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CITY OF LITTLE CANADA, MINNESOTA <br />NOTES TO BASIC FINANCIAL STATEMENTS <br />DECEMBER 31, 2017 <br /> <br /> <br /> <br />(63) <br /> <br />NOTE 7 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 of the long-term expected rate of return on a regular <br />basis 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 arithmetic real rates of return for each major asset class are summarized <br />below: <br /> <br />Long-Term <br />Target Expected Real <br />Asset Class Allocation Rate of Return <br />Domestic Equity 39% 5.10% <br />International Equity 19% 5.30% <br />Bonds 20% 0.75% <br />Alternative Assets 20% 5.90% <br />Cash 2% 0.00% <br />Totals 100% <br />F. Discount Rate <br />The discount rate used to measure the total pension liability in 2017 was 7.5%. The <br />projection of cash flows used to determine the discount rate assumed that employee and <br />employer contributions will be made at the rate specified in statute. Based on that <br />assumption, each of the pension plan’s fiduciary net position was projected to be <br />available to make all projected future benefit payments of current active and inactive <br />employees. Therefore, the long-term expected rate of return on pension plan <br />investments was applied to all periods of projected benefit payments to determine the <br />total pension liability. <br /> <br />G. Pension Liability Sensitivity <br />The following presents the Town’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 Town’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 /> <br />1% Decrease Current 1% Increase <br />in Discount Discount Rate in Discount <br />Description Rate (6.50%) (7.50%) Rate (8.50%) <br />City’s Proportionate Share of the GERF Net <br /> Pension Liability 1,673,431$ 1,078,886$ 592,141$