City of Gainesville Consolidated Police Officers and Firefighters Retirement Plan

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1 City of Gainesville Consolidated Police Officers and Firefighters Retirement Plan Information Required Under Governmental Accounting Standards Board Statement No. 67 as of September 30, 2014 Revised March 2015

2 Joseph Griffin Principal, Atlanta Retirement Practice Leader March 12, 2015 Board of Trustees City of Gainesville Consolidated Police Officers and Firefighters Retirement Plan 200 East University Avenue Gainesville, FL Buck Consultants, LLC Suite Galleria Parkway SE Atlanta, GA tel fax Board Members: This valuation provides information concerning the City of Gainesville Consolidated Police Officers and Firefighters Retirement Plan ( Plan ), in accordance with the Governmental Accounting Standards Board (GASB) Statement No. 67. This Statement is an amendment of Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 50, Pension Disclosures, effective for the fiscal year ending September 30, We certify that the information contained in this Actuarial Report has been prepared in accordance with generally accepted actuarial principles and practices. To the best of our knowledge, the information fairly presents the actuarial position of the Plan in accordance with the requirements of GASB Statement No. 67 as of September 30, The Board may use this report for the review of the operation of the plan and as a source of information for the City s financial statements. The report may also be used in the preparation of the Plan s audited financial statements. Use of this report for any other purpose or by anyone other than the Board or the staff of the Board may not be appropriate and may result in mistaken conclusions because of failure to understand applicable assumptions, methods, or inapplicability of the report for that purpose. No one may make any representations or warranties based on any statements or conclusions contained in this report without Buck Consultants prior written consent. Future actuarial measurements may differ significantly from current measurements due to plan experience differing from that anticipated by the economic and demographic assumptions, increases or decreases expected as part of the natural operation of the methodology used for these measurements, and changes in plan provisions or applicable law. An analysis of the potential range of such future differences is beyond the scope of this valuation. This valuation was performed using employee and financial data supplied by the City of Gainesville. The census data was received as of October 1, Buck did not audit this data, although it was reviewed for reasonableness and consistency with the prior year s information. The accuracy of the results presented herein is dependent on the accuracy of the data.

3 Consolidated Police Officers and Firefighters Retirement Plan March 12, 2015 City of Gainesville Page 2 The economic and demographic assumptions used in the valuation were adopted by the Board in consultation with Buck Consultants. The Board s established practice is to review the experience of the Plan at least once every five years to determine if any changes to the valuation assumptions are warranted. In general, the assumptions used in the valuation are based on recommendations made and approved by the Board as part of an experience study covering the 5 year period ending September 30, As a result of plan amendments first reflected in the October 1, 2012 actuarial valuation, the assumed retirement rates and the valuation methodology for the assumed increase in benefit service for accumulated sick leave and accumulated vacation paid upon termination were changed. Payroll growth assumptions were updated in 2012 and 2013 as required under Chapter 112 of Florida Statues. The investment return assumption was lowered from 8.5% to 8.4% as of October 1, 2013, and has been lowered to 8.3% as of September 30, The Board reviewed the investment rate of return assumption in February of 2015 based on an asset liability study reflecting the investment policy of the Plan. In our opinion, the actuarial assumptions used are appropriate for purposes of the valuation and are reasonably related to the experience of the Plan and to reasonable long-term expectations. The mortality improvement assumption was selected in accordance with Actuarial Standard of Practice No. 35. This report was prepared under the supervision of Joseph L. Griffin, an Associate of the Society of Actuaries and a Member of the American Academy of Actuaries. I meet the Academy s qualification Standards to issue this Statement of Actuarial Opinion. This report has been prepared in accordance with all applicable Actuarial Standards of Practice and I am available to answer questions about it. BUCK CONSULTANTS, LLC Joseph L. Griffin, ASA, EA, MAAA Principal, Consulting Actuary

4 Table of Contents Section 1 GASB 67 Information... 1 Section 2 Plan Member Data Section 3 Actuarial Assumptions and Methods Section 4 Summary of Plan Provisions i

