RETIREMENT PLAN FOR POLICE OFFICERS AND FIREFIGHTERS

Transcription

1 RETIREMENT PLAN FOR POLICE OFFICERS AND FIREFIGHTERS FINANCIAL STATEMENTS

2 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 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 Report of Independent Certified Public Accountant 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

3 INDEPENDENT AUDITOR S REPORT To the Board of Trustees of the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach We have audited the accompanying financial statements of the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach, 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 N. COMMERCE PARKWAY, SUITE 315, WESTON, FL TEL (954) FAX (954)

4 INDEPENDENT AUDITOR S REPORT (Continued) Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the fiduciary net position of the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach 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. Other Matters Prior Year Comparative Information We have previously audited the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach s 2015 financial statements, and our report dated March 29, 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 employer s net position liability and related ratios on pages 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 N. COMMERCE PARKWAY, SUITE 315, WESTON, FL TEL (954) FAX (954)

5 INDEPENDENT AUDITOR S REPORT (Continued) Other Matters (Continued) 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 basic financial statements. Such 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 auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the basic financial statement as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 21, 2017, on our consideration of the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach 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 Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach s internal control over financial reporting and compliance. Weston, Florida February 21, N. COMMERCE PARKWAY, SUITE 315, WESTON, FL TEL (954) FAX (954)

6 MANAGEMENT S DISCUSSION AND ANALYSIS This section of the annual financial report presents the Management s Discussion and Analysis (MD&A) of the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach s (the Plan) financial performance. This analysis provides an overview of the financial activities and funding conditions for fiscal year ended September 30, 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 $94,164,922, which was 3% greater than 2015 total fiduciary net position. Total contributions were $7,552,836, which was 4% lower than the 2015 contributions. Total interest and dividend earnings were $2,126,035, which was 3% lower than the 2015 earnings. Net investment income was $5,206,876, which was 278% higher than the 2015 loss. Benefits paid were $7,241,357, which was 2% greater than the benefits paid during Employer, employee and state contributions for the year were $7,552,836, which was 4% lower than the 2015 contributions. The amount of employer contributions varies from year to year and is actuarially determined. Police officer contributions were 11.1% of compensation. Firefighters are not required to contribute to the Plan. -4-

7 Statement of Fiduciary Net Position MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) 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 $94,164,922, a 3% increase from fiduciary net position at September 30, Total investments at September 30, 2016 were $94,748,387, a 4% increase from the investments at September 30, % Change Cash $ 24,829 $ 3, % Receivables 215, ,794 (35%) Investments, at fair value 94,507,761 91,130,123 4% Total assets 94,748,387 91,464,788 4% Accounts payable 135,212 93,591 44% Accounts payable - purchase of investments 448,253 28,726 1,460% Total liabilities 583, , % Net position restricted for pensions $ 94,164,922 $ 91,342,471 3% 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. -5-

8 MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) Statement of Changes in Fiduciary Net Position (Continued) Revenues (additions to the fiduciary net position) for the Plan were $12,791,203, which was made up of employer and employee contributions of $7,552,836 plus net investment income of $5,206,876 and other income of $31,491. Expenses (deductions from the fiduciary net position) increased from $7,357,037 during 2015 to $9,968,752 during % Change Total contributions $ 7,552,836 $ 7,857,906 (4%) Net investment income (loss) 5,206,876 (2,924,651) 278% Other income 31,491 7, % Total additions 12,791,203 4,940, % Total deductions 9,968,752 7,357,037 35% Net increase (decrease) 2,822,451 (2,416,775) 217% Net position restricted for pensions - beginning 91,342,471 93,759,246 3% Net position restricted for pensions - ending $ 94,164,922 $ 91,342,471 3% Asset Allocation The table below indicates the Plan investment policy limitations and actual asset allocations as of September 30, 2016: Type of Investment Investment policy Actual Allocation Domestic equities 35%-55% 43% International equities 5%-20% 11% Hedge Funds 0%-10% 7% Real Estate 0%-10% 6% Fixed income 27.5%-32.5% 28% Cash and cash equivalents Minimal 5% 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 long-term investment perspective. -6-

9 Investment Activities MANAGEMENT S DISCUSSION AND ANALYSIS (Continued) 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 September 12, 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: Martin Lebowitz c/o Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach NE 19 th Ave, Room #311 North Miami Beach, FL

