WEST PALM BEACH RESTATED EMPLOYEES' DEFINED BENEFIT RETIREMENT SYSTEM FINANCIAL STATEMENTS SEPTEMBER 30, 2014 AND 2013

Transcription

1 WEST PALM BEACH RESTATED EMPLOYEES' FINANCIAL STATEMENTS SEPTEMBER 30, 2014 AND 2013

2 WEST PALM BEACH RESTATED EMPLOYEES FINANCIAL STATEMENTS SEPTEMBER 30, 2014 AND 2013 TABLE OF CONTENTS Page No. INDEPENDENT AUDITORS REPORT 1-2 MANAGEMENT S DISCUSSION AND ANALYSIS 3-6 FINANCIAL STATEMENTS Statements of fiduciary net position 7 Statements of changes in fiduciary net position 8 NOTES TO FINANCIAL STATEMENTS 9-17 SUPPLEMENTAL INFORMATION Schedules of administrative expenses 18 Schedule of contributions from employer and other contributors 19 Schedule of investment returns 20 Schedule of changes in the employer s net pension liability and related ratios 21 COMPLIANCE REPORT Report of independent certified public accountants on internal control over financial reporting and compliance and other matters based on an audit of financial statements performed in accordance with government auditing standards 22-23

3 S I Gordon & Company, PA Certified Public Accountants American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants INDEPENDENT AUDITORS REPORT Board of Trustees West Palm Beach Restated Employees Defined Benefit Retirement System West Palm Beach, Florida We have audited the accompanying financial statements of West Palm Beach Restated Employees Defined Benefit Retirement System ( Plan ) which are comprised of the statements of fiduciary net position as of September 30, 2014 and 2013, and the related statements of changes in fiduciary net position for the years then ended and the related notes to the financial statements. Management s Responsibility for the Financial Statements Plan s 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. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 auditors' 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 entity'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 entity'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 Heron Bay Blvd Suite 200 Coral Springs, FL Voice (954) Fax (954)

4 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net position of the West Palm Beach Restated Employees Defined Benefit Retirement System as of September 30, 2014 and 2013, and the changes in its fiduciary net position for the years then ended in conformity with accounting principles generally accepted in the United States of America. Required Supplementary Information Accounting principles generally accepted in the United States of America require that management's discussion and analysis and required supplemental information as listed in the accompanying table of contents 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, which 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 audits of the basic financial statements. We do not express an opinion or provide any assurance on the information in management's discussion and analysis or the supplemental schedules, the funding progress or the schedule of contributions from the employer and other contributors, the schedule of investment returns or the schedule of changes in the employer net pension liability and related ratios because the limited procedures we performed did not provide us with sufficient evidence to express an opinion or provide any assurance on them. S I Gordon & Company, PA January 15,

5 MANAGEMENT S DISCUSSION AND ANALYSIS As management of the West Palm Beach Restated Employees Defined Benefit Retirement System (Plan), we offer readers of the System s financial statements this narrative overview of the financial activities of the Plan for the years ended September 30, 2014 and This narrative is intended to supplement the Plan s financial statements, and we encourage readers to consider the information presented here in conjunction with these statements, which begin on page 7. Overview of the financial statements The financial section of this annual report consists of four parts: Management Discussion and Analysis (MD&A), the basic financial statements, notes to the financial statements and other required supplemental 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 further explain some of the financial information and provide more detailed data. The statements are followed by a section of other supplemental data that explains and supports the information in the financial statements. The 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 are included in the Statement of Fiduciary net position. The statements of fiduciary net position report fiduciary net positions and how they have changed. Fiduciary net position is the difference between the assets and any related liabilities. It is one measurement of the financial health or current position of the Plan. The increase in fiduciary net position during 2014 is one indicator of positive financial circumstances. The Plan was first established when the City adopted a single employer defined benefit pension plan formerly known as the City of West Palm Beach Employees Retirement System ( ERS ). ERS covered all general employees and officers who did not elect to participate in the City s defined contribution retirement system. On September 10, 1997, the City terminated ERS and purchased annuities to fund all accrued liabilities for inactive vested and retired members. Annuity contracts were also purchased to fund the accrued liabilities for the active members remaining on September 10, The remaining assets of ERS were reverted to the City and the Plan was closed to new members. The West Palm Beach Restated Employees Defined Benefit Retirement System (REDBRS) was then established to fund all expected pension obligations accrued after September 10, 1997, that were not funded by annuity contracts. The City of West Palm Beach is the sponsor of this Plan. There is a board of trustees in which the general administration, management and responsibility for the proper operation of the Plan is vested. 3