5 Section 1 GASB 67 Information A. Summary of Significant Accounting Policies Method used to value investments. Investments (i.e., plan fiduciary net position) are reported at fair value. B. Plan Description Plan administration. The City of Gainesville Consolidated Police Officers and Firefighters Retirement Plan ( Plan ), a single employer defined benefit pension plan covering full-time employees of the City of Gainesville who are certified firefighters or law enforcement officers. An otherwise eligible employee may elect to have future City contributions made to the ICMA program in lieu of continuing active membership in the plan. Plan membership. As of October 1, 2013, retirement plan membership consisted of the following: Membership Status Count Inactive plan members or beneficiaries currently receiving 402 Inactive plan members entitled to but not yet receiving 17 Active plan members 389 Total 808 Benefits provided. Please see Section 4 of the report for a summary of plan provisions. Contributions. An actuarially determined contribution is calculated annually under the funding requirements of Part VII, Chapter 112, Florida Statutes. More specifically, the contribution is an amount to finance the costs of benefits earned by plan members during the year, with an additional amount to finance any unfunded accrued liability within a 30 year period. The actuarially determined contribution rate less member contributions and State contributions under Chapters 175/185, Florida Statutes, is paid by the City. Firefighters contribute 9.0% of gross pay and police officers contribute 7.5% of gross pay. For the year ended September 30, 2014, contributions to the Plan totaled $7,182,700. C. Investments Investment policy. The primary investment objective of the Plan is to ensure over the long-term life of the Plan, an adequate level of assets are available to fund the benefits guaranteed to City Police and Fire employees and their beneficiaries at the time they are payable. In meeting this objective, the Board seeks to achieve a high level of investment return consistent with a prudent level of risk. A secondary objective is to earn total rate of return after expenses that equals or exceeds the actuarial investment return assumption. The Trustees, with help from the actuary and investment consul tant, will use the Plan s asset allocation as the primary tool to achieve this objective. As this is a long -term projection and investments are subject to short-term volatility, this main investment focus of the Trustees towards the total Plan and each investment manager will be on performance relative to the appropriate asset class, mix of asset classes, and peer performance over relevant time periods. Each manager is expected to maintain a consistent philosophy and style, perform well versus others utilizing the same style, and add incremental value after costs. 1

6 Other general investment objectives for the Plan are: 1. Long-Term Growth of Capital In the absence of contributions and withdrawals, the asset value of the Plan should grow in the long run and earn rates of return greater than those of its Policy Index while avoiding excessive risk. 2. Preservation of Purchasing Power Asset growth, exclusive of contributions and withdrawals, should exceed the rate of inflation (as measured by annual CPI) in order to preserve purchasing power. 3. Maintain sufficient funding for unexpected developments, possible future benefit increases and reduction of expected investment returns. The investment managers may exercise full investment discretion within the prescribed investment policy guidelines and must adhere with Chapters 175/185, Florida Statutes and Section , Florida Statutes. Under paragraph 30b(1)(c) of GASB 67, additional disclosure may be required if there has been a change in the investment policy during the reporting period. Rate of return. GASB 67 requires that the inputs to the internal rate of return calculation used to determine the annual money-weighted rate of return should be determined at least monthly. It is our understanding that the investment consultant for the Plan will provide this return. D. Receivables Not applicable. E. Reserves The Plan receives annual contributions from the State of Florida under Chapter 175/185, Florida Statues. State Premium Tax contributions received annually in excess of $558, for police officers and $580, for firefighters are held in reserve for future plan improvements. All reserve balances allocated to the police officers are distributed to the Supplemental Retirement Program for Police Officers. As of September 30, 2014, the balance in the Supplemental Retirement Program for Police Officers was $958,326 and the accumulated balance available for firefighters was $934,516. F. Deferred Retirement Option Program Please refer to Section 4 for a description of the Deferred Retirement Option Program ( DROP ). As of September 30, 2014, the balance of the DROP accounts is $7,245,407. G. Net Pension Liability The components of the net pension liability at September 30, 2014, were as follows: Components of Net Pension Liability Total pension liability $245,915,632 Plan fiduciary net position (217,047,910) City s net pension liability $ 28,867,722 Plan fiduciary net position as a percentage of the total pension liability 88.26% 2

