as measured by the Consumer Price Index has been: Year Ended September Average Year 5-Year Actual 1.2 % 2.0 % 3.9 % 1.1 % (1.3) % 2.4 % 1.4 % Assumed REAL INVESTMENT RETURN RATE. 3.5% per annum, compounded annually, based on the funding value of assets, effective September 30, 1994 (an increase of 0.5%). This is the rate of return estimated to be produced by investing a pool of assets in an inflation-free environment. Recent real rates of investment return on the funding value of assets have been: Year Ended September 30 Average Year 5-Year Total Rate 12.0 % 9.7 % 1.2 % (4.1) % (1.9) % 7.6 % 3.4 % less Inflation Rate (1.3) Actual Real Rate (2.7) (5.2) (0.6) Projected Real Rate The total investment return rate was computed on the funding value of assets using the approximate formula i = I divided by 1/2 (A + B - I), where I is actual investment income, A is the beginning of year asset funding value, and B is the end of year asset funding value. The preceding investment return rates reflect the particular characteristics of this Pension Fund and the method of determining the funding value of assets. They should not be used to measure an investment advisor s performance or for comparison with other retirement systems. Such use will usually mislead. City of Sarasota Firefighters Pension Fund D-5

40 SALARY INCREASES RATES. Participant salaries are estimated to increase between the date of hire and date of retirement. Salary increases occur in recognition of (i) individual merit and seniority, (ii) inflationrelated depreciation of the purchasing power of salaries, and (iii) competition from other employers for personnel. A schedule of rates of increases in individual salaries for sample ages follows: Sample Ages Merit & Seniority Salary Increase Assumptions For an Individual Member Base (Economic) Increase Next Year % 3.75 % 6.75 % The valuation is based on a closed group of active participants with active payroll expected to decline. The inflation component was 4.75% prior to the September 30, 2009 valuation. A schedule of recent salary change experience, as measured by average reported pay, follows: Year Ended September Year Average 5-Year 10-Year % Change: Actual Average(1) 5.2 % (6.2) % 5.1 % (0.7) % 3.4 % 1.4 % 1.4 % 3.8 % Projected % Change in Total Payroll (24.4) (18.6) (28.1) (6.8) (13.8) (23.7) (18.3) (8.7) (1) Excluding terminations and new participants. City of Sarasota Firefighters Pension Fund D-6

41 In order to achieve the funding objective of a contribution rate which remains level as a percent-of-payroll, the total rate of investment return on the funding value of assets must exceed the rate of average increase in salaries by an amount equal to the projected real investment return rate. The following schedule illustrates the recent history of the relationship between total investment return and average pay changes. Year Ended September 30 Average Year 5-Year Total Investment Return Rate 12.0 % 9.7 % 1.2 % (4.1) % (1.9) % 7.6 % 3.4 % Rate of Change in Average Pay 5.2 (6.2) 5.1 (0.7) Difference: Actual (3.9) (3.4) (5.3) Target MORTALITY TABLE. The RP 2000 Mortality Table, for males and females effective September 30, RP 2000 Table Healthy Future Life Disabled Future Life Sample Expectancy (Years) Expectancy (Years) Ages Men Women Men Women The mortality table is used to measure the probabilities of participants dying before retirement and the probabilities of each benefit payment being made after retirement. Seventy-five percent of pre-retirement deaths were assumed to be service connected. The Healthy mortality table was set forward ten years from the age of disability for projecting disability costs. The mortality table used was the RP2000 Mortality table for males and females. No provision is currently made for future improvements in mortality after the measurement date. City of Sarasota Firefighters Pension Fund D-7