6 Financial highlights The Plan net results from operations for fiscal year 2014 reflected the following financial activities: Total net position restricted for pensions was $ 39,077,115 which was 14% higher than 2013 total fiduciary net position. This increase was mainly due to the higher investment gains during the current year. Total interest and dividend earnings were $1,113,451, which was 20% greater than the 2013 earnings. Net investment income was $5,888,761, which was 43% greater than the 2013 income. Total pension benefit payments were $2,540,547 which was 5% greater than Employer and employee contributions for the year were $1,457,430 combined, which was 33% lower than the 2013 contributions. The amount of employer contributions varies from year to year and is actuarially determined. During 2013, the City decided to pay the balance of the unfunded accrued actuarial liability, which is presented as deferred revenue. Member contributions were 5.5% of compensation as determined by their collective bargaining agreement. Statements of fiduciary net position The following condensed comparative statements of fiduciary net position are snap shots of the Plan s account balances at the fiscal year end. 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 position, or assets minus liabilities, represent the value held in trust for pension benefits. The Plan s actuarial soundness continues to be evaluated on an annual basis by the actuary of the Plan. It is important to remember that retirement Plan funding is based on a long-term perspective and that temporary ups and downs in the market are to be expected. Fiduciary net position at September 30, 2014 was $39,077,115, a 14% increase from Fiduciary net position at September 30, % Change Investments, at fair value $44,787,064 $42,414,310 6% Receivables 101, ,675 (76) Cash & cash equivalents 337,361 65, Total assets 45,225,617 42,895,018 5 Accounts payable 43,969 42,262 4 Other liabilities 6,104,533 8,505,305 (28) Total liabilities 6,148,502 8,547,567 (28) Net position $39,077,115 $34,347,

7 Statements of changes in fiduciary net position The statements of changes in fiduciary net position present the effect of pension fund 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 pension benefits. Revenues (additions to fiduciary net position) for the Plan were $7,348,585 which was made up of employer and employee contributions of $1,457,430 plus net investment income of $5,888,761 plus miscellaneous income of $2,394. Expenses (deductions from fiduciary net position) which includes benefits paid and administrative expenses, increased from $2,490,200 during 2013 to $2,618,921 in % Change Total contributions $ 1,457,430 $ 2,171,760 (33%) Net investment income 5,888,761 4,121, Miscellaneous income 2,394 2,470 (3) Total additions 7,348,585 6,295, Total deductions 2,618,921 2,490,200 5 Net increase 4,729,664 3,805, Net position beginning 34,347,451 30,541, Net position ending 39,077,115 34,347, Asset allocation The table below indicates the investment policy target and actual asset allocations as of September 30, 2014: Type of Investment Investment policy Actual allocation Domestic fixed income 25-45% 25% International 10-25% 20% Domestic equity 40-60% 54% Cash & short-term investments N/A 1% 100% 100% 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 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 long-term investment perspective. 5

8 Investment activities Investment income is vital to the Plan for current and future financial stability. Therefore, the Trustees have a fiduciary responsibility to act prudently when making plan investment decisions. To assist the Board of Trustees 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 on May 24, The Board and its investment consultant review portfolio performance statements on a quarterly basis in compliance with the investment policy. 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, 2014 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. Requests for information This financial report is designed to provide the Board of Trustees, our membership, taxpayers and investment managers with an overview of the Plan s finances and accountability for the money received. Questions concerning any of the information provided in this report or requests for additional financial information should be addressed to: West Palm Beach Restated Employees Defined Benefit Retirement System c/o Resource Centers, LLC 4360 Northlake Boulevard, Suite 206 Palm Beach Gardens, FL

