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88 <br />City of Elk River <br />Notes to Basic Financial Statements <br />NOTE 12 – PENSION PLANS (CONTINUED) <br />Public Employees' Retirement Association (Continued) <br />E.Long-Term Expected Return on Investment <br />The State Board of Investment, which manages the investments of PERA, prepares an analysis of the <br />reasonableness on a regular basis of the long -term expected rate of return using a building-block <br />method in which best -estimate ranges of expected future rates of return are developed for each <br />major asset class. These ranges are combined to produce an expected long -term rate of return by <br />weighting the expected future rates of return by the target asset allocation percentages. The target <br />allocation and best estimates of geometric real rates of return for each major asset class are <br />summarized in the table on the following page. <br />Domestic equity 33.5 %5.10 % <br />International equity 16.5 5.30 <br />Fixed income 25.0 0.75 <br />Private markets 25.0 5.90 <br />Total 100.0 % <br />Long-Term <br />Asset Class Target Allocation <br />Expected Real <br />Rate of Return <br />F.Actuarial Methods and Assumptions <br />The total pension liability in the June 30, 2024, actuarial valuation was determined using an <br />individual entry-age normal actuarial cost method. The long -term rate of return on pension plan <br />investments used in the determination of the total liability is 7.0%. This assumption is based on a <br />review of inflation and investments return assumptions from a number of national investment <br />consulting firms. The review provided a range of return investment return rates considered <br />reasonable by the actuary. An investment return of 7.0% is within that range. <br />Inflation is assumed to be 2.25% for the General Employees Plan and 2.25% for the Police and Fire <br />Plan. Benefit increases after retirement are assumed to be 1.25% for the General Employees Plan and <br />1% for the Police and Fire Plan. <br />Salary growth assumptions in the General Employees Plan range in annual increments from 10.25% <br />after one year of service to 3.0% after 27 years of service. In the Police and Fire Plan, salary growth <br />assumptions range from 11.75% after one year of service to 3.0% after 24 years of service. <br />Mortality rates for the General Employees Plan are based on the Pub -2010 General Employee <br />Mortality Table. Mortality rates for the Police and Fire Plan are based on the Pub -2010 Public Safety <br />Employee Mortality tables. The tables are adjusted slightly to fit PERA's experience. <br />Page 278 of 637