7 H. Actuarial Assumptions The total pension liability as of September 30, 2014 was determined based on a roll-forward of entry age normal liabilities from the October 1, 2013 actuarial valuation, using the following actuarial assumptions, applied to all periods included in the measurement: Actuarial Assumptions Inflation 3.0% Salary increases See Section 3 Investment rate of return 8.3%, net of pension plan investment expenses. Mortality rates were based on the RP-2000 Combined Fully Generational Mortality Table with Blue Collar adjustment. 50% of deaths among active Members are assumed to be service incurred, and 50% are assumed to be non-service incurred. Disabled mortality is based on the RP-2000 Disabled Retiree Mortality Table. The actuarial assumptions used as of September 30, 2014 were based on the assumptions approved by the Board in conjunction with an experience study covering the 5 year period ending on September 30, Due to plan changes first valued in the October 1, 2012 actuarial valuation, changes to the assumed retirement rates and the valuation methodology for the assumed increase in benefit service for accumulated sick leave and accumulated vacation paid upon termination were made. Payroll growth assumptions were updated in 2012 and 2013 as required under Chapter 112 of Florida Statues. The long-term expected rate of return on pension plan investments was reviewed by the Board in February of 2015 based on an asset liability study reflecting the current investment policy. Discount rate. The discount rate used to measure the total pension liability was 8.3% percent. The projection of cash flows used to determine the discount rate assumed that plan member contributions will be made at the current contribution rate and that City contributions will be made at rates equal to the actuarially determined contribution rates less the member and State contributions. Based on those assumptions, the pension plan s fiduciary net position was projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability, in accordance with the method prescribed by GASB Statement No. 67. We believe this assumption is reasonable for the purposes of the measurements required by the Statement. In the event that benefit payments are not covered by the Plan s fiduciary net position, a municipal bond rate of 3.51% would be used to discount the benefit payments not covered by the Plan s fiduciary net position. The 3.51% rate equals the S&P Municipal Bond 20-Year High Grade Rate Index at September 30, Sensitivity of the net pension liability to changes in the discount rate. The following presents the net pension liability, calculated using the discount rate of 8.3%, as well as what the Plan's net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (7.3%) or 1-percentage-point higher (9.3%) than the current rate: 1% Decrease (7.3%) Current Discount Rate (8.3%) 1% Increase (9.3%) Net Pension Liability $56,835,618 $28,867,722 $5,548,250 3

8 Schedules of Required Supplementary Information Schedule of Changes in Net Pension Liability and Related Ratios Total pension liability 2014 Service cost $ 3,730,365 Interest 19,299,422 Changes of benefit terms 0 Differences between expected and actual experience 0 Changes of assumptions 2,523,158 Benefit payments, including refunds of employee contributions (12,898,782) Net change in total pension liability $ 12,654,163 Total pension liability-beginning 233,261,469 Total pension liability-ending (a) 245,915,632 Plan fiduciary net pension Contributions- City $ 3,855,020 Contributions- Member 2,067,685 Contributions- State 1,259,995 Net investment income 21,911,535 Benefit payments, including refunds of employee contributions (12,898,782) Administrative expense (609,264) Net change in plan fiduciary net position $ 15,586,189 Plan fiduciary net position-beginning $ 201,461,721 Plan fiduciary net position-ending (b) $ 217,047,910 City s net pension liability-ending (a)-(b) $ 28,867,722 Plan fiduciary net position as a percentage of the total pension liability 88.26% Covered-employee payroll $ 24,364,333 Net pension liability as a percentage of coveredemployee payroll Notes to Schedule: A. Benefit changes: None % B. Changes of assumptions: The investment rate of return assumption was changed from 8.4% to 8.3%. 4

9 Schedule of City Contributions Notes to Schedule: 2014 Actuarially determined contribution $ 3,855,020 Contributions related to the actuarially determined contribution 3,855,020 Contribution deficiency (excess) $ 0 A. Valuation date: Actuarially determined contribution calculated as of October 1, 2012 applies for the fiscal year ended September 30, B. Methods and assumptions used to determine the actuarially determined contribution: Actuarial cost method: Amortization method Amortization period Entry Age Normal Level percent, closed 30 years Asset valuation method Actuarial value Inflation 3.0% Salary increases Please refer to the age related increase rates shown in section 3 of the report Payroll Growth 3.22% Investment rate of return 8.5%, net of investment expenses Retirement age Please see section 3 of the report. Mortality The RP-2000 Combined Fully Generational Mortality Table with Blue Collar adjustment. 50% of deaths among active Members are assumed to be service incurred, and 50% are assumed to be non-service incurred. For disabled retirees, the RP-2000 Disabled Retiree Mortality Table. Other information Please see Section 3 of the report. Schedule of Investment Returns GASB 67 requires that the inputs to the internal rate of return calculation used to determine the annual moneyweighted rate of return should be determined at least monthly. It is our understanding that the investment consultant for the Plan will provide this return. 5

