CITY OF MELBOURNE GENERAL EMPLOYEES' AND SPECIAL RISK CLASS EMPLOYEES' PENSION PLAN ACTUARIAL VALUATION REPORT AS OF OCTOBER 1, 2017

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1 CITY OF MELBOURNE GENERAL EMPLOYEES' AND SPECIAL RISK CLASS EMPLOYEES' PENSION PLAN ACTUARIAL VALUATION REPORT AS OF OCTOBER 1, 2017 CONTRIBUTIONS APPLICABLE TO THE PLAN/FISCAL YEAR ENDED SEPTEMBER 30, 2019

2 January 30, 2018 Board of Trustees c/o Jennifer Chase, Payroll/Pension Manager City of Melbourne General Employees Retirement Trust Fund 900 East Strawbridge Avenue Melbourne, FL Re: City of Melbourne General Employees and Special Risk Class Employees Pension Plan Dear Board: We are pleased to present to the Board this report of the annual actuarial valuation of the City of Melbourne General Employees and Special Risk Class Employees Pension Plan. Included are the related results for GASB Statements No. 67 and No. 68. The funding valuation was performed to determine whether the assets and contributions are sufficient to provide the prescribed benefits and to develop the appropriate funding requirements for the applicable plan year. The calculation of the liability for GASB results was performed for the purpose of satisfying the requirements of GASB Statements No. 67 and No. 68. Please note that this valuation may not be applicable for any other purposes. The valuation has been conducted in accordance with generally accepted actuarial principles and practices, including the applicable Actuarial Standards of Practice as issued by the Actuarial Standards Board, and reflects laws and regulations issued to date pursuant to the provisions of Chapter 112, Florida Statutes, as well as applicable federal laws and regulations. In our opinion, the assumptions used in this valuation, as adopted by the Board of Trustees, represent reasonable expectations of anticipated plan experience. Future actuarial measurements may differ significantly from the current measurements presented in this report for a variety of reasons including: changes in applicable laws, changes in plan provisions, changes in assumptions, or plan experience differing from expectations. In conducting the valuation, we have relied on personnel, plan design, and asset information supplied by the Board of Trustees, financial reports prepared by the custodian bank, and the actuarial assumptions and methods described in the Actuarial Assumptions section of this report. While we cannot verify the accuracy of all this information, the supplied information was reviewed for consistency and reasonableness. As a result of this review, we have no reason to doubt the substantial accuracy of the information and believe that it has produced appropriate results. This information, along with any adjustments or modifications, is summarized in various sections of this report Parker Commons Blvd., Suite 104 Fort Myers, FL (239) Fax (239)

3 The total pension liability, net pension liability, and certain sensitivity information shown in this report are based on an actuarial valuation performed as of October 1, The total pension liability was rolled-forward from the valuation date to the plan s fiscal year ending September 30, 2017 using generally accepted actuarial principles. It is our opinion that the assumptions used for this purpose are internally consistent, reasonable, and comply with the requirements under GASB No. 67 and No. 68. The undersigned is familiar with the immediate and long-term aspects of pension valuations, and meets the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. All of the sections of this report are considered an integral part of the actuarial opinions. To our knowledge, no associate of Foster & Foster, Inc. working on valuations of the program has any direct financial interest or indirect material interest in the City of Melbourne, nor does anyone at Foster & Foster, Inc. act as a member of the Board of Trustees of the City of Melbourne General Employees and Special Risk Class Employees Pension Plan. Thus, there is no relationship existing that might affect our capacity to prepare and certify this actuarial report. If there are any questions, concerns, or comments about any of the items contained in this report, please contact me at Respectfully submitted, Foster & Foster, Inc. By: Patrick T. Donlan, ASA, EA, MAAA Enrolled Actuary # PTD/lke Enclosures

4 TABLE OF CONTENTS Section Title Page I Introduction a. Summary of Report 5 b. Changes Since Prior Valuation 7 c. Requirements of Chapter 112, Part VII, Florida Statutes 8 II Valuation Information a. Reconciliation and Derivation of the Unfunded Actuarial Accrued Liability 19 b. Detailed Gain/Loss Analysis 20 c. Actuarial Assumptions and Methods 21 d. Valuation Notes 25 III Trust Fund 27 IV Member Statistics a. Statistical Data 38 b. Age and Service Distribution 40 c. Member Reconciliation 42 V Summary of Plan Provisions 44 VI VI Governmental Accounting Standards Board Disclosure Information 47 Governmental Accounting Standards Board Disclosure Information 45 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 4

5 SUMMARY OF REPORT The regular annual actuarial valuation of the City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan, performed as of October 1, 2017, has been completed and the results are presented in this Report. The contributions developed in the valuation apply to the plan/fiscal year ended September 30, The contribution requirements, compared to those developed in the October 1, 2016 actuarial valuation report, are as follows: Valuation Date 10/1/ /1/2016 Applicable Plan/Fiscal Year 9/30/2019 9/30/2018 Regular Class Employees Total Required Contribution ¹ % of Total Annual Non-DROP Payroll $45, % Special Risk Class Employees Total Required Contribution ¹ % of Total Annual Non-DROP Payroll $73, % ¹ For the Regular Class Employees' Plan, the City has a prepaid contribution of $335, For the Special Risk Class Employees' Plan, the City has a prepaid contribution of $27, These prepaid contributions are available to assist in offsetting the City s annual funding requirements for each trust. Please note the above stated costs reflect a mandated change to the assumed rates of mortality, as described on page 7 of this report. Additionally, as approved by the Board of Trustees, the contribution method has been changed from the percentage of payroll method to a fixed dollar methodology. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 5