10 STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2016 (WITH COMPARATIVE TOTALS AS OF SEPTEMBER 30, 2015) ASSETS CASH $ 24,829 $ 3,871 RECEIVABLES: Accrued investment income 153, ,804 Accounts receivable - Chapter , ,990 TOTAL RECEIVABLES 215, ,794 INVESTMENTS, AT FAIR VALUE: Equity securities 51,618,513 46,666,794 Government securities 18,666,810 24,982,486 Corporate bonds 7,318,656 3,203,792 Real estate 5,574,160 5,197,461 Hedge funds 6,314,831 8,570,667 Money market funds 5,014,791 2,508,923 TOTAL INVESTMENTS, AT FAIR VALUE 94,507,761 91,130,123 TOTAL ASSETS 94,748,387 91,464,788 LIABILITIES ACCOUNTS PAYABLE 135,212 93,591 ACCOUNTS PAYABLE - PURCHASE OF INVESTMENTS 448,253 28,726 TOTAL LIABILITIES 583, ,317 NET POSITION RESTRICTED FOR PENSIONS NET POSITION RESTRICTED FOR PENSIONS: Net position held in trust for defined benefits 85,513,010 82,552,089 Net position held in trust for DROP benefits 8,460,204 8,697,060 Net position held in trust for excess state monies 191,708 93,322 TOTAL NET POSITION RESTRICTED FOR PENSIONS $ 94,164,922 $ 91,342,471 The accompanying notes are an integral part of these financial statements -8-

11 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION (WITH COMPARATIVE TOTALS FOR YEAR ENDED SEPTEMBER 30, 2015) ADDITIONS: Contributions: Employer $ 6,254,492 $ 6,498,316 Employee 692, ,356 Chapter , ,256 Chapter , ,978 Total contributions 7,552,836 7,857,906 Investment income (loss): Net appreciation (depreciation) in fair value of investments 3,551,312 (4,637,160) Interest and dividend income 2,126,035 2,186,297 Total investment income (loss) 5,677,347 (2,450,863) Less: investment expenses 470, ,788 Net investment income (loss) 5,206,876 (2,924,651) Other income 31,491 7,007 TOTAL ADDITIONS 12,791,203 4,940,262 DEDUCTIONS: Benefit payments 7,241,357 7,114,490 DROP distributions 2,489,990 14,821 Administrative expenses 237, ,726 TOTAL DEDUCTIONS 9,968,752 7,357,037 NET INCREASE (DECREASE) IN NET POSITION RESTRICTED FOR PENSIONS 2,822,451 (2,416,775) NET POSITION RESTRICTED FOR PENSIONS - BEGINNING 91,342,471 93,759,246 NET POSITION RESTRICTED FOR PENSIONS - ENDING $ 94,164,922 $ 91,342,471 The accompanying notes are an integral part of these financial statements -9-

12 NOTES TO THE FINANCIAL STATEMENTS 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 (depreciation) appreciation 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 of accounting. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) require 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. NOTE 2. DESCRIPTION OF THE PLAN The following description of the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach (the Plan) provides only general information. Participants should refer to the City of North Miami Beach, Florida s (the City) ordinance for more complete information. The Plan is a single-employer defined benefit plan, established on July 1, The Plan is also governed by certain provisions of the Florida Statutes Chapters 112, 175 and 185. Since the Plan is sponsored by the City, the Plan is included as a pension trust fund in the City s Comprehensive Annual Financial Report as part of the City s financial reporting entity. General Management of the Plan is vested in the Board, which consists of five members two (2) of whom, unless otherwise prohibited by law, shall be legal residents of the City who shall be elected officials or original appointment designees. Two (2) of whom shall be police officers, including participants in the DROP, and/or firefighters, as defined in Article II who shall be elected by a majority of the police officers, including DROP participants and firefighters who are participants of the Plan. One (1) shall be chosen by a majority of the previous four (4) members. Upon receipt of the fifth person's name, the City Council shall, as a ministerial duty, appoint such person to the Board as its fifth member. Plan Participation Inactive Plan participants and retirees currently receiving benefits 130 Active Plan participants 104 Total

