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Elk River Municipal Utilities Elk River, Minnesota Notes to the Financial Statements December 31, 2023 Note 3: Defined Benefit Pension Plans -Statewide (Continued) E. Long-term Expected Return on Investment The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return 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 geometric 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 Equity 33.5 % 5.10 % International Equity 16.5 5.30 Fixed Income 25.0 0.75 Private Markets 25.0 5.90 Total 100.0 % F. Actuarial Assumptions The total pension liability in the June 30, 2023, actuarial valuation was determined using an individual entry -age normal actuarial cost method. The long-term rate of return on pension plan investments used in the determination of the total liability is 7.0 percent. This assumption is based on a review of inflation and investments return assumptions from a number of national investment consulting firms. The review provided a range of return investment return rates deemed to be reasonable by the actuary. An investment return of 7.0 percent was deemed to be within that range of reasonableness for financial reporting purposes. Inflation is assumed to be 2.25 percent for the General Employees Plan. Benefit increases after retirement are assumed to be 1.25 percent for the General Employees Plan. Salary growth assumptions in the General Employees Plan range in annual increments from 10.25 percent after one year of service to 3.0 percent after 27 years of service. Mortality rates for the General Employees Plan are based on the Pub-2010 General Employee Mortality Table. The tables are adjusted slightly to fit PERA's experience. Actuarial assumptions for the General Employees Plan are reviewed every four years. The most recent four-year experience study for the General Employees Plan was completed in 2022. The assumption changes were adopted by the Board and became effective with the July 1, 2023 actuarial valuation. The following changes in actuarial assumptions and plan provisions occurred in 2023: General Employees Fund Changes in Actuarial Assumptions - The investment return assumption and single discount rate were changed from 6.5 percent to 7.0 percent. 46 111