6 The balance of this report presents additional details of the actuarial valuation and the general operation of the Fund. The undersigned would be pleased to meet with the Board of Trustees to discuss the Report and answer any pending questions concerning its contents. Respectfully submitted, FOSTER & FOSTER, INC. By: Drew D. Ballard, EA, MAAA By: Patrick T. Donlan, ASA, EA, MAAA City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 6

7 CHANGES SINCE PRIOR VALUATION Regular Class Plan Changes There have been no changes in benefits since the prior valuation. Actuarial Method and Assumption Changes Pursuant to the provisions of Chapter , Laws of Florida, the mortality assumption reflects a change from the rates utilized by the Florida Retirement System in the July 1, 2015 valuation to those utilized in the July 1, 2016 valuation for other than special risk participants. Special Risk Class Plan Changes There have been no changes in benefits since the prior valuation. Actuarial Method and Assumption Changes Pursuant to the provisions of Chapter , Laws of Florida, the mortality assumption reflects a change from the rates utilized by the Florida Retirement System in the July 1, 2015 valuation to those utilized in the July 1, 2016 valuation for special risk participants. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 7

8 COMPARATIVE SUMMARY OF PRINCIPAL VALUATION RESULTS (Regular Class) A. Participant Data 10/1/ /1/2016 Actives 4 5 Service Retirees DROP Retirees 1 2 Beneficiaries 4 2 Disability Retirees 0 0 Terminated Vested Total Total Annual Payroll $170,413 $212,361 Payroll Under Assumed Ret. Age 170, ,361 Annual Rate of Payments to: Service Retirees 344, ,230 DROP Retirees 3,629 24,861 Beneficiaries 17,161 12,692 Disability Retirees 0 0 Terminated Vested 140, ,850 B. Assets Actuarial Value (AVA) ¹ 7,407,799 7,230,894 Market Value (MVA) ¹ 7,397,166 6,858,732 C. Liabilities Present Value of Benefits Actives Retirement Benefits 547, ,499 Disability Benefits 31,076 32,556 Death Benefits 11,105 15,150 Vested Benefits 3,194 4,819 Refund of Contributions 0 0 Service Retirees 4,495,230 3,495,023 DROP Retirees ¹ 56, ,974 Beneficiaries 81,857 56,780 Disability Retirees 0 0 Terminated Vested 1,259,299 1,505,593 Total 6,485,376 6,386,394 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 8

9 (Regular Class) C. Liabilities - (Continued) 10/1/ /1/2016 Present Value of Future Salaries 1,071,070 1,136,190 Present Value of Future Member Contributions (buybacks) 0 46,159 Total Normal Cost 0 0 Present Value of Future Normal Costs (EAN) 174, ,371 Accrued Liability (Retirement) 393, ,563 Accrued Liability (Disability) 16,705 17,701 Accrued Liability (Death) 6,762 8,837 Accrued Liability (Vesting) 1,577 2,552 Accrued Liability (Refunds) 0 0 Accrued Liability (Inactives) ¹ 5,892,429 5,486,370 Total Actuarial Accrued Liability (EAN AL) 6,310,573 6,205,023 Total Actuarial Accrued Liability (Aggregate) 7,407,799 7,230,894 Unfunded Actuarial Accrued Liability (UAAL) 0 0 Funded Ratio (AVA / EAN AL) 117.4% 116.5% City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 9

10 (Regular Class) D. Actuarial Present Value of Accrued Benefits 10/1/ /1/2016 Vested Accrued Benefits Inactives ¹ 5,892,429 5,486,370 Actives 296, ,817 Member Contributions 0 46,159 Total 6,189,401 6,059,346 Non-vested Accrued Benefits 1,383 17,980 Total Present Value Accrued Benefits (PVAB) 6,190,784 6,077,326 Funded Ratio (MVA / PVAB) 119.5% 112.9% Increase (Decrease) in Present Value of Accrued Benefits Attributable to: Plan Amendments 0 Assumption Changes 0 New Accrued Benefits 44,333 Benefits Paid (344,239) Interest 413,364 Other 0 Total 113,458 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 10

11 Valuation Date 10/1/ /1/2016 Applicable to Fiscal Year Ending 9/30/2019 9/30/2018 E. Pension Cost Normal Cost ² $0 $0 % of Total Annual Payroll Administrative Expenses ² $45,479 $49,404 % of Total Annual Payroll Payment Required to Amortize Unfunded Actuarial Accrued Liability (as of 10/1/2017) ² $0 $0 % of Total Annual Payroll Total Required Contribution $45,479 $49,404 % of Total Annual Payroll Expected Member Contributions ² $0 $0 % of Total Annual Payroll Expected City Contribution $45,479 $49,404 % of Total Annual Payroll F. Past Contributions Plan Years Ending: 9/30/2017 City Requirement 25,204 Actual Contributions Made: (Regular Class) Members (excluding buyback) 0 City 25,204 Total 25,204 G. Net Actuarial (Gain)/Loss N/A ¹ The asset values and liabilities include accumulated DROP Plan Balances as of 9/30/2017 and 9/30/2016. ² Contributions developed as of 10/1/2017 displayed above have been adjusted to account for an assumed interest component. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 11