13 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 2. DESCRIPTION OF THE PLAN (Continued) Eligibility The Plan covers full time sworn police officers and certain former firefighters. Participants enter the Plan on the first day of employment or January 1, 1990 for any employee who was a participant in the Retirement Plan for Employees of the City of North Miami Beach (effective October 1, 1965). 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 Retirement Any participant who has attained the earlier of age 52 or twenty years of credited service for police officers and the earlier of age 52 or 22 of credited service for firefighters, may retire with a normal retirement benefit for members vested on or before January 31, Any participant who has attained the earlier of age 55 or twenty five years of credited service for police officers and the earlier of age 55 or 25 of credited service for firefighters, may retire with a normal retirement benefit for members hired or vested on or after January 31, The maximum benefit is 100% of average final compensation for participants who entered the plan after Upon retirement, a participant will receive a monthly benefit based upon 3.0% for police officers and 3.3% for firefighters of Final Monthly Compensation, multiplied by years of credited service. Final Monthly Compensation is defined as the average monthly compensation from the City for the sixth consecutive months for police officers and eighteen consecutive months for firefighters, out of one hundred twenty months next preceding the participant s termination date, which gives the highest average monthly rate of compensation. Early Retirement A participant who has attained the earlier of age 45 with 15 years of credited service or the attainment of age 50 with 10 years of credited service may retire with an early retirement benefit. Upon immediate early retirement, a participant will receive a monthly normal benefit reduced 3% for each year the employee s age at early retirement precedes their age at normal retirement. -11-

14 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 2. DESCRIPTION OF THE PLAN (Continued) Deferred Retirement Option Plan The Plan provides for a Deferred Retirement Option Plan (DROP). A participant becomes eligible for participation in the DROP at the earlier of age 52 with 15 years of credited service or the attainment of 20 years of credited service for members vested on or before January 31, A participant becomes eligible for participation in the DROP at the earlier of age 55 with 15 years of credited service or the attainment of 25 years of credited service for members hired or vested on or after January 31, The DROP account is a bookkeeping account within the Plan. The money that is credited to a participant s DROP account will be commingled with all other monies in the Plan. Each participant s DROP account will be credited with the interest at the assumed interest assumption for the Plan, as it may change from time to time. The Plan provides for cost of living adjustments (COLA). COLA payments commence on the October 1st coincident with or next following three years after the DROP participant s actual separation from service with the City as a police officer. The election to participate in the DROP is irrevocable and allows participants to continue employment with the City for up to eight years for members vested on or before January 31, 2016 and up to five years for members hired and vested after January 31, Disability Retirement An actively employed participant may retire from the service of the City under the Plan if the participant becomes totally and permanently disabled as defined in the Plan. The monthly disability retirement benefit is the greater of 60% of final monthly compensation or the participants accrued benefit at the date of disability. Share Plan Pursuant to City Ordinance , an annual supplemental retirement benefit is provided for all firefighter retirees and beneficiaries and survivor annuitants of deceased firefighters. Entitlement to such supplemental retirement benefit shall be determined annually contingent upon the receipt by the Plan of any additional premium tax revenues or upon the accumulation of any additional premium tax revenues received in prior years. The total amount of additional premium tax revenues that is available to be distributed shall be determined by the Board, after the amount currently allowed to be applied to the Plan s contribution requirement has been determined. The amount of each supplemental retirement shall be equal to the sum of (1) half of the additional premium tax revenues available to be distributed multiplied by the total credited service at retirement for the retired or deceased firefighter upon whose service the benefit is based, divided by the total credited service, plus (2) half of the additional premium tax revenues available to be distributed multiplied by the monthly benefit paid to the retired firefighter, beneficiary or survivor annuitant, divided by the total monthly benefits paid on October 1st of that year, provided that each annual supplemental retirement benefit shall not exceed $20,