10 Section 1 GASB 67 Information Table 1 Projection of Fiduciary Net Position (000 s omitted) Fiscal Year Beginning Ending Ending Fiduciary Member Employer Benefit Administrative Investment Fiduciary 9/30 Net Position Contributions Contributions Payments Expenses Earnings Net Position 2014 $ 201,462 $ 2,068 $ 5,115 $ 12,899 $ 609 $ 21,911 $ 217, ,048 1,862 4,778 14, , , ,936 1,843 5,123 15, , , ,842 1,772 5,091 16, , , ,018 1,779 5,294 16, , , ,356 1,735 5,339 17, , , ,737 1,693 5,446 18, , , ,428 1,676 5,643 18, , , ,529 1,647 5,791 19, , , ,941 1,616 5,966 20, , , ,507 1,550 6,096 20, , , ,207 1,484 6,254 21, , , ,182 1,433 6,410 21, , , ,885 1,438 6,688 22, , , ,128 1,390 6,808 23, , , ,154 1,255 6,734 25, , , ,438 1,092 6,597 26, , , , ,677 26, , , , ,675 27, , , , ,546 28, , , , ,330 29, , , , ,468 30, , , , ,023 31, , , , ,947 32, , , , ,522 32, , , , ,679 32, , , ,625-3,705 32, , , ,906-1,260 32, , , ,758-1,260 31, , , ,642-1,260 31, , ,690 6

11 Section 1 GASB 67 Information Table 1 Projection of Fiduciary Net Position (000 s omitted) Fiscal Year Beginning Ending Ending Fiduciary Member Employer Benefit Administrative Investment Fiduciary 9/30 Net Position Contributions Contributions Payments Expenses Earnings Net Position ,690-1,260 30, , , ,020-1,260 30, , , ,805-1,260 29, , , ,163-1,260 28, , , ,294-1,260 28, , , ,376-1,260 27, , , ,607-1,260 26, , , ,184-1,260 26, , , ,337-1,260 25, , , ,317-1,260 24, , , ,391-1,260 23, , , ,845-1,260 22, , , ,985-1,260 21, , , ,131-1,260 20, , , ,629-1,260 19, , , ,850-1,260 19, , , ,192-1,260 18, ,389 1,014, ,014,079-1,260 17, ,480 1,080, ,080,967-1,260 16, ,069 1,154, ,154,349-1,260 15, ,197 1,234, ,234,757-1,260 14, ,908 1,322, ,322,765-1,260 13, ,249 1,418, ,418,996-1,260 12, ,273 1,524, ,524,124-1,260 11, ,034 1,638, ,638,879-1,260 11, ,595 1,764, ,764,054-1,260 10, ,019 1,900, ,900,505-1,260 9, ,380 2,049, ,049,155-1,260 8, ,752 2,211, ,211,004-1,260 7, ,219 2,387, ,387,129-1,260 6, ,870 2,578,696 7

12 Section 1 GASB 67 Information Table 1 Projection of Fiduciary Net Position (000 s omitted) Fiscal Year Beginning Ending Ending Fiduciary Member Employer Benefit Administrative Investment Fiduciary 9/30 Net Position Contributions Contributions Payments Expenses Earnings Net Position ,578,696-1,260 6, ,802 2,786, ,786,959-1,260 5, ,118 3,013, ,013,274-1,260 4, ,932 3,259, ,259,105-1,260 4, ,363 3,526, ,526,028-1,260 3, ,543 3,815, ,815,743-1,260 2, ,612 4,130, ,130,087-1,260 2, ,612 4,444,431 8

13 Section 1 GASB 67 Information Table 2 Actuarial Present Values of Projected Benefit Payments (000 s omitted) Benefit Payments Present Value of Benefit Payments Fiscal Year Ending 9/30 Beginning Fiduciary Net Position Funded Portion at 8.30% Unfunded Portion at 3.51% Using a Single Discount Rate of 8.30% Benefit Payments Funded Portion Unfunded Portion 2014 $ 201,462 $ 12,899 $ 12,899 $ - $ 12,395 $ - $ 12, ,048 14,795 14,795-13,127-13, ,936 15,810 15,810-12,953-12, ,842 16,158 16,158-12,224-12, ,018 16,944 16,944-11,836-11, ,356 17,648 17,648-11,383-11, ,737 18,163 18,163-10,817-10, ,428 18,722 18,722-10,295-10, ,529 19,347 19,347-9,824-9, ,941 20,173 20,173-9,458-9, ,507 20,951 20,951-9,070-9, ,207 21,629 21,629-8,646-8, ,182 21,912 21,912-8,088-8, ,885 22,608 22,608-7,705-7, ,128 23,865 23,865-7,510-7, ,154 25,326 25,326-7,359-7, ,438 26,163 26,163-7,020-7, ,475 26,885 26,885-6,661-6, ,662 27,832 27,832-6,367-6, ,709 28,829 28,829-6,089-6, ,375 29,619 29,619-5,777-5, ,748 30,921 30,921-5,569-5, ,621 31,125 31,125-5,176-5, ,359 32,289 32,289-4,958-4, ,489 32,626 32,626-4,626-4, ,316 32,861 32,861-4,302-4, ,625 32,490 32,490-3,927-3, ,906 32,079 32,079-3,580-3, ,758 31,632 31,632-3,260-3, ,642 31,143 31,143-2,964-2, ,690 30,634 30,634-2,692-2,692 9