12 (Regular Class) H. Schedule Illustrating the Amortization of the Total Unfunded Actuarial Accrued Liability as of: Year Projected Unfunded Actuarial Accrued Liability N/A Aggregate Actuarial Cost Method I. (i) 3 Year Comparison of Actual and Assumed Salary Increases Actual Assumed Year Ended 9/30/ % 6.00% Year Ended 9/30/ % 6.00% Year Ended 9/30/ % 6.00% (ii) 3 Year Comparison of Investment Return on Actuarial Value Actual Assumed Year Ended 9/30/ % 7.00% Year Ended 9/30/ % 7.00% Year Ended 9/30/ % 7.80% (iii) Average Annual Payroll Growth (a) Payroll as of: 10/1/2017 $170,413 10/1/2007 1,211,857 (b) Total Increase % (c) Number of Years (d) Average Annual Rate % City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 12

13 COMPARATIVE SUMMARY OF PRINCIPAL VALUATION RESULTS (Special Risk Class) A. Participant Data 10/1/ /1/2016 Actives 1 1 Service Retirees 2 1 Beneficiaries 0 0 Disability Retirees 0 0 Terminated Vested 1 2 Total 4 4 Total Annual Payroll $75,060 $77,343 Payroll Under Assumed Ret. Age 75,060 77,343 Annual Rate of Payments to: Service Retirees 32,683 18,900 Beneficiaries 0 0 Disability Retirees 0 0 Terminated Vested 16,887 29,357 B. Assets Actuarial Value (AVA) 1,154,490 1,053,483 Market Value (MVA) 1,225,728 1,064,709 C. Liabilities Present Value of Benefits Actives Retirement Benefits 586, ,677 Disability Benefits 21,088 25,514 Death Benefits 4,245 9,862 Vested Benefits 0 0 Refund of Contributions 0 0 Service Retirees 543, ,379 Beneficiaries 0 0 Disability Retirees 0 0 Terminated Vested 171, ,756 Total 1,327,424 1,283,188 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 13

14 (Special Risk Class) C. Liabilities - (Continued) 10/1/ /1/2016 Present Value of Future Salaries 217, ,182 Present Value of Future Member Contributions 0 0 Normal Cost (Retirement) 22,349 21,609 Normal Cost (Disability) 2,972 2,794 Normal Cost (Death) Normal Cost (Vesting) 0 0 Normal Cost (Refunds) 0 0 Total Normal Cost 25,632 25,042 Present Value of Future Normal Costs 74,272 94,602 Accrued Liability (Retirement) 522, ,043 Accrued Liability (Disability) 12,476 14,959 Accrued Liability (Death) 3,344 7,449 Accrued Liability (Vesting) 0 0 Accrued Liability (Refunds) 0 0 Accrued Liability (Inactives) 715, ,135 Total Actuarial Accrued Liability (EAN AL) 1,253,152 1,188,586 Unfunded Actuarial Accrued Liability (UAAL) 98, ,103 Funded Ratio (AVA / EAN AL) 92.1% 88.6% City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 14

15 (Special Risk Class) D. Actuarial Present Value of Accrued Benefits 10/1/ /1/2016 Vested Accrued Benefits Inactives 715, ,135 Actives 463, ,829 Member Contributions 0 0 Total 1,178,599 1,071,964 Non-vested Accrued Benefits 0 0 Total Present Value Accrued Benefits (PVAB) 1,178,599 1,071,964 Funded Ratio (MVA / PVAB) 104.0% 99.3% Increase (Decrease) in Present Value of Accrued Benefits Attributable to: Plan Amendments 0 Assumption Changes 0 New Accrued Benefits 57,009 Benefits Paid (24,552) Interest 74,178 Other 0 Total 106,635 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 15

16 Valuation Date 10/1/ /1/2016 Applicable to Fiscal Year Ending 9/30/2019 9/30/2018 E. Pension Cost Normal Cost ¹ $28,370 $25,918 % of Total Annual Payroll Administrative Expenses ¹ $7,348 $7,470 % of Total Annual Payroll Payment Required to Amortize Unfunded Actuarial Accrued Liability over 15 years (as of 10/1/2017) ¹ $37,388 $33,296 % of Total Annual Payroll Total Required Contribution $73,106 $66,684 % of Total Annual Payroll Expected Member Contributions ¹ $0 $0 % of Total Annual Payroll Expected City Contribution $73,106 $66,684 % of Total Annual Payroll F. Past Contributions Plan Years Ending: 9/30/2017 City Requirement 51,197 Actual Contributions Made: (Special Risk Class) Members 0 City 51,197 Total 51,197 G. Net Actuarial (Gain)/Loss (26,195) ¹ Contributions developed as of 10/1/2017 displayed above have been adjusted to account for an assumed interest component. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 16

17 (Special Risk Class) H. Schedule Illustrating the Amortization of the Total Unfunded Actuarial Accrued Liability as of: Year Projected Unfunded Actuarial Accrued Liability , , , I. (i) 3 Year Comparison of Actual and Assumed Salary Increases Actual Assumed Year Ended 9/30/ % 6.00% Year Ended 9/30/ % 6.00% Year Ended 9/30/ % 6.00% (ii) 3 Year Comparison of Investment Return on Actuarial Value Actual Assumed Year Ended 9/30/ % 7.00% Year Ended 9/30/ % 7.00% Year Ended 9/30/ % 7.80% (iii) Average Annual Payroll Growth (a) Payroll as of: 10/1/2017 $75,060 10/1/ ,334 (b) Total Increase % (c) Number of Years (d) Average Annual Rate -9.96% City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 17