15 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 2. DESCRIPTION OF THE PLAN (Continued) Death Benefit The monthly retirement income payable upon the death of a participant who is survived by a spouse and/or dependent is the actuarial equivalent of the greater of (a) and (b) below: (a) the single sum value of the accrued deferred benefit commencing on Normal Retirement Date accrued to date of death (b) the smaller of 24 times the monthly pay on October 1st preceding the participant s date of death or 100 times the anticipated monthly retirement income commencing on the Normal Retirement Date. Termination Benefit Any participant, who is terminated at any age prior to the date on which the participant has completed ten years of credited service, is eligible for termination benefits equal to the accumulated participant contributions with 3% interest. Any participant who is terminated at any age with at least 10 years of credited service but less than 20 years of credited service is eligible for termination benefits equal to the greater of (a) the normal retirement benefit with final monthly compensation and service determined at the date of termination or (b) accumulated participant contributions with 3% interest. Funding Police officers are required to contribute 11.1% of their annual compensation to the Plan. Firefighters are no longer required to contribute to the Plan. Pursuant to Florida law, the City is ultimately responsible for making sure the Plan remains actuarially sound. Therefore, each year, the City must contribute an amount determined by the Board, in conjunction with their actuary, to be sufficient, along with the employee s contribution and the State contribution, to fund the benefits under the Plan. The employer s contribution will vary from year to year. Pursuant to Chapter 185, Florida Statutes, the City imposes a 0.85% tax on casualty insurance premiums paid to insure property within its corporate limits. The proceeds of this tax are contributed to this 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 this Plan as part of the City s contribution, and for additional benefits. Pursuant to City Ordinance , the City is required to provide a supplemental contribution of at least $750,000 per plan year until 2019 or until the actuary determines that the Plan has achieved a funding ratio of 70%. The objective for the supplemental contribution is for the funding ratio of the plan to be 70% by October 1,

16 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 2. DESCRIPTION OF THE PLAN (Continued) Buybacks An ordinance was adopted on July 7, 1998, adding a provision whereby active participants could purchase up to four years of additional service credit for any prior military service in the Armed Forces of the United States or other law enforcement service once the participant has earned at least 10 years of continuous service by paying the full actuarial costs as determined by the Plan s actuary. In lieu of the purchase of credited service for prior military or law enforcement services, as provided above, a participant may purchase permissive service credit comprised of eligibility for earlier retirement combined with higher benefit level for the participant s credited service which is the actuarial equivalent of up to four years of additional credited service. 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 6.01%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. 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 September 12, The following was the Board s adopted asset allocation policy as of September 30, 2016: Type of Investment Target Allocation Domestic equities 35%-55% International equities 5%-20% Fixed income 27.5%-32.5% Hedge funds 0%-10% Real estate 0%-10% Cash and cash equivalents Minimal -14-

17 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 3. INVESTMENTS (Continued) 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 $3,551,312 (reported as net appreciation in fair value of investments in the accompanying Statements of Changes in Fiduciary Net Position) as follows: Common stocks $ 3,396,587 Government securities 84,832 Corporate bonds (58,296) Real estate 277,009 Hedge funds (148,820) Total $ 3,551,312 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 Type Fair Value Less than 1 1 to 5 6 to 10 More than 10 U.S. treasuries $ 2,766,406 $ - $ - $ 2,766,406 $ - U.S. agencies 15,900,404 2,378,700 6,519,678 3,874,773 3,127,253 Corporate bonds 7,318, ,161 6,670,495 - Totals $ 25,985,466 $ 2,378,700 $ 7,167,839 $ 13,311,674 $ 3,127,253 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 fixed income were rated by Moody s Investors Services as follows: Rating Fair Value Aaa $ 9,668,994 Aa2 236,488 A1 253,180 A2 648,160 A3 6,180,827 Unrated Government Securities 8,997,817 Total $ 25,985,

18 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 3. INVESTMENTS (Continued) The Plan limits investment in the securities of any one issuer, other than the US Government and its agencies, to no more than 5% of Net Fiduciary Position. The Plan had none at September 30, 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 any manager s total Plan portfolio. As of September 30, 2016, the foreign investments were 11% of total investments. NOTE 4. FAIR VALUE MEASUREMENT 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 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 stock: Valued at the closing price reported on the New York Stock Exchange. 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. -16-