9 Receivables: WEST PALM BEACH RESTATED EMPLOYEES' STATEMENTS OF FIDUCIARY NET POSITION AS OF SEPTEMBER 30, 2014 AND 2013 ASSETS Accrued investment income $ 95,440 $ 63,869 Employee contributions receivable 3,757 4,240 Prepaid expenses & other 1,995 - Due for securities sold - 347,566 Total accounts receivable and other accruals 101, ,675 Investments, at fair value: (Notes 1 & 4) Common stock 24,205,012 19,917,001 Government securities 8,818,859 3,275,124 International equity 2,611,863 3,834,453 Corporate & foreign bonds 2,235,473 3,094,170 Equity mutual funds 1,843,338 - Fixed income mutual funds 4,728,982 4,315,467 Short-term investments 343,537 7,978,095 Total investments 44,787,064 42,414,310 Cash & cash equivalents 337,361 65,033 Total assets $ 45,225,617 $ 42,895,018 LIABILITIES Accounts payable $ 43,969 $ 42,262 Due for securities purchased 9,897 1,060,238 Deferred revenue (Note 7) 6,094,636 7,445,067 Total liabilities $ 6,148,502 $ 8,547,567 NET POSITION RESTRICTED FOR PENSIONS Net position restricted for pensions $ 39,077,115 $ 34,347,451 READ THE NOTES TO THE FINANCIAL STATEMENTS 7

10 WEST PALM BEACH RESTATED EMPLOYEES' STATEMENTS OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND Additions: Contributions - Employer $ 1,350,431 $ 2,050,355 Employees 106, ,405 Total contributions 1,457,430 2,171,760 Investment income - Net appreciation in fair value of investments 5,031,394 3,402,055 Interest and dividend income 1,113, ,070 Total investment income 6,144,845 4,327,125 Less: Investment expenses 256, ,488 Net investment income 5,888,761 4,121,637 Other income 2,394 2,470 Total additions 7,348,585 6,295,867 Deductions: Benefits paid to or for retirees 2,540,547 2,414,900 Administrative expenses (Schedule) 78,374 75,300 Total deductions 2,618,921 2,490,200 Net increase in net position 4,729,664 3,805,667 Net position restricted for pensions: Beginning of year 34,347,451 30,541,784 End of year $ 39,077,115 $ 34,347,451 READ THE NOTES TO THE FINANCIAL STATEMENTS 8

11 WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:. Investments valuation and income recognition - Investments are reported at fair values (see Note 4). 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. Purchases 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 includes the Plan s gains and losses on investments bought and sold as well as held during the year.. Accounting estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.. 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. The Plan administrator believes it is no longer subject to income tax examinations for years prior to 9/30/11.. Accounting principles The Plan applies all GASB pronouncements. Additionally, it also applies all FASB pronouncements issued on or before November 30, 1986, unless they conflict with or contradict GASB pronouncements. 9

12 (2) DESCRIPTION OF THE PLAN: WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 The following description of the West Palm Beach Restated Employees Defined Benefit Retirement System ( Plan ) provides only general information. Participants should refer to the City s ordinance for more complete information.. General The Plan began as a single-employer defined benefit pension plan known as the City of West Palm Beach Employees Retirement System. It covered all general employees and officers who did not elect to participate in the City s defined contribution retirement system. On September 10, 1997, the City terminated that plan and purchased annuities to fund all accrued liabilities for inactive vested and retired members. Annuity contracts were also purchased to fund the accrued liabilities for the active members remaining on September 10, The remaining assets of the Plan were reverted to the City and the Plan was closed to new members. West Palm Beach Restated Employees Defined Benefit Retirement System was then established to fund all expected pension obligations accrued after September 10, 1997, that were not funded by annuity contracts. It is governed by ordinances passed by the West Palm Beach City Council. The general administration and management of the Plan is vested in a Board of Trustees which is comprised of seven members: the City mayor or designee, the City employee relations manager or designee, the City finance director or designee, a majority-appointed citizen who is not eligible to receive benefits from the system, two members of the retiree system elected by the members, and a retiree who retired on or after September 10, 1997 elected by the retirees who retired.. Eligibility The Plan was open to all general employees and officers who did not elect to participate in the City s defined contribution retirement system and were participants of the City of West Palm Beach Employees Retirement System on September 30, The Plan is closed to new members. As of September 30, 2014, the plan had 157 retirees, 10 inactive but vested and 34 active employees.. Vesting All members of the retirement system are at all times fully vested in, and have a nonforfeitable right to their pension benefits. 10