18 STATEMENT BY ENROLLED ACTUARY This actuarial valuation was prepared and completed by me or under my direct supervision, and I acknowledge responsibility for the results. To the best of my knowledge, the results are complete and accurate, and in my opinion, the techniques and assumptions used are reasonable and meet the requirements and intent of Part VII, Chapter 112, Florida Statutes. There is no benefit or expense to be provided by the plan and/or paid from the plan's assets for which liabilities or current costs have not been established or otherwise taken into account in the valuation. All known events or trends which may require a material increase in plan costs or required contribution rates have been taken into account in the valuation. Patrick T. Donlan, EA, ASA, MAAA Enrolled Actuary # Please let us know when the report is approved by the Board and unless otherwise directed we will provide a copy of the report to the following office to comply with Chapter 112 Florida Statutes: Mr. Keith Brinkman Bureau of Local Retirement Systems Post Office Box 9000 Tallahassee, FL City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 18

19 RECONCILIATION OF UNFUNDED ACTUARIAL ACCRUED LIABILITIES (Special Risk Class) (1) Unfunded Actuarial Accrued Liability as of October 1, 2016 $135,103 (2) Sponsor Normal Cost developed as of October 1, ,042 (3) Expected administrative expenses for the year ended September 30, ,217 (4) Expected interest on (1), (2) and (3) 11,463 (5) Sponsor contributions to the System during the year ended September 30, ,197 (6) Expected interest on (5) 2,771 (7) Expected Unfunded Actuarial Accrued Liability as of September 30, 2017 (1)+(2)+(3)+(4)-(5)-(6) 124,857 (8) Change to UAAL due to Actuarial (Gain)/Loss (26,195) (9) Unfunded Actuarial Accrued Liability as of October 1, ,662 Type of Date Years 10/1/2017 Amortization Base Established Remaining Amount Amount method change 10/1/ ,517 4,281 actuarial loss 10/1/ ,342 8,284 plan amendment 10/1/ (36,369) (8,290) reconciliation base 10/1/ (12,103) (2,373) actuarial loss 10/1/ ,957 38,225 method change 10/1/ ,337 1,046 actuarial loss 10/1/ ,013 7,632 assum. change 10/1/ ,592 3,744 actuarial loss 10/1/ ,561 6,192 actuarial loss 10/1/ ,302 12,236 actuarial gain 10/1/ (187,320) (24,925) assum. change 10/1/ ,435 3,384 actuarial gain 10/1/ (2,114) (263) software change 10/1/ (87,672) (10,927) assum. change 10/1/ ,713 2,208 actuarial loss 10/1/ ,047 5,300 assum. change 10/1/ ,161 2,843 assum. change 10/1/ ,540 16,946 actuarial gain 10/1/ (344,788) (38,555) actuarial loss 10/1/ ,014 6,948 assum. change 10/1/ ,692 2,532 actuarial gain 10/1/ (26,195) (2,688) 98,662 33,780 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 19

20 DETAILED ACTUARIAL (GAIN)/LOSS ANALYSIS (Special Risk Class) (1) Unfunded Actuarial Accrued Liability (UAAL) as of October 1, 2016 $135,103 (2) Expected UAAL as of October 1, ,857 (3) Summary of Actuarial (Gain)/Loss, by component: Investment Return (Actuarial Asset Basis) (6,591) Salary Increases (35,104) Active Decrements 1,915 Inactive Mortality 2,724 Other 10,861 Increase in UAAL due to (Gain)/Loss (26,195) (4) Actual UAAL as of October 1, 2017 $98,662 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 20

21 ACTUARIAL ASSUMPTIONS AND METHODS (Regular Class) Mortality Rate Healthy Inactive Lives: Female: RP2000 Generational, 100% Annuitant White Collar, Scale BB Male: RP2000 Generational, 50% Annuitant White Collar / 50% Annuitant Blue Collar, Scale BB Healthy Active Lives: Female: RP2000 Generational, 100% Combined Healthy (previously Annuitant) White Collar, Scale BB Male: RP2000 Generational, 50% Combined Healthy (previously Annuitant) White Collar / 50% Combined Healthy (previously Annuitant) Blue Collar, Scale BB Disabled Lives: Female: 100% RP2000 Disabled Female set forward two years Male: 100% RP2000 Disabled Male setback four years The above assumption rates were mandated by Chapter , Laws of Florida. This law mandates the use of the assumption used in either of the two most recent valuations of the Florida Retirement System (FRS). The above rates are those outlined in Milliman s July 1, 2016 FRS valuation report for other than special risk participants. We feel this assumption sufficiently accommodates future mortality improvements. Interest Rate Retirement Age Early Retirement 7.00% per year compounded annually, net of investment expenses. This is supported by the target asset allocation of the trust and the expected long-term return by asset class. Earlier of 1) Age 62 with 6 years of Credited Service (57 and 10 for City Manager), or 2) the completion of 30 years of service, regardless of age. Also, any member who has reached Normal Retirement is assumed to continue employment for one additional year. We feel this assumption is reasonable based on the plan provisions. Commencing with the earliest assumed early retirement date (age 52 or 20 years of service), members are assumed to retire with an immediate subsidized benefit at the rate of 2% per year. We feel this assumption is reasonable based on the plan provisions. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 21