19 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 4. FAIR VALUE MEASUREMENT (Continued) Hedge Funds: Valued based on the net asset value per share, without further adjustment. Net asset value is based upon the fair value of the underlying investment. 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. Money market funds: Valued at fair value using amortized cost which approximated fair value. The following table presents the Plan s fair value hierarchy for investments at fair value as of September 30, 2016: Fair Value Measurement Using 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 $ 51,618,513 $ 51,618,513 $ - $ - Total equity securities 51,618,513 51,618, Debt securities: U.S. treasury securities 2,766,406 2,766, U.S. agency securities 15,900,404-15,900,404 - Corporate bonds 7,318,656-7,318,656 - Total debt securities 25,985,466 2,766,406 23,219,060 - Total assets at fair value 77,603,979 54,384,919 23,219,060 - Investments measured at the net asset value (NAV) (a) Real Estate 5,574,160 Hedge funds 6,314,831 Total investment measured at the NAV 11,888,991 Money market funds (exempt) 5,014,791 Total investments $ 94,507,761 (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. -17-

20 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 4. FAIR VALUE MEASUREMENT (Continued) The following table summarizes investment 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) $ 5,574,160 $ - Quarterly 65 Days Hedge fund (2) 2,238,178 - Semi-Annual 95 Days Hedge fund (3) 4,076,653 - Quarterly 90 Days Total investments measured at the NAV $ 11,888,991 $ - (1) Real estate fund: The fund is an open-end core real estate fund with a diversified portfolio of income producing properties throughout the United States. The investment is valued at NAV and its redemptions must be received by the fund 65 days prior to quarter end. (2) Hedge fund: The fund is a diversified commingled fund, seeking to produce long-term, risk-adjusted returns through investments utilizing venture capital, buyout, distressed debt, long/short equity, low volatility multi-strategy, and similar partnership strategies. The investment is valued at NAV. (3) Hedge fund: The fund is a multi-strategy fund of hedge funds that aims to pursue varying strategies in order to diversify risk and reduce volatility. The fund is a diversified portfolio offering investment solutions through activist long/short equity, credit/special situations, event drive and arbitrage, global long/short equity and other opportunistic situations.. The investment is value at NAV. 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. -18-

21 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 6. NET PENSION LIABILITY OF THE PLAN The components of the net pension liability of the City at September 30, 2016 were as follows: Total pension liability $ 137,871,599 Plan fiduciary net position 94,164,922 City's net pension liability $ 43,706,677 Plan fiduciary net position as a percentage of the total pension liability 68.30% 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 8.0% for the investment rate of return, 3.0% for projected salary increases and 3.0% for inflation. Mortality rates were based on the RP-2000 Combined Healthy Mortality Table with Blue Collar Adjustment with fully generational mortality improvements based on Scale AA for Males and Females. 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 real Asset Class rate of return Large Cap Value Equity 6.30% Large Cap Growth Equity 6.20% Small Cap Value Equity 6.45% Mid Cap Growth Equity 6.40% International Value Equity 5.92% International Growth Equity 5.45% Hedge Fund of Funds 2.23% Core Private Real Estate 2.73% Core Fixed Income 2.35% -19-

22 NOTES TO THE FINANCIAL STATEMENTS (Continued) NOTE 6. NET PENSION LIABILITY OF THE PLAN (Continued) The discount rate used to measure the total pension liability was 8.0%. 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 City contributions will be made at rates equal to the actuarially determined contribution rates less the participant and State contributions. 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 Plan liability. The sensitivity of the net pension liability to changes in the discount rate was measured as follows. The net pension liability of the City was calculated using the discount rate of 8.0%. It was also calculated using a discount rate that was 1-percentage-point lower (7.0%) and 1-percentage-point higher (9.0%) and the different computations were compared as follows: Current 1% decrease discount rate 1% increase (7.0%) (8.0%) (9.0%) Net pension liability $ 59,442,002 $ 43,706,677 $ 30,594,546 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. On April 9, 2015, the Plan obtained its most recent determination letter in which the Internal Revenue Service stated that the Plan as then designed, was in compliance with applicable requirements of Internal Revenue Code 401(a), and therefore, 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. -20-

23 SUPPLEMENTARY INFORMATION

24 SCHEDULE OF ADMINISTRATIVE EXPENSES (WITH COMPARATIVE TOTALS FOR YEAR ENDED SEPTEMBER 30, 2015) ADMINISTRATIVE EXPENSES: Accounting $ 7,550 $ 8,058 Actuarial fees 84,162 74,642 Employee benefits 2,821 4,074 Insurance 18,039 19,614 Legal 25,850 25,850 Payroll taxes 4,391 4,446 Salaries 55,921 53,625 Travel 24,191 25,763 Miscellanous 14,480 11,654 TOTAL ADMINISTRATIVE EXPENSES $ 237,405 $ 227,726 The accompanying independent auditor s report should be read with this supplementary schedule. -22-