13 WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (2) DESCRIPTION OF THE PLAN (CONTINUED):. Benefits Normal retirement Upon retirement, participants are eligible to receive an annual pension that is 2.2% of the average final compensation ( AFC ) for each year (and partial year) of contributing service plus.75% of AFC for each non-contributing year of membership service. The normal form of payment is a straight life retirement allowance for as long as the participant lives. Upon death, the surviving spouse will receive a pension benefit equal to 50% of the retirement allowance. Normal retirement age is either age 55 with 25 years of service, or any age at which 30 years of service is reached. Disability retirement Members are eligible for benefits for service incurred disabilities. The amount of benefit will be the accrued retirement benefit or 60% of the member s AFC at the time of disability, whichever is greater. This benefit will be paid until age 65, or for 60 months (if longer). After this period, the benefit amount will be recalculated to be the member s normal retirement benefit but with additional service credit for the disability period. Members are eligible to receive benefits for non-service incurred disabilities based on the credited service and final compensation at the time of disability. These benefits are paid for life. Pre-retirement Death Death benefits are payable on behalf of members who die during performance of their professional service with the City. A surviving beneficiary will receive a refund of accumulated contributions and a benefit equal to 1/3 of AFC. If any member dies during active service from causes not attributable to active duty or service, a reduced actuariallydetermined death amount is used. Cost of living adjustment After being retired for a year, the benefit amount will be increased yearly on January 1 st for cost of living adjustments (COLA). The increase will be 2% on an annual basis provided that the Consumer Price Index increased at least 2% in the preceding year. Cost of living adjustments of 2% were approved for 2014 and Funding Participants contribute to the Plan 5.5% of their annual compensation received for City employment. City contributions are based upon actuarially determined amounts that, together with earnings and employee contributions, are sufficient to fund the benefits described above. During 2013 the City paid the balance in the unfunded accrued actuarial liability. This will be recognized as contributions each year based on the actuarially-determined employer contribution amount. The remaining excess contributions are presented as deferred revenue in the accompanying balance sheet. 11

14 WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (2) DESCRIPTION OF THE PLAN (CONTINUED):. Rate of return For the year ended September 30, 2014, the annual money-weighted rate of return on pension plan investments, net of pension plan investment expense, was 14.75%. The moneyweighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. (3) NET PENSION LIABILITY OF THE FUND: The components of the net pension liability of the Plan at September 30, 2014 were: Total pension liability $38,868,783 Plan fiduciary net position 45,171,494 Plan s net pension liability (6,302,711) Plan fiduciary net position as a percentage of the % total pension liability The total pension liability was determined by an actuarial valuation as of September 30, 2013, using the following most significant actuarial assumptions, 8% for the investment rate of return, 5% for projected salary increases and 5% for inflation. Mortality rates were based on the RP-2000 Combined Healthy Mortality Table. 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 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 pension plan s target asset allocation as of September 30, 2014 (see the discussion of the pension plan s investment policy) are summarized in the following table: Asset class Long term expected real rate of return Domestic equity 10% International equity 11% Domestic fixed income 5% International fixed income 6% Real estate 7% 12