22 Disability Rate Termination Rate Salary Increases Administrative Expenses Payroll Growth Assumption Cost-of-Living Adjustment Funding Method Actuarial Asset Method See table that follows (1202). This assumption is consistent with other General Employee plans in the state. See table that follows (1305). This assumption is consistent with other General Employee plans in the state. 6.00% per year until the assumed retirement age; see table that follows. Projected salary at retirement is increased 10% to account for non-regular compensation. This assumption was developed from those used by other General Employee plans in the state. $41,090 annually (prior year actual). None. 3.00% per year at retirement. Aggregate Cost Method Each year, the prior Actuarial Value of Assets is brought forward utilizing the historical geometric 4-year average Market Value returns, net of fees. It is possible that over time this technique will produce an insignificant bias above or below Market Value. Current Salary % Becoming Disabled % Terminating as a % of Salary Age During the Year During the Year at Age % 17.2% 8.7% City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 22

23 ACTUARIAL ASSUMPTIONS AND METHODS (Special Risk Class) Mortality Rate Healthy Active Lives: Female: RP2000 Generational, 100% Combined Healthy (previously annuitant) White Collar, Scale BB Male: RP2000 Generational, 10% Combined Healthy (previously annuitant) White Collar / 90% Combined Healthy (previously annuitant) Blue Collar, Scale BB Healthy Inactive Lives: Female: RP2000 Generational, 100% Annuitant White Collar, Scale BB Male: RP2000 Generational, 10% Annuitant White Collar / 90% Annuitant Blue Collar, Scale BB Disabled Lives: Female: 60% RP2000 Disabled Female set forward two years / 40% Annuitant White Collar with no setback, no projection scale Male: 60% RP2000 Disabled Male setback four years / 40% Annuitant White Collar with no setback, no projection scale The assumed rates of mortality were mandated by Chapter , Laws of Florida. This law mandates the use of the assumptions used in either of the two most recent valuations of the Florida Retirement System (FRS). The above rates are those outlined in the July 1, 2016 FRS actuarial valuation report for special risk employees. We feel this assumption sufficiently accommodates future mortality improvements. Interest Rate Retirement Age 7.00% per year compounded annually, net of investment expenses. This is supported by the target asset allocation of the trust and the expected long-term return by asset class. Earlier of 1) Age 55 and the completion of 6 years of service or 2) the completion of 25 years of service, regardless of age. Also, any member who has reached Normal Retirement is assumed to continue employment for one additional year. We feel this assumption is reasonable based on the plan provisions. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 23

24 Early Retirement Disability Rate Termination Rate Salary Increases Administrative Expenses Payroll Growth Assumption Cost-of-Living Adjustment Funding Method Actuarial Asset Method Commencing with the earliest assumed early retirement date (completion of 6 years of service), members are assumed to terminate according to the withdrawal rates according to the table below. We feel this assumption is reasonable based on the plan provisions. See table that follows (1205). This assumption is consistent with other General Employee plans in the state. See table that follows (1304). This assumption is consistent with other General Employee plans in the state. 6.00% per year until the assumed retirement age; see table that follows. This assumption was developed from those used by other General Employee plans in the state. $6,639 annually (prior year actual). None. 3.00% per year beginning 2 years after retirement. Entry Age Normal Actuarial Cost Method Each year, the prior Actuarial Value of Assets is brought forward utilizing the historical geometric 4-year average Market Value returns, net of fees. It is possible that over time this technique will produce an insignificant bias above or below Market Value. Current Salary % Becoming Disabled % Terminating as a % of Salary Age During the Year During the Year at Age % 12.4% 13.0% City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 24

25 VALUATION NOTES (Regular Class) Total Annual Payroll is the projected annual rate of pay for the fiscal year beginning on the valuation date of all covered Members. Present Value of Benefits is the single sum value on the valuation date of all future benefits to be paid to current Members, Retirees, Beneficiaries, Disability Retirees and Vested Terminations. Normal (Current Year's) Cost Rate is determined in the aggregate as the ratio of (a) and (b) as follows: (a) The present value of benefits for all Plan participants, less the actuarial value of assets. (b) The present value of future compensation over the anticipated number of years of participation, determined as of the valuation date. The Normal Cost dollar requirement is the ratio of (a) and (b), multiplied by the Payroll Under Assumed Retirement Age as of the valuation date. Aggregate Actuarial Cost Method (Level Percent of Compensation) is the method used to determine required contributions under the Plan. The use of this method involves the systematic funding of the Normal Cost (described above). Total Required Contribution is equal to the Normal Cost plus Administrative Expenses. The required amount is adjusted for interest according to the timing of contributions during the year. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 25

26 VALUATION NOTES (Special Risk Class) Total Annual Payroll is the projected annual rate of pay for the fiscal year beginning on the valuation date of all covered Members. Present Value of Benefits is the single sum value on the valuation date of all future benefits to be paid to current Members, Retirees, Beneficiaries, Disability Retirees and Vested Terminations. Normal (Current Year's) Cost is determined for each participant as the present value of future benefits, determined as of the member s entry age, amortized as a level percentage of compensation over the anticipated number of years of participation, determined as of the entry age. Individual Entry Age Normal Actuarial Cost Method (Level Percent of Compensation) is the method used to determine required contributions under the Plan. The use of this method involves the systematic funding of the Normal Cost (described above) and the Unfunded Accrued (Past Service) Liability. The actuarial accrued liability for active participants is the difference between the present value of future benefits and the present value of future Normal Costs. The actuarial accrued liability for inactive participants is the present value of future benefits. Unfunded Actuarial Accrued Liability (UAAL) is the difference between the actuarial accrued liability (described above) and the actuarial value of assets. Under the Entry Age Normal Actuarial Cost Method, an actuarial gain or loss, based on actual versus expected UAAL, is determined in conjunction with each valuation of the plan. Total Required Contribution is equal to the Normal Cost plus an amount sufficient to amortize the Unfunded Accrued Liability over no more than 30 years. The required amount is adjusted for interest according to the timing of contributions during the year. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 26

