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CITY OF ELK RIVER <br />NOTES TO BASIC FINANCIAL STATEMENTS <br />DECEMBER 31, 2019 <br />NOTE 9 DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) <br />E. Actuarial Assumptions (Continued) <br />The State Board of Investment, which manages the investments of PERA, prepares an <br />analysis of the reasonableness on a regular basis of the long-term expected rate of <br />return using a building-block method in which best estimate ranges of expected future <br />rates of return are developed for each major asset class. These ranges are combined to <br />produce an expected long-term rate of return by weighting the expected future rates of <br />return by the target asset allocation percentages. The target allocation and best <br />estimates of geometric real rates of return for each major asset class are summarized in <br />the following table: <br />Asset Class <br />Long -Term <br />Target Expected Real <br />Allocation Rate of Return <br />Domestic Equity <br />35.5 % <br />5.10 % <br />International Equity <br />17.5 <br />5.90 <br />Fixed Income <br />20.0 <br />0.75 <br />Private Markets <br />25.0 <br />5.90 <br />Cash Equivalents <br />2.0 <br />- <br />Tota 1 <br />100 % <br />F. Discount Rate <br />The discount rate used to measure the total pension liability in 2019 was 7.50%. The <br />projection of cash flows used to determine the discount rate assumed that contributions <br />from plan members and employers will be made at rates set in Minnesota Statutes. <br />Based on these assumptions, the fiduciary net positions of the General Employees Fund <br />and the Police and Fire Fund was projected to be available to make all projected future <br />benefit payments of current plan members. Therefore, the long-term expected rate of <br />return on pension plan investments was applied to all periods of projected benefit <br />payments to determine the total pension liability. <br />G. Pension Liability Sensitivity <br />The following presents the City's proportionate share of the net pension liability for all <br />plans it participates in, calculated using the discount rate disclosed in the preceding <br />paragraph, as well as what the City's proportionate share of the net pension liability <br />would be if it were calculated using a discount rate one percentage point lower or one <br />percentage point higher than the current discount rate: <br />GERF PENSION LIABILITY <br />Description <br />City's Proportionate Share of the GERF Net <br />Pension Liability <br />HRA's Proportionate Share of the GERF Net <br />Pension Liability <br />One Percent One Percent <br />Decrease in Current Increase in <br />Discount Rate Discount Rate Discount Rate <br />(6.50%) (7.50%) (8.50%) <br />$ 13,115,086 $ 7,977,792 $ 3,735,963 <br />$ 91,245 $ 55,520 $ 25,992 <br />