6.2. SR 06-19-2017 - Laserfiche WebLink

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CITY OF ELK RIVER NOTES TO BASIC FINANCIAL STATEMENTS YEAR ENDING DECEMBER 31, 2016 NOTE 11 DEFINED BENEFIT PENSION PLANS — FIRE RELIEF ASSOCIATION (CONTINUED) E. Actuarial Assumptions The total pension liability at December 31, 2015 was determined using the entry age normal actuarial cost method and the following actuarial assumptions: Retirement Eligibility Age 50 or After 20 Years of Service If both Age 50 and Minimum 5 Year of Service but not 20 Years, Pension Reduced 4% for Each Year Less Than 20 Years Inflation 2.75% per year Active Member Payroll Growth 2.75% per year Investment Rate of Return 6.00% 20-Year Municipal Bond Yield 3.57% The 6% long-term expected rate of return on pension plan investments was determined using a building-block method in which best estimates for expected future real rates of return (expected returns, net of inflation) were developed for each asset class using the plan's target investment allocation along with long-term return expectations by asset class. Inflation expectations were applied to derive the nominal rate of return for the portfolio. The target allocation and best estimates of arithmetic real rates of return for each major asset class are summarized in the following table: Allocation at Long-Term Measurement Expected Real Asset Class Date Rate of Return Domestic Equity 42.44% 5.52% International Equity 15.88% 5.78% Fixed Income 25.80% 2.12% Real Estate and Alternatives 1.68% 4.12% Cash and Equivalents 14.20% 0.82% Totals 100% F. Discount Rate The discount rate used to measure the total pension liability was 6%. The projection of cash flows used to determine the discount rate assumed that contributions to the plan will be made as specified in statute. Based on that assumption and considering the funding ratio of the plan, the fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive 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. G. Pension Liability Sensitivity The following presents the City's net pension liability (asset) for the plan, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's net pension liability (asset) would be if it were calculated using a discount rate 1% lower or 1% higher than the current discount rate: (67)