27 STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2017 (Regular Class Employees) ASSETS COST VALUE MARKET VALUE Cash and Cash Equivalents: Money Market 144, , Cash Total Cash and Equivalents 145, , Receivables: Investment Income 22, , Total Receivable 22, , Investments: Fixed income 2,844, ,821, Equities 3,729, ,763, Total Investments 6,574, ,584, Total Assets 6,742, ,752, LIABILITIES Payables: Investment Expenses 11, , Administrative Expenses 7, , Prepaid City Contribution 335, , Total Liabilities 355, , NET POSITION RESTRICTED FOR PENSIONS 6,386, ,397, City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 27

28 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2017 Market Value Basis (Regular Class Employees) ADDITIONS Contributions: City 25, Total Contributions 25, Investment Income: Net Realized Gain (Loss) 198, Unrealized Gain (Loss) 537, Net Increase in Fair Value of Investments 735, Interest & Dividends 209, Less Investment Expense¹ (46,284.58) Net Investment Income 898, Total Additions 923, DEDUCTIONS Distributions to Members: Benefit Payments 306, Lump Sum DROP Distributions 37, Total Distributions 344, Administrative Expense 41, Total Deductions 385, Net Increase in Net Position 538, NET POSITION RESTRICTED FOR PENSIONS Beginning of the Year 6,858, End of the Year 7,397, ¹Investment related expenses include investment advisory, custodial and performance monitoring fees. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 28

29 ACTUARIAL ASSET VALUATION SEPTEMBER 30, 2017 (Regular Class Employees) Actuarial Assets for funding purposes are developed by increasing the Actuarial Assets used in the most recent actuarial valuation of the Fund by the average annual market value rate of return (net of investment related expenses) for the past four years. Actuarial Assets shall not be less than 80% nor greater than 120% of Market Value of Assets. Details of the derivation are set forth as follows: Plan Year End Rate of Return¹ 09/30/ % 09/30/ % 09/30/ % 09/30/ % Annualized Rate of Return for prior four (4) years: 7.62% (A) 10/01/2016 Actuarial Assets: $7,230, (I) Net Investment Income: 1. Interest and Dividends 209, Realized Gains (Losses) 198, Change in Actuarial Value 175, Investment Related Expenses (46,284.58) Total 537, (B) 10/01/2017 Actuarial Assets: $7,407, Actuarial Asset Rate of Return = 2I/(A+B-I): 7.62% 10/01/2017 Limited Actuarial Assets: $7,407, /01/2017 Market Value of Assets: $7,397, Actuarial Gain/(Loss) due to Investment Return (Actuarial Asset Basis) $43, ¹Market Value Basis, net of investment related expenses. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 29

30 CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS SEPTEMBER 30, 2017 Actuarial Asset Basis (Regular Class Employees) REVENUES Contributions: City 25, Total Contributions 25, Earnings from Investments: Interest & Dividends 209, Net Realized Gain (Loss) 198, Change in Actuarial Value 175, Total Earnings and Investment Gains 583, EXPENDITURES Distributions to Members: Benefit Payments 306, Lump Sum DROP Distributions 37, Total Distributions 344, Expenses: Investment related¹ 46, Administrative 41, Total Expenses 87, Change in Net Assets for the Year 176, Net Assets Beginning of the Year 7,230, Net Assets End of the Year² 7,407, ¹Investment related expenses include investment advisory, custodial and performance monitoring fees. ²Net Assets may be limited for actuarial consideration. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 30

31 RECONCILIATION OF CITY'S SHORTFALL/(PREPAID) CONTRIBUTION FOR THE FISCAL YEAR ENDED (FYE) SEPTEMBER 30, 2017 (Regular Class) (1) Total Required Contribution Rate 13.05% (2) Fiscal 2017 Payroll $193, (3) Required City Contributions $25, (4) Less 2016 Prepaid Contribution (360,481.17) (5) Less Actual City Contributions 0.00 (6) Equals City's Shortfall/(Prepaid) Contribution as of ($335,276.92) September 30, 2017 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 31

32 DEFERRED RETIREMENT OPTION PLAN ACTIVITY October 1, 2016 to September 30, 2017 (Regular Class Employees) Beginning of the Year Balance 26, Plus Additions 23, Investment Return Earned Less Distributions (37,516.66) End of the Year Balance 12, City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 32

33 STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2017 (Special Risk Class Employees) ASSETS COST VALUE MARKET VALUE Cash and Cash Equivalents: Money Market 23, , Cash Total Cash and Equivalents 23, , Receivables: City Contributions in Transit 4, , Investment Income 3, , Total Receivable 7, , Investments: Fixed income 459, , Equities 602, , Total Investments 1,062, ,225, Total Assets 1,093, ,256, LIABILITIES Payables: Investment Expenses 1, , Administrative Expenses 1, , Prepaid City Contribution 27, , Total Liabilities 31, , NET POSITION RESTRICTED FOR PENSIONS 1,062, ,225, City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 33