14 Section 1 GASB 67 Information Table 2 Actuarial Present Values of Projected Benefit Payments (000 s omitted) Benefit Payments Present Value of Benefit Payments Fiscal Year Ending 9/30 Beginning Fiduciary Net Position Funded Portion at 8.30% Unfunded Portion at 3.51% Using a Single Discount Rate of 8.30% Benefit Payments Funded Portion Unfunded Portion ,020 30,060 30,060-2,439-2, ,805 29,489 29,489-2,209-2, ,163 28,851 28,851-1,996-1, ,294 28,184 28,184-1,800-1, ,376 27,481 27,481-1,621-1, ,607 26,762 26,762-1,457-1, ,184 26,007 26,007-1,308-1, ,337 25,218 25,218-1,171-1, ,317 24,397 24,397-1,046-1, ,391 23,549 23, ,845 22,677 22, ,985 21,789 21, ,131 20,889 20, ,629 19,981 19, ,850 19,067 19, ,192 18,152 18, ,014,079 17,243 17, ,080,967 16,338 16, ,154,349 15,440 15, ,234,757 14,551 14, ,322,765 13,669 13, ,418,996 12,795 12, ,524,124 11,930 11, ,638,879 11,070 11, ,764,054 10,219 10, ,900,505 9,380 9, ,049,155 8,554 8, ,211,004 7,744 7, ,387,129 6,954 6, ,578,696 6,190 6, ,786,959 5,454 5,

15 Section 1 GASB 67 Information Table 2 Actuarial Present Values of Projected Benefit Payments (000 s omitted) Benefit Payments Present Value of Benefit Payments Fiscal Year Ending 9/30 Beginning Fiduciary Net Position Funded Portion at 8.30% Unfunded Portion at 3.51% Using a Single Discount Rate of 8.30% Benefit Payments Funded Portion Unfunded Portion ,013,274 4,751 4, ,259,105 4,091 4, ,526,028 3,479 3, ,815,743 2,919 2, ,130,087 2,919 2,

16 Section 2 Plan Member Data A. Summary of Member Data October 1, 2013 Active Members 389 Inactive Members not in Receipt Terminated Members 17 Disabled Members 0 Beneficiaries 0 Total Inactive Members Not Receiving Benefits 17 Members Receiving Benefits Retired Members 351 Disabled Members 25 Beneficiaries 26 Total Members Receiving Benefits 402 Total Members

17 B. Member Statistics October 1, 2013 Active members Number 389 Average age 37.8 Average service 10.1 Terminated vested members Number 17 Average annual retirement benefits $12,736 Retired members Number 351 Average annual retirement benefits $35,730 Disabled members Number 25 Average annual retirement benefits $16,943 Survivors and beneficiaries of members Number 26 Average annual retirement benefits $15,165 Total Number of Members

18 Section 3 Actuarial Assumptions and Methods Actuarial Cost Method The method used to determine Normal Cost and Accrued Actuarial Liability is the Entry Age Normal Cost Method. Under the Entry Age Normal Cost Method, an annual Normal Cost is determined for each covered active Member which is the contribution required to provide all the projected pension benefits assuming this contribution is payable over a period ending on the date of retirement (separation from active service) and expressed as a level percentage of compensation. The Actuarial Accrued Liability is determined as the excess of the total present value of all pension benefits over the total present value of future Normal Costs. The Unfunded Actuarial Accrued Liability as of the valuation date is determined as the excess of the Actuarial Accrued Liability over the assets of the Fund. The Normal Cost and Accrued Actuarial Liability are derived by making certain assumptions as to the rates of interest, mortality, turnover, etc., which are assumed to reflect experience for many years into the future. Since actual experience will differ from the assumptions, the costs determined must be regarded as estimates of the true costs of the Plan. The effects of any actuarial gains or losses are immediately reflected in the Unfunded Actuarial Accrued Liability and the Normal Cost. The unfunded actuarial accrued liability is amortized as a level percent of payroll over periods up to 30 years. Funding Period (Pursuant to Chapter 112, Florida Statutes) The following amortization periods will apply to future changes in the unfunded actuarial accrued liability: Benefit improvements Actuarial gain/loss Changes in assumptions and methods 30 years 30 years 30 years Decrements Healthy Mortality Fully Generational RP-2000 Combined Healthy Table with Blue Collar Adjustment. 50% of deaths among active Members are assumed to be service incurred, and 50% are assumed to be nonservice incurred. Disabled Mortality RP-2000 Disabled Retiree Mortality Table. Disability Representative values of the assumed annual rates of disability among members in active service are set forth in the following table. All disabilities are assumed to be service-related. Age Rate Age Rate Age Rate Age Rate % % % % % % % % 14

