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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31,2015 Note 6 PENSION PLANS <CONTINUED> A. PUBLIC EMPLOYEES RETIREMENT ASSOCIATION (PERA)-DEFINED BENEFIT PLANS (CONTINUED) ACTUARIAL ASSUMPTIONS The total pension liability io the June 30, 2015, actuarial valuation was determioed usiog the followiog actuarial assumptions: Inflation Active Member Payroll Growth Investment Rate of Return 2.15% per year 3.50%, Average, Including lnflatioo 7.90%, Net ofPeosiou Plao Investment Expense, Including Inflation Salary iocreases were based on a service-related table. Mortality rates for active members, retirees, survivors, and disabilitants were based on RP-2000 tables for males or females, as appropriate, with slight adjustments. Benefit iocreases for retirees are assumed to be I% effective every January I" through 2026 and 2.5% thereafter. Actuarial assumptions used io the June 30, 2015, valuation were based on the results of actuarial experience studies. The experience study in the GERF was for the period July I, 2004, through June 30, 2008, with an update of economic assumptions in 2014. Experience studies have not been prepared for PERA's other plans, but assumptions The long-term expected rate of return on pension plan iovestments is 7.9"/o. The State Board of Investment, which manages the iovestments of PERA, prepares an analysis of the reasonableness of the long-term expected rate of return on a regular basis usiog a buildiog-block method io which best-estimate ranges of expected future rates of return are developed for each major asset class. These ranges are combioed 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 arithmetic real rates of return for each major asset class are sununarized below: Domestic Equity Interoational Equity Bonds Alteroative Assets Cash Totals DISCOUNT RATE Asset Class Target Allocation 45% IS% 18% 20% 2% 100% Long-Term Expected Real Rate of Return 5.50% 6.00% 1.45% 6.40% 0.50% The discount rate used to measure the total pension liability was 7 .9%. The projection of cash flows used to deterntine the discount rate assumed that employee and employer contributions will be made at the rate specified io statute. Based on that assumption, each of the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determioe the total pension liability. CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2015 Note 6 PENSION PLANS <CONTINUED> A. PUBLIC EMPLOYEES RETIREMENT ASSOCIATION (PERA)-DEFINED BENEFIT PLANS (CONTINUED) PENSION LIABILTY SENSITIVITY The following presents the City's proportionate share of the net pension liability for all plans it participates in, calculated usiog the discount rate disclosed in the preceding paragraph, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate I percentage poiot lower or I percentage poiot higher than the current discount rate: Description City's Proportionate Share of the GERF Net Pension Liability City's Proportionate Share of the PEPFF Net Pension I% Decrease in Discount Rate (6.90%) 3,340,992 Liability $ 5,514,185 PENSION PLAN FIDUCIARY NET POSmON Current Discount Rate (7.90%) 2,124,883 2,829,223 1% Increase in Discount Rate (8.90'..1.) 1,120,472 610,976 Detailed information about each pension plan's fiduciary net position is available io a separately-issued PERA financial report that includes financial statements and required supplementary ioformation. That report may be obtained on the Internet at www.mnpera.org; by writing to PERA at 60 Empire Drive #200, St. Paul, Mionesota, 551 03-2088; or by calling ( 651) 296-7460 or 1-800-652-9026. IV-29