34 STATEMENT OF CHANGES IN FIDUCIARY NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2017 Market Value Basis (Special Risk Class Employees) ADDITIONS Contributions: City 51, Total Contributions 51, Investment Income: Net Realized Gain (Loss) 32, Unrealized Gain (Loss) 82, Net Increase in Fair Value of Investments 114, Interest & Dividends 33, Less Investment Expense¹ (7,478.36) Net Investment Income 141, Total Additions 192, DEDUCTIONS Distributions to Members: Benefit Payments 24, Total Distributions 24, Administrative Expense 6, Total Deductions 31, Net Increase in Net Position 161, NET POSITION RESTRICTED FOR PENSIONS Beginning of the Year 1,064, End of the Year 1,225, ¹Investment related expenses include investment advisory, custodial and performance monitoring fees. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 34

35 ACTUARIAL ASSET VALUATION SEPTEMBER 30, 2017 (Special Risk Class Employees) Actuarial Assets for funding purposes are developed by increasing the Actuarial Assets used in the most recent actuarial valuation of the Fund by the average annual market value rate of return (net of investment related expenses) for the past four years. Actuarial Assets shall not be less than 80% nor greater than 120% of Market Value of Assets. Details of the derivation are set forth as follows: Plan Year End Rate of Return¹ 09/30/ % 09/30/ % 09/30/ % 09/30/ % Annualized Rate of Return for prior four (4) years: 7.62% (A) 10/01/2016 Actuarial Assets: $1,053, (I) Net Investment Income: 1. Interest and Dividends 33, Realized Gains (Losses) 32, Change in Actuarial Value 22, Investment Related Expenses (7,478.36) Total 81, (B) 10/01/2017 Actuarial Assets: $1,154, Actuarial Asset Rate of Return = 2I/(A+B-I): 7.62% 10/01/2017 Limited Actuarial Assets: $1,154, /01/2017 Market Value of Assets: $1,225, Actuarial Gain/(Loss) due to Investment Return (Actuarial Asset Basis) $6, ¹Market Value Basis, net of investment related expenses. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 35

36 CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS SEPTEMBER 30, 2017 Actuarial Asset Basis (Special Risk Class Employees) REVENUES Contributions: City 51, Total Contributions 51, Earnings from Investments: Interest & Dividends 33, Net Realized Gain (Loss) 32, Change in Actuarial Value 22, Total Earnings and Investment Gains 88, EXPENDITURES Distributions to Members: Benefit Payments 24, Total Distributions 24, Expenses: Investment related¹ 7, Administrative 6, Total Expenses 14, Change in Net Assets for the Year 101, Net Assets Beginning of the Year 1,053, Net Assets End of the Year² 1,154, ¹Investment related expenses include investment advisory, custodial and performance monitoring fees. ²Net Assets may be limited for actuarial consideration. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 36

37 RECONCILIATION OF CITY'S SHORTFALL/(PREPAID) CONTRIBUTION FOR THE FISCAL YEAR ENDED (FYE) SEPTEMBER 30, 2017 (Special Risk Class) (1) Total Required Contribution Rate 72.30% (2) Fiscal 2017 Payroll $70, (3) Required City Contributions $51, (4) Less 2016 Prepaid Contribution (27,985.49) (5) Less Actual City Contributions (51,196.60) (6) Equals City's Shortfall/(Prepaid) Contribution as of ($27,985.49) September 30, 2017 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 37

38 STATISTICAL DATA ¹ (Regular Class) 10/1/ /1/ /1/ /1/2017 Actives Number Average Current Age Average Age at Employment Average Past Service Average Annual Salary $32,575 $40,440 $42,472 $42,603 Service Retirees ¹ Prior to 10/1/2016, averages were salary weighted. Number Average Current Age N/A Average Annual Benefit $7,392 $7,251 $9,937 $10,763 DROP Retirees Number Average Current Age N/A Average Annual Benefit $23,330 $37,407 $12,431 $3,629 Beneficiaries Number Average Current Age N/A Average Annual Benefit $6,019 $6,180 $6,346 $4,290 Disability Retirees Number Average Current Age N/A N/A N/A N/A Average Annual Benefit N/A N/A N/A N/A Terminated Vested Number Average Current Age N/A Average Annual Benefit $4,323 $4,246 $4,320 $4,133 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 38

39 AGE AND SERVICE DISTRIBUTION (Regular Class) PAST SERVICE AGE Total Total City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 39

40 1. Active lives VALUATION PARTICIPANT RECONCILIATION (Regular Class) a. Number in prior valuation 10/1/ b. Terminations i. Vested (partial or full) with deferred benefits 0 ii. Non-vested or full lump sum distribution received 0 c. Deaths i. Beneficiary receiving benefits 0 ii. No future benefits payable 0 d. Disabled 0 e. Retired (1) f. DROP 0 g. Continuing participants 4 h. New entrants 0 i. Total active life participants in valuation 4 2. Non-Active lives (including beneficiaries receiving benefits) Service Retirees, Vested Receiving Receiving Receiving DROP Death Disability Vested Benefits Benefits Benefits Benefits Deferred Total a. Number prior valuation Retired 6 (1) 0 0 (3) 2 DROP Vested Deferred Death, With Survivor (2) Death, No Survivor Disabled Refund of Contributions Rehires Expired Annuities Data Corrections b. Number current valuation City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 40

41 STATISTICAL DATA ¹ (Special Risk Class) 10/1/ /1/ /1/ /1/2017 Actives Number Average Current Age Average Age at Employment Average Past Service Average Annual Salary $67,257 $64,909 $77,343 $75,060 Service Retirees ¹ Prior to 10/1/2016, averages were salary weighted. Number Average Current Age N/A Average Annual Benefit $8,328 $18,900 $18,900 $16,342 Beneficiaries Number Average Current Age N/A N/A N/A N/A Average Annual Benefit N/A N/A N/A N/A Disability Retirees Number Average Current Age N/A N/A N/A N/A Average Annual Benefit N/A N/A N/A N/A Terminated Vested Number Average Current Age N/A Average Annual Benefit $16,887 $14,181 $14,679 $16,887 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 41