19 Permanent Withdrawal from Active Status (Firefighters) The assumed annual rates of withdrawal among firefighters in active service are set forth in the following table: Age Rate Age Rate Age Rate Less than % 35 to % 45 to % 30 to % 40 to % 50 or older 0.0% Permanent Withdrawal from Active Status (Police Officers) The assumed annual rates of withdrawal among police officers in active service are set forth in the following table: Years of Service Age < 1 1 to 2 2 to 3 3 to 4 4 to 5 5 or more Less than % 12.0% 8.0% 6.0% 4.0% 4.0% 30 to to to to to or older 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 12.0% 12.0% 12.0% 12.0% 12.0% 12.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 3.5% 2.0% 1.5% 1.0% 0.5% 0.0% Retirement The assumed annual rates of retirement are set forth in the following table: Service Rate at Each Age 20 25% % % 100% of members retire upon reaching age 58. Police officers who are not eligible to retire by July 1, 2013 are assumed to retire at a rate of 1% per year once the sum of age and years of Credited Service is at least 70 is attained, with 100% assumed to retire upon reaching 25 years of Credited Service or age 58. Interest Rates Used for Calculating All Liabilities 8.30% per annum Marriage Assumption Percent Married 90% of members are assumed to be married Age Difference Between Spouses Male spouses are assumed to be two years older than female spouses. 15

20 A Salary Increases Salaries are assumed to increase at the annual rates set forth in the following table: Expenses Age Range Rate at Each Age Age Range Rate at Each Age Less than % 35 to % 30 to % 40 and older 4.0% Annual administrative expenses, exclusive of investment expenses and commissions, are assumed to be equal to the annual average of actual administrative expenses incurred since the previous valuation. In addition, the interest rate set forth above is assumed to be net of investment expenses and commissions. Assets The actuarial value of assets is based on a moving market value averaged over five years. Each year, the actuarial asset value is projected forward at the valuation date based on actual contributions and benefit payments at the assumed interest assumption. One fifth of the difference between the projected actuarial value and the market value plus the prior deferrals is added to the projected actuarial value. The remaining four fifths is deferred to each of the next four years as future adjustments to the actuarial value. The result cannot be greater than 120% of market value or less than 80% of market value. Unfunded Liability Bases and Funding Period (Pursuant to Chapter 112, Florida Statutes) All unfunded liability bases which were established prior to October 1, 1997, as well as those bases established as of that date, have been combined into a single, fresh-start base effective October 1, This base will be amortized over a period of 20 years, which period is within the maximum amortization period allowed by Chapter , Florida Statutes. New bases established after October 1, 1997 will be amortized over a period of 30 years as allowed by the Statutes. In addition, the annual payment towards the unfunded actuarial accrued liability has been determined as a level percentage of payroll. Total payroll has been assumed to increase at the rate of 2.94% per annum, which is limited to the ten-year average historical growth in payroll. Vacation Payout at Termination Accumulated vacation that is paid upon termination of employment is assumed to be equal to the balance as of the valuation date. Accumulated Sick Leave Accumulated sick leave is assumed to increase benefit service according to the balance as of the valuation date. Overtime Pay Overtime pay will be equal to 6.5% of non-overtime related pensionable earnings in the years prior to retirement. 16

21 The following assumptions have been changed in the past 2 years: Effective October 1, 2012: a. The payroll growth assumption was decreased from 4.00% to 3.22% per annum to remain lower than the historical ten-year average annual increase in covered payroll as required under Chapter 112 of Florida Statutes. b. Retirement rates for police officers who were not eligible to retire as of July 1, 2013 were changed to reflect the expected impact of the COLA eligibility amendment on the timing of retirement. c. Accumulated vacation paid upon terminated was changed from 3.0% of final average earnings to the explicit recognition of actual balances as of the valuation date. d. Assumed increase in benefit service for accumulated sick leave upon terminated was changed from 3/5 of a year to the explicit recognition of actual balances as of the valuation date. e. Assets were allocated separately to police officers and firefighters. Effective October 1, 2013: a. The investment rate of return assumption was decreased from 8.50% to 8.40%. b. The payroll growth assumption was decreased from 3.22% to 2.94% per annum to remain lower than the historical ten-year average annual increase in covered payroll as required under Chapter 112 of Florida Statutes. 17

