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CITY OF ELK RIVER, MINNESOTA <br />NOTES TO THE FINANCIAL STATEMENTS <br />DECEMBER 31, 2018 <br />NOTE 9: DEFINED BENEFIT PENSION PLANS — STATE-WIDE - CONTINUED <br />E. Actuarial Assumptions (Continued) <br />Actuarial assumptions used in the June 30, 2018 valuation were based on the results of actuarial experience studies. The <br />most recent six-year experience study in the GERF was completed in 2015. The most recent four-year experience study <br />for PEPFF was completed in 2016. <br />There following changes in actuarial assumptions occurred in 2018: <br />General Employees Fund <br />The mortality projection scale was changed from MP -2015 to MP -2017. <br />The assumed post-retirement benefit increase was changed from 1.0% per year through 2044 and 2.50% per <br />year thereafter to 1.25% per year. <br />Police and Fire Fund <br />• The mortality projection scale was changed from MP -2015 to MP -2017. <br />• As set by statute, the assumed post-retirement benefit increase was changed from 1.0% per year through 2064 <br />and 2.5% per year, thereafter, to 1.0% for all years, with no trigger. <br />The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness of <br />the long-term expected rate of return on a regular basis using a building-block method in which best -estimate ranges of <br />expected future rates of return are developed for each major asset class. These ranges are combined to produce an <br />expected long-term rate of return by weighting the expected future rates of return by the target asset allocation <br />percentages. The target allocation and best estimates of arithmetic real rates of return for each major asset class are <br />summarized in the following table: <br />F. Discount Rate <br />The discount rate used to measure the total pension liability in 2018 was 7.5%. The projection of cash flows used to <br />determine the discount rate assumed that contributions from plan members and employers will be made at rates set in <br />Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the GERF and PEPFF was projected to <br />be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected <br />rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total <br />pension liability. <br />62 <br />Long-term <br />Target <br />Expected Real <br />Asset Class <br />Allocation <br />Rate of Return <br />Domestic stocks <br />36.00 % <br />5.10 % <br />International stocks <br />17.00 <br />5.30 <br />Bonds <br />20.00 <br />0.75 <br />Alternative assets <br />25.00 <br />5.90 <br />Cash <br />2.00 <br />0.00 <br />Totals <br />100.00% <br />F. Discount Rate <br />The discount rate used to measure the total pension liability in 2018 was 7.5%. The projection of cash flows used to <br />determine the discount rate assumed that contributions from plan members and employers will be made at rates set in <br />Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the GERF and PEPFF was projected to <br />be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected <br />rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total <br />pension liability. <br />62 <br />