5.3. ERMUSR 04-12-2016 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31,2015 Note 3: DEFINED BENEFIT PENSION PLANS-STATEWIDE-CONTINUED E. Actuarial assumptions The total pension liability in the June 30,2015 actuarial valuation was determined using the following actuarial assumptions: Inflation 2.75%per year Active member payroll growth 3.50%per year Investment rate of return 7.90% Salary increases were based on a service-related table. Mortality rates for active members,retirees,survivors and disabilitants were based on RP-2000 tables for males or females,as appropriate,with slight adjustments. Cost of living benefit increases for retirees are assumed to be: 1 percent effective every January I'until 2034,then 2.5 percent for GERF. Actuarial assumptions used in the June 30,2015 valuation were based on the results of actuarial experience studies.The experience study in the GERF was for the period July 1,2004 through June 30,2008,with an update of economic assumptions in 2014. Experience studies have not been prepared for PERA's other plans,but assumptions are reviewed annually. There were no changes in actuarial assumptions in 2015. The long-term expected rate of return on pension plan investments is 7.9 percent. The State Board of Investment,which manages the investments of PERA,prepares an analysis of the reasonableness of the long-term expected rate of return on a regular basis using a building-block method in which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combined to produce an expected long-term rate of return by weighting the expected future rates of return by the target asset allocation percentages. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Long-term Target Expected Real Asset Class Allocation Rate of Return Domestic stocks 45.00 % 5.50 % International stocks 15.00 6.00 Bonds 18.00 1.45 Alternative assets 20.00 6.40 Cash 2.00 0.50 Total 100.00 % F. Discount rate The discount rate used to measure the total pension liability was 7.9 percent. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rate specified in statute. Based on that assumption,each of the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. 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. 140