22 Section 4 Summary of Plan Provisions Monthly Accrued Benefit Prior to July 9, 2007, 2.5% of final Average Earnings multiplied by Credited Service On and after July 9, 2007, 2.5% of Final Average Earnings multiplied by Credited Service prior to October 1, 2005 plus 2.625% of final Average Earnings multiplied by Credited Service on or after October 1, The multiplier applied to Credited Service earned after July 1, 2013 for police officers, or January 1, 2014 for firefighters was changed to 2.5%. Normal Retirement Age and Benefit Age Age 55 with at least 10 years of Credited Service or any age with at least 20 years of Credited Service, or any age if combined age and Credited Service is at least 70. For police officers who become participants on or after July 1, 2013, and firefighters who become participants on or after January 1, 2014, the normal retirement date is age 55 with at least 10 years of Credited Service or any age with at least 25 years of Credited Service, or any age if combined age and Credited Service is at least 70. Amount Monthly Accrued Benefit Form of Payment Life annuity with ten years certain (normal form of payment); Life annuity; Actuarially reduced 66 2 / 3 % joint and contingent annuity (optional); Actuarially reduced 50% joint and last survivor annuity (optional); Actuarially reduced 66 2 / 3 % joint and last survivor annuity (optional); Actuarially reduced 75% joint and last survivor annuity (optional); Actuarially reduced 100% joint and last survivor annuity (optional); (Note: All forms of payment guarantee at least the return of the Member Contributions. In addition, the Member may change his joint annuitant after retirement under the conditions set forth in the Plan.) Early Retirement Age and Benefit Age Age 50 with at least 10 years of Credited Service. Amount Monthly Accrued Benefit actuarially reduced by no more than 3% per year for each year that age at retirement precedes age 55. Form of Payment Same as for Normal Retirement 18

23 Deferred Retirement Option Program (DROP) Effective October 1, 1999, a deferred retirement option plan (DROP) has been established. A member is eligible for participation in the DROP after completing 25 years of service or provided combined age and Credited Service is at least 70. Members of the DROP continue as active employees but no longer contribute or accrue benefits. The accrued benefit is calculated at entry into the DROP and is paid into an account within the Plan designated by the member for investment. The maximum period of participation is 60 months. At termination of employment, participant is paid balance of account in the form elected. Effective July 10, 2007, a reverse deferred retirement option program (reverse DROP) has been established. A member is eligible for participation in the reverse DROP if eligibility for the DROP has been met as of the effective date of commencement in the DROP. Participation in the reverse DROP allows the participant to select a date in the past (the effective date of commencement) for participation in the DROP. Disability Retirement Eligibility and Benefit Eligibility Active members are eligible for a disability benefit provided that they either: (1) become totally and permanently disabled in the line of duty, or (2) have earned at least five years of Credited Service and become totally and permanently disabled not in the line of duty. Amount A monthly benefit equal to the largest of (a), (b), or (c), as follows: (a) Monthly Accrued Benefit; (b) 42% of Final Average Earnings (for disabilities incurred in the line of duty); or (c) 25% of Final Average Earnings (for all other disabilities) Form of Payment Same as for Normal Retirement, but in no event will payments be made after the Member s recovery from such disability. Termination Benefit Age Age 55 with early commencement available as early as age 50 with at least 10 years of Credited Service. Amount Monthly Accrued Benefit actuarially reduced, but not to exceed 3% per year, for each year that age at retirement precedes age 55. Form of Payment Same as for Normal Retirement (Note: Members with less than 10 years of Credited Service who terminate employment will receive a refund of their Member Contributions. Members with at least 10 years of Credited Service who terminate employment may elect to receive a refund of their Member Contributions in lieu of any other Plan benefit.) 19

