1. Florida Government Finance Officers Association Webinar GASB’s New Pension Standards December 18, 2014

2. Florida Retirement System and Health Insurance Subsidy Program Garry Green Chief, Bureau of Research and Member Communications Division of Retirement Department of Management Services Garry.Green@dms.myflorida.com

3. FRS MEMBERSHIP DATA 3

4. Pension Plan Membership by Employer Group As of June 30, 2014

5. Investment Plan Membership by Employer Group As of June 30, 2014

6. DROP Participants by Employer Group As of June 30, 2014 DROP Payouts $867,509,256

7. 7 Retired Membership Data – All Systems Annuitants and Benefit Payments As of June 30, 2014 Number of Annuitants363,034 Average Annual Benefit$19,765 Average Age At Retirement for Fiscal Year 2013 -14 61.19 Average Age of All FRS Retirees 69.92 Average Years of Creditable Service 20.96 Annualized Retirement Benefit Payments July 1, 2013 – June 30, 2014 $7.18 Billion

8. 8

9. Health Insurance Subsidy Program (HIS) Based on the member’s total years of service at retirement with a minimum monthly benefit of $30 and a maximum of $150. Available to Pension Plan members or eligible beneficiaries upon retirement. Available to Investment Plan members after retirement who: o Meet the Pension Plan vesting requirement depending upon the member’s first enrollment date. o Meet normal retirement based on Pension Plan normal retirement depending upon the member’s first enrollment date. Surviving spouses are eligible for a continuing benefit. Funded by a 1.26 percent employer contribution rate for the 2014-15 Fiscal Year. Benefit payments began exceeding contributions in the 2009-10 year. HIS Recipients as of June 30, 2014 HIS Payments July 1, 2013 – June 30, 2014 323,098$407,275,857

10. 2008 – 2013 FRS EXPERIENCE STUDY AND 2014 FRS VALUATION ASSUMPTIONS CONFERENCE RESULTS 10

11. The FRS has an experience study performed every five years to keep long-term goals in line with actual experience. The 2008-2013 FRS Experience Study results and economic assumption changes adopted by the FRS Assumptions Conference will be incorporated into 2014 FRS Valuation. Key updated assumptions include: –Mortality –Timing of retirement or DROP entry –Incidence of disability –Assumed annual leave available at time of retirement –Payroll growth assumption reduced from 4.00% to 3.25%  Inflation reduced from 3.00% to 2.60%  Real payroll growth reduced from 1.0% to 0.65% –Investment return reduced from 7.75% to 7.65% 11 FRS Experience Study and Assumption Changes

12. June 30, 2013 FRS Trust Fund annual return of rate - 13.12% Market value of assets - $132 billion June 30, 2014: FRS Trust Fund annual return rate.- 17.40% Market value of assets - $149 billion September 30, 2014 FRS Trust Fund annual return rate.- 10.06% Market value of assets - $146 billion 12 Source: Florida State Board of Administration Recent Investment Returns

13. GASB 67 AND 68 OUTLOOK 13

14. GASB 67 Implementation Required for Plan Year Ending 2014 –GASB Statement 67 supersedes GASB Statement 25 for plan level reporting. Accounting is being separated from plan funding. –Applies if your employer administers a retirement plan or an early retirement program that provides monthly benefits. You will require an actuary and should be working on this requirement now. Your auditor’s audit requirements include your financial statements and census data audit. –The annual required contribution (ARC) calculation is being replaced by actuarial determined contributions (ADC) 14 GASB 67 and GASB 68

15. GASB 67 Implementation Required for Plan Year Ending 2014 –The market value of assets are now referred to as Net Plan Position. –GASB 67 uses the Individual Entry Age Normal actuarial cost method and market value of assets. –GASB 27 for plan level liability reporting will use actuarial value of assets and use the one of the following actuarial cost methods: Entry age, frozen entry age, attained age, frozen attained age, projected unit credit, or the aggregate actuarial cost method. 1 1. See Page 6 of GASB 27. 15 GASB 67 and GASB 68

16. GASB 67 – FRS Plan Level Reporting –The Florida Retirement System (FRS) reporting for GASB 67 will be handled through the Division of Retirement. –Due to assumption changes being incorporated into 2014 FRS Valuation, GASB 67 Net Pension Liability (NPL) will be based on 2014 FRS Valuation. –2014 FRS Valuation Results will Implement GASB 67 using individual entry age normal cost method and GASB 27 (for the last year) will use. –GASB 27 for 2014 FRS Valuation will use ultimate entry age normal cost method (plan actuarial cost method). –State of Florida Auditor General will perform audit for FRS. 16 GASB 67 and GASB 68

17. GASB 67 – F RS Pension Plan Level Reporting –GASB 67 changes when, or if, expenses are amortized. –Changes in total plan liability that are recognized immediately: Annual service cost, Plan benefit changes, Benefits paid, and Interest on prior year NPL. 17 GASB 67 and GASB 68