42 AGE AND SERVICE DISTRIBUTION (Special Risk Class) PAST SERVICE AGE Total Total City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 42

43 1. Active lives VALUATION PARTICIPANT RECONCILIATION (Special Risk Class) a. Number in prior valuation 10/1/ b. Terminations i. Vested (partial or full) with deferred benefits 0 ii. Non-vested or full lump sum distribution received 0 c. Deaths i. Beneficiary receiving benefits 0 ii. No future benefits payable 0 d. Disabled 0 e. Retired 0 f. Continuing participants 1 g. New entrants 0 h. Total active life participants in valuation 1 2. Non-Active lives (including beneficiaries receiving benefits) Service Retirees, Vested Receiving Receiving Receiving Death Disability Vested Benefits Benefits Benefits Deferred Total a. Number prior valuation Retired (1) 0 Vested Deferred Death, With Survivor Death, No Survivor Disabled Refund of Contributions Rehires Expired Annuities Data Corrections b. Number current valuation City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 43

44 SUMMARY OF BENEFIT PROVISIONS (Through Ordinance No ) Eligibility Credited Service Salary Average Final Compensation Member Contributions City Contributions All general employee members (except elected city officials) and all airport security officers who are employed on or after January 1, 1996, and prior to August 1, 2008, and who did not elect to become a member of the Florida Retirement System, shall remain members of this Plan. No new employees hired on or after August 1, 2008 shall become members of this system. Total years and fractional parts of years of service with the City as a General Employee (Regular Class) or Airport Security Officer (Special Risk Class). Base compensation, including regular earnings, vacation pay, sick pay, and all tax deferred items, but excluding lump sum payments, except for up to 500 hours of unused vacation leave at retirement (only attributable to service before July 1, 2011). Average of Salary paid during the best five (5) years of covered employment. None. Amounts required in order to pay current costs and amortize unfunded past service cost, if any, over 40 years. Normal Retirement Date Regular Class - Earlier of 1) age 62 with 6 years of Credited Service (age 57 with 10 years of Credited Service for City Manager), or 2) 30 years of Credited Service, regardless of age. Special Risk Class - Earlier of 1) age 55 and 6 years of service, or 2) 25 years of Credited Service, regardless of age. Benefit Regular Class - 1.6% of Average Final Compensation times Credited Service. Rate increases to 1.63% if age 63 or 31 years, 1.65% if age 64 or 32 years, and 1.68% if age 65 or 33 years. Rate is 2.0% for Senior Management Employees. Special Risk Class - 3.0% of Average Final Compensation times Credited Service. Form of Benefit Regular Class - Life Annuity (options available). Special Risk Class - Ten Year Certain and Life Annuity (options available). City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 44

45 Early Retirement Eligibility Benefit 6 Years of Credited Service. Regular Class -Accrued benefit, reduced 5% for each year prior to Normal Retirement. Special Risk Class - Accrued benefit, reduced 3% for each of the first 5 years prior to Normal Retirement and 5% for each additional year thereafter. Vesting Schedule Benefit Amount 100% after 6 years of Credited Service. Member will receive the vested portion of his (her) accrued benefit payable at the otherwise Normal Retirement Date. Disability Eligibility Service Incurred Non-Service Incurred Covered from Date of Employment. 8 years of Credited Service. Benefit Benefit accrued to date of disability, but not less than 42% (65% for Special Risk Class) of Average Final Compensation (Service Incurred), or 25% of Average Final Compensation (Non-Service Incurred). Duration Payable for life (with 10 year guarantee for the Special Risk Class) or until recovery (as determined by the Board). Death Benefits Pre-Retirement Vested Non-Vested Post-Retirement Beneficiary receives an immediate or deferred monthly benefit computed based on the assumption that the member retired on the date of death and elected the 100% joint and survivor annuity. Refund of member contributions, if any. Benefits payable to beneficiary in accordance with option selected at retirement. City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 45

46 Cost-of-Living Adjustments Regular Class - each July 1 following retirement the monthly benefit amount is increased 3%. Special Risk Class - beginning on the July 1 following 2 years of payments, the monthly amount is increased 3%. The increase is based on the June benefit, excluding any supplemental benefit. Supplemental Benefit Early and Normal Retirees receive a monthly benefit of $5 for each year of Credited Service (minimum is $30 and maximum is $150). Deferred Retirement Option Plan Eligibility Participation Rate of Return Form of Distribution Satisfaction of Normal Retirement requirements Not to exceed 60 months 1.3% annually. Cash lump sum (options available) at termination of employment City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 46

47 GASB 67 ASSETS Cash and Cash Equivalents: Money Market Cash STATEMENT OF FIDUCIARY NET POSITION SEPTEMBER 30, 2017 (Regular Class Employees) MARKET VALUE 144, Total Cash and Equivalents Receivables: Investment Income Total Receivable Investments: Fixed income Equities Total Investments Total Assets LIABILITIES Payables: Investment Expenses Administrative Expenses Unearned Revenue Total Liabilities NET POSITION RESTRICTED FOR PENSIONS 145,254 22,377 22,377 2,821,673 4,763,095 7,584,768 7,752,399 11,978 7, , ,233 7,397,166 City of Melbourne General Employees' and Special Risk Class Employees' Pension Plan FOSTER & FOSTER 47