25 SCHEDULES OF CONTRIBUTIONS FROM EMPLOYER AND OTHER CONTRIBUTORS (UNAUDITED) Actuarially determined employer contribution $ 6,254,492 $ 6,337,328 $ 6,357,669 Actual employer contribution 6,254,492 6,498,316 6,357,669 Annual contribution deficiency (excess) $ - $ (160,988) $ - Covered-employee payroll $ 6,586,705 $ 5,127,475 $ 5,597,265 Actual contributions as a percentage of covered-employee payroll 94.96% % % Actuarial cost method Entry age normal Amortization method Level percentage of pay, closed Remaining amortization period 30 years for police officers and the average of expected future lifetime for firefighters. Asset valuation method Actuarial value Inflation: 3.00% Salary increases 3.00% Investment rate of return 8.00% Mortality RP-2000 Combined Healthy Mortality Table with Blue Collar Adjustment with fully generational mortality improvements based on Scale AA for males and females. 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. The accompanying independent auditor s report should be read with this supplementary schedule. -23-

26 SCHEDULE OF INVESTMENT RETURNS (UNAUDITED) Annual moneyweighted rate of return net of Year Ended investment September 30 expense % 2015 (3.08%) % % % 2011 (0.04%) % % 2008 (15.13%) % The accompanying independent auditor s report should be read with this supplementary schedule. -24-

27 SCHEDULE OF CHANGES IN THE EMPOYER S NET PENSION LIABILITY AND RELATED RATIOS (UNAUDITED) TOTAL PENSION LIABILITY: Service Cost $ 1,601,153 $ 1,839,411 $ 1,616,907 Interest 10,661,632 10,286,023 9,980,051 Change of benefit terms (1,959,015) - - Difference between actual and expected experience 614, ,939 - Adjustment for Chapter175/185 reserves 242, ,298 - Benefit Payments (9,731,347) (7,129,311) (8,827,646) NET CHANGE IN TOTAL PENSION LIABILITY 1,430,282 6,209,360 2,769,312 TOTAL PENSION LIABILITY - BEGINNING 136,441, ,231, ,462,645 TOTAL PENSION LIABILITY - ENDING 137,871, ,441, ,231,957 PLAN FIDUCIARY NET POSITION: Contributions - Employer and State 6,860,349 7,188,550 7,148,508 Contributions - Participants 692, , ,749 Net investment income (loss) 5,206,876 (2,924,651) 8,534,464 Benefit Payments (9,731,347) (7,129,311) (8,827,646) Adjustment for Chapter 175/185 reserves - 475,780 (410,985) Administrative expenses (237,405) (227,726) (179,329) Other 31,491 7,007 - NET CHANGE IN PLAN FIDUCIARY NET POSITION 2,822,451 (1,940,995) 7,040,761 PLAN FIDUCIARY NET POSITION - BEGINNING 91,342,471 93,283,466 86,242,705 PLAN FIDUCIARY NET POSITION - ENDING 94,164,922 91,342,471 93,283,466 NET PENSION LIABILITY - ENDING $ 43,706,677 $ 45,098,846 $ 36,948,491 PLAN FIDUCIARY NET POSITION AS A PERCENTAGE OF TOTAL PENSION LIABILITY 68.30% 66.95% 71.63% COVERED EMPLOYEE PAYROLL $ 6,586,705 $ 5,127,475 $ 5,597,265 NET PENSION LIABILITY AS A PERCENTAGE OF COVERED EMPLOYEE PAYROLL % % % 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. The accompanying independent auditor s report should be read with this supplementary schedule. -25-

28 COMPLIANCE REPORT SEPTEMBER 30, 2016

29 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 Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach 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 Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach as of and for the year ended September 30, 2016, and the related notes to the financial statements, which collectively comprise the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach s basic financial statements, and have issued our report thereon dated February 21, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach 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 opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach s internal control. Accordingly, we do not express an opinion on the effectiveness of the Retirement Plan for Police Officers and Firefighters of the City of North Miami Beach 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 entity 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 N. COMMERCE PARKWAY, SUITE 315, WESTON, FL TEL (954) FAX (954)