15 WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 (3) NET PENSION LIABILITY OF THE FUND (CONTINUED): A single discount rate of 8.00% was used to measure the total pension liability. This single discount rate was based on the expected rate of return on pension plan investments of 8.00%. The projection of cash flows used to determine this single discount rate assumed that plan member 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 member rate. Based on these 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. Regarding the sensitivity of the net pension liability to changes in the single discount rate, the following presents the plan s net pension liability, calculated using a single discount rate of 8.00%, as well as what the plan s net pension liability would be if it were calculated using a single discount rate that is one percent lower or one percent higher: 1% decrease 7% Current discount rate 8% 1% increase 9% Net position liability $(1,946,086) $(6,302,711) $(9,886,428) (4) 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 pension plan. The investment policy statement was last amended on May 24, The following was the Board s adopted asset allocation policy as of September 30, 2014: Type of Investment Target Allocation Fixed income 25-45% International 10-25% Domestic equity 40-60% Cash & short-term investments N/A 13

16 (4) INVESTMENTS (CONTINUED): WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 During the year ended September 30, 2014 the Plan s investments (including gains and losses on investments bought and sold, as well as held during the year) appreciated in value by $5,031,394 as follows: Common stock $4,706,241 Government securities 42,375 Corporate & foreign bonds 110,642 Investment trust 1,484 Equity mutual funds (22,461) Fixed income mutual funds 23,050 International equity 170,063 Total $5,031,394 The Board of Trustees determines the Plan s investment policy. The policy has been designed by the Board to obtain a reasonable total rate of return. As a prudent investor, the Board has adopted a policy to diversify investment risk among several institutionally acceptable asset classes including bonds and other corporate obligations, and equity securities. The Board employs professional investment managers to invest the assets of the Plan within the parameters established in the investment policy. 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. The Plan s investments in government securities and corporate bonds had maturities as follows: Investment maturities Investment type Fair value < 1 Yr 1-5 Yrs 6-10 Yrs Over 10 Yrs Corporate bonds $ 2,235,473 $ - $ 132,893 $2,102,580 $ - Fixed income MF 4,728, ,785 2,528, , ,304 US Treasuries 4,086,706-1,153,000 1,330,268 1,603,438 US Agencies 4,732, ,538, ,146 2,464,992 Totals $15,783,313 $948,801 $5,353,831 $ 4,669,947 $4,810,734 14

17 (4) INVESTMENTS (CONTINUED): WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 Concentration of credit risk is the risk inherent with investing a significant amount of Plan assets in particular issuers. The Plan limits equity investments that may be invested in any one issuer to no more than 5% of fiduciary net position. For fixed income/debt investment, other than those issued by the US Government or its Agencies, the limit is 3%. The Plan did not have any investments in a single issuer that exceeded either of those limits. Credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. The Plan limits its credit risk by restricting at least 85% of its investments in fixed income securities to US Government and agency securities, or corporate bonds which are rated BBB or higher by a major rating service. Rating Fair Value AAA $ 122,216 AA+ 121,162 AA 315,704 A 1,393,683 A- 1,209,529 BBB+ 283,592 BBB 1,234,923 BB 1,389,618 B 528,995 CCC 360,967 CC 718 Not rated US agency securities 8,822,206 Total $15,783,313 15

18 (4) INVESTMENTS (CONTINUED): WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 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 and international fixed income funds. The Plan participates in international funds but does not own individual foreign securities. It participates in RBC International $2,611,864, PIMCO Diversified Investments $2,337,288, Templeton Global Total Return $2,391,694 and Transamerica International Equity $1,843,338. 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 20% of total investments. (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. (6) SUBSEQUENT EVENTS: We evaluated subsequent events through January 15, 2015, the date that the financial statements were available to be issued. 16

19 (7) DEFERRED REVENUE: WEST PALM BEACH RESTATED EMPLOYEES NOTES TO FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013 On September 30, 2013, for the principal purpose of saving future interest charges, the City made the decision to prepay the unfunded accrued actuarial liability as determined by the Plan s actuary at 10/1/12. The City contributed $7,445,067 in addition to the annual required contribution for that fiscal year. During 2014, a portion of the deferred revenue, based upon the actuary s future valuations, was recognized as the City s annual required contribution. The rest of the prepayment is presented as deferred revenue on the statement of fiduciary net position. As of September 30, 2014, the deferred revenue balance was $6,094,