18. GASB 67 – F RS Pension Plan Level Reporting –Expenses for total plan liability that are gradually recognized over a 5-year period: Assumption Changes, and Actuarial gains and losses. –Changes in plan net position that are recognized immediately: Projected investment earnings, Actual contributions, Benefits paid, and Administrative expenses. 18 GASB 67 and GASB 68

19. –Changes in plan net position by GASB statement that are deferred in-flows and out-flows: GASB Comment Statement 4 defines the method to derive Plan Net Position. GASB 34 as modified by GASB 65 requires debt issuance costs to be expensed in the period that the debt was issued instead of over the life of the issue. Losses on debt refundings are an expense but treated as deferred outflows. GASB 53 covers derivatives. GASB 60 covers accounting and financial reporting for service concession arrangements. GASB 63 covers reporting of deferred in-flows and deferred out-flows. GASB 65 covers determination of assets and liabilities; what qualifies as deferred in-flows and deferred out-flows. GASB 68 covers net pension liability allocated. GASB 69 will cover governmental merger, transfer, and consolidate of function for plan year ending in 2015. GASB 70 covers non-exchange financial guarantees. GASB 71 modifies GASB 68 to mitigate transitional reporting problems in GASB 68. –This list is not designed to be a comprehensive list, work with your auditor and your actuary if your agency is preparing GASB 67 reporting. 19 GASB 67 and GASB 68

20. 20 GASB 67 FRS PRELIMINARY DATA

21. 21 GASB 67 FRS PRELIMINARY DATA

22. 22 GASB 67 FRS PRELIMINARY DATA

23. 23 Schedule of Changes in Net Pension Liability and Related Ratios Builds Out to a 10-year schedule (Cost in 1,000,000s) GASB 67 FRS PRELIMINARY DATA

24. 24 Sensitivity Analysis GASB 67 FRS PRELIMINARY DATA

25. 25 GASB 67 FRS PRELIMINARY DATA

26. 26 GASB 67 FRS PRELIMINARY DATA Calculation of Money-Weighted Return

27. Implementation Required for Plan Year Ending in 2015 –Net Pension Liability (NPL) must be developed using the audited financial statements and will be allocated to FRS participating employers on the percentage of their reported payroll as a percentage of the total payroll base. –Actuarial cost method used for GASB 68 reporting is individual entry age normal cost method. –Actuarial cost method used in the valuation for pension funding is ultimate entry age normal cost method (plan cost basis). –State of Florida Auditor General will perform audit for FRS and has retained an actuary to assist them. –The Office of Program Policy and Government Accountability has the valuation reviewed for compliance and is retaining a different actuary to assist them. 27 GASB 68 - FRS Financial Reporting for Pensions

28. 2015 – GASB 68 NPL Allocation Preliminary: –The NPL will be calculated only on a June 30 basis. –The employer must account for its deferred in-flows and out-flows from the measurement date and the reporting date. The reporting date must be within 12 months of the measurement date. –For employers with September 30 year end, the 2014 valuation liabilities will be rolled forward to June 30, 2015 and use audited 2015 assets (fiduciary plan net position) with a June 30 measurement date. –For employers with June 30 year end, measurement date will be June 30, 2014, using the 2014 audited assets. –The Florida Auditor General will audit the financials and the cohort census data of the FRS supplemented by the Division of Retirement’s Audit Compliance Staff. 28 GASB 68 - FRS Financial Reporting for Pensions

29. 2015 – GASB 68 NPL Allocation Preliminary: –The NPL will be allocated based on the reported employer payroll as a percentage of total FRS Pension Plan payroll to be consistent with the manner in which contributions are reported to the division. –The allocation will be to the employer in aggregate for all membership classes, not on an individual membership class basis. –An employer reporting other employers or component units must further allocate its NPL allocation. –The NPL allocation and required pension disclosures and footnotes will be posted to the Division of Retirement’s website after the 2015 financial audit is completed. 29 GASB 68 - FRS Financial Reporting for Pensions

30. 2015 – GASB 68 NPL Allocation Preliminary: –The Retiree Health Insurance Subsidy Program (HIS) is deemed a pension plan for GASB reporting purposes.  Program eligibility is based on insurance coverage but the benefit is paid as a fungible dollar payment (not a direct reduction before premium payment by member). –The discount rate will be based on Bond Buyer General Obligation 20-Bond Municipal Bond Index – 4.22% at June 30, 2014. –The payroll basis for HIS is broader than the FRS Pension Plan payroll. For example, includes reemployed retirees without renewed membership. –The allocation will be developed and shared similar to the liability for the FRS Pension Plan. 30 GASB 68 - FRS Financial Reporting for Pensions

31. 31 Glossary

32. 32 Glossary

33. Contact Information Garry Green Chief, Bureau of Research and Member Communication Division of Retirement Department of Management Services 850-414-6349 Garry.Green@dms.myflorida.com 33