24 Pre-Retirement Death Benefit In the case of the death of a member prior to retirement, his beneficiary will receive the member s accumulated contributions without interest, or if such member had at least 10 years of Credited Service, then his beneficiary will receive the member s benefit accrued as of the date of death and payable in the form chosen by the beneficiary, reduced if paid at the deceased member s Early retirement date and unreduced if paid at the deceased member s normal retirement date. Cost-of-Living Adjustments A retired member on or before October 1, 1999 will receive an annual 2% adjustment beginning at the later of November 1, 1999 and the October 1 following his 62 nd birthday. A member who retires after October 1, 1999 (including DROP participants) with 25 or more years of service will receive an annual 2% adjustment beginning at the later of November 1, 1999 and the October first following his 55th birthday. A member who retires after October 1, 1999 (including DROP participants) with 20 or more years of service but less than 25 years of service or who retires on or after July 9, 2007 under the Rule of 70 with less than 20 years of service will receive an annual 2% adjustment beginning at the later of November 1, 1999 and the October first following his 62 nd birthday. A member who receives a disability retirement benefit after October 1, 1999, shall upon the attainment of age 62 on or before October 1 st, have the next monthly retirement benefit adjusted by two percent beginning his benefit for the month of October next coincident with the retiree s attainment of age 62. Members who are police officers with less than 20 years of service as of July 1, 2013 are required to have 25 years of service to receive a cost-of-living adjustment of 1% beginning at age 55, increasing to 2% at age 62. Members who retire with less than 25 years of service will receive no cost-of-living adjustment. Final Average Earnings Final Average Earnings mean average earnings for the highest 36 consecutive months, or highest 48 consecutive months for police officers who become members on or after July 1, Earnings include base pay (including all paid leaves), overtime pay, working out of classification pay, longevity pay, Florida city firefighters supplemental education incentive payments, Florida police officer educational salary incentive payments, police security overtime pay, special assignment pay, special duty assignment pay, paramedic certification pay, stand-by pay, call-back pay, acting out of classification pay, and termination vacation pay, except as provided for by collective bargaining agreements. In addition, for those employees who become a member of the plan on or after October 1, 1996, earnings are limited to $150,000 per year (as indexed). Credited Service Credited Service means the total number of months of service with the City, expressed in terms of full and fractional years, where a member earns one month of service for at least 10 days of service within each month beginning on the day of the month corresponding to the member s date of employment. Credited Service will include unused sick leave credits, any authorized leave of absence up to 90 days, and military service as required by Federal law. 20

25 Membership Requirements In order to become a Member of the Plan, a person must be employed by the City of Gainesville, Florida on a fulltime basis as a certified firefighter or law enforcement officer. An otherwise eligible employee may elect to have future City contributions made to the ICMA program in lieu of continuing his active membership in the plan. Member Contributions Members are required to contribute 7-1/2% of gross pay. Effective with the first full pay period following January 1, 2014, firefighters are expected to contribute 9.0% of gross pay. Member Contributions are deemed to be picked-up by the City pursuant to Internal Revenue Code (IRC) 414(h)(2). Actuarial Equivalence Actuarial equivalence shall mean a benefit of equivalent value to the benefit which otherwise would have been provided to the member, based on the 1994 Group Annuity Mortality Basic Table-Unisex 50/50 and an interest rate of 9.5 percent, unless otherwise specified. The following plan amendments have been adopted within the past 2 years: Effective July 1, 2013 (Police Officers only): a. The multiplier applied to service earned after July 1, 2013 was changed to 2.5%. b. No more than 300 hours of overtime pay per year earned after July 1, 2013 will be included in earnings. c. Accumulated vacation pay earned on or after July 1, 2013 will not be included in earnings. d. The lesser of the number of months of unused sick leave earned on or before June 30, 2013 and the months of unused sick leave at the time of retirement will be included in credited service. e. For police officers who become participants on or after July 1, 2013, the normal retirement date is age 55 with at least 10 years of Credited Service or any age with at least 25 years of Credited Service, or any age if combined age and Credited Service is at least 70. f. Members who are police officers with less than 20 years of service as of July 1, 2013 are required to have 25 years of service to receive a cost-of-living adjustment of 1% beginning at age 55, increasing to 2% at age 62. Members who retire with less than 25 years of service will receive no cost-of-living adjustment. Effective January 1, 2014 (Firefighters only): a. The multiplier applied to service earned after January 1, 2014 was changed to 2.5%. b. No more than 300 hours of overtime pay per year earned after January 1, 2014 will be included in earnings. c. Accumulated vacation pay earned on or after January 1, 2014 will not be included in earnings. d. The lesser of the number of months of unused sick leave earned on or before December 31, 2013 and the months of unused sick leave at the time of retirement will be included in credited service. e. For firefighters who become participants on or after January 1, 2014, the normal retirement date is age 55 with at least 10 years of Credited Service or any age with at least 25 years of Credited Service, or any age if combined age and Credited Service is at least 70. f. Effective the first full pay period following January 1, 2014, members will contribute a fixed employee contribution rate of 9.0%. 21