20 WEST PALM BEACH RESTATED EMPLOYEES' SCHEDULES OF ADMINISTRATIVE EXPENSES FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND Accounting $ 8,500 $ 8,500 Actuarial fees 16,250 15,500 Administrative fees 34,272 34,064 Miscellaneous 19,352 17,236 Total expenses $ 78,374 $ 75,300 READ THE NOTES TO THE FINANCIAL STATEMENTS 18

21 WEST PALM BEACH RESTATED EMPLOYEES' SUPPLEMENTAL SCHEDULE OF CONTRIBUTIONS FROM EMPLOYER AND OTHER CONTRIBUTORS AS OF SEPTEMBER 30, 2013 (UNAUDITED) Year ended September 30 Annual determined Contribution Contributions in relation to the actuarially determined contribution Contribution deficiency (excess) Covered-employee payroll Contributions as a percentage of covered employee payroll 2013 $2,050,355 $2,050,355 $ - $2,789,945 73% ,977,284 1,977,284-3,218, ,269,689 2,269,689-3,848, ,096,896 2,096,896-4,133, ,470,612 1,470,612-5,106, ,579,325 1,579,325-5,824, ,573,278 1,573,278-6,074, ,910,487 1,910,487-6,118, ,060,269 2,060,269-6,301, Actuarial cost method Amortization method Remaining amortization period Asset valuation method Aggregate N/A N/A Inflation 5.0% Salary increases Investment rate of return 8.0% Retirement age Mortality Market value 5.0% to 8.8% per year Age-based table of rates that are specific to the type of eligibility condition RP-2000 Combined Healthy Mortality Table. There is currently no margin for future mortality improvement. 19

22 WEST PALM BEACH RESTATED EMPLOYEES' SCHEDULE OF INVESTMENT RETURNS AS OF SEPTEMBER 30, 2014 (UNAUDITED) Year ended September 30 Annual moneyweighted rate of return net of investment expense % (1.55) 20

23 WEST PALM BEACH RESTATED EMPLOYEES' SCHEDULE OF CHANGES IN THE EM PLOYER S NET PENSION LIABILITY AND RELATED RATIOS 2014 Total pension liability: Service cost $ 54,631 Interest 2,971,240 Benefit changes - Difference between actual & expected experience - Assumption changes - Benefit payments (2,507,730) Refunds (32,817) Net Change in Total Pension Liability 485,324 Total Pension Liability - Beginning 38,383,459 Total Pension Liability - Ending $ 38,868,783 Plan Fiduciary Net Position Contributions - Employer $ - Contributions - Member 106,999 Net investment income 5,888,760 Benefit payments (2,507,730) Refunds (32,817) Administrative expenses (Supplemental Schedule) (78,375) Other 2,139 Net Change in Fiduciary Net Position 3,378,976 Plan Fiduciary Net Position - Beginning 41,792,518 Plan Fiduciary Net Position - Ending $ 45,171,494 Ne t Pens ion Liability - Ending (6,302,711) Plan Fiduciary Net Position as a Percentage 116% of Total Pension Liability Covered Employee Payroll $ 2,019,761 Net Pension Liability as a Percentage (312%) of Covered Employee Payroll 21

24 S I Gordon & Company, PA Certified Public Accountants American Institute of Certified Public Accountants Florida Institute of Certified Public Accountants REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS The Board of Trustees West Palm Beach Restated Employees Defined Benefit Retirement System West Palm Beach, Florida We have audited the financial statements of the West Palm Beach Restated Employees Defined Benefit Retirement System as of and for the year ended September 30, 2014, and have issued our report thereon dated January 15, We conducted our audit in accordance with generally accepted auditing standards and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Compliance As part of obtaining reasonable assurance about whether West Palm Beach Restated Employees Defined Benefit Retirement System financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws and regulations, 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 audits and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported under Government Auditing Standards. Internal Control Over Financial Reporting In planning and performing our audits, we considered West Palm Beach Restated Employees Defined Benefit Retirement System internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses Heron Bay Blvd Suite 200, Coral Springs, FL Voice (954) Fax (954)

25 A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses. S I Gordon & Company, PA January 15,