11-13-2018 Council Meeting Packet

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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2017 Amounts reported as deferred outflows and inflows of resources related to pensions will be recognized in pension expense as follows: Year Ended December 31, 2018 2019 2020 2021 2022 Thereafter E. ACTUARIAL ASSUMPTIONS Pension Ex~se ($6,955) (6,956) (5,215) (3,633) The total pension liability at December 31, 2017, was determined using the entry age normal actuarial cost method and the following actuarial assumptions: • Retirement eligibility at the later of age 50 or 20 years of service • Investment rate of return of 6.0% • Inflation rate of 3.0% There were no changes in actuarial assumptions in 2017 F. DISCOUNTRATE The discount rate used to measure the total pension liability was 6.0%. The projection of cash flows used to determine the discount rate assumed that contributions to the SVF plan will be made as specified in statute. Based on that assumption and considering the funding ratio of the plan, the fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. PENSION LIABILITY SENSITIVITY The following presents the City's net pension asset for the SVF plan, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's net pension asset would be ifit were calculated using a discount rate 1 % lower or I% higher than the current discount rate: Net pension asset 1 % Decrease in Discount Rate (5.0%) $118,348 Discount Rate (6.0%) $127,994 1 % Increase in Discount Rate (7.0%) $136,963 CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2017 H. PLANINVESTMENTS I. Investment Policy The Minnesota State Board of Investment (SB!) is established by Article XI of the Minnesota Constitution to invest all state funds. Its membership as specified in the Constitution is comprised of the Governor (who is designated as chair of the Board), State Auditor, Secretary of State and State Attorney General. All investments undertaken by the SB! are governed by the prudent person rule and other standards codified in Minnesota Statutes, Chapter I IA and Chapter 353G. Within the requirements defined by state law, the SB!, with assistance of the SB! staff and the Investment Advisory Council, establishes investment policies for all funds under its control. These investment policies are tailored to the particular needs of each fund and specify investment objectives, risk tolerance, asset allocation, investment management structure and specific performance standards. Studies guide the on-going management of the funds and are updated periodically. 2. Asset Allocation To match the long-term nature of the pension obligations, the SB! maintains a strategic asset allocation for the Statewide Volunteer Firefighter Retirement Plan (VOLP) that includes allocations to domestic equity, international equity, bonds and cash equivalents. The long-term target asset allocation and long-term expected real rate of return is the following: Target Long-Term Expected Asset Class Allocation Real Rate of Return Domestic Stocks 35% 5.10% International Stocks 15% 5.30% Bonds 45% 0.75% Cash 5% 0.00% 100% The 6% long-term expected rate ofreturn on pension plan investments was determined using a building-block method. Best estimates for expected future real rates of return ( expected returns, net of inflation) were developed for each asset class using both long-term historical returns and long-term capital market expectations from a number of investment management and consulting organizations. The asset class estimates and the target allocations were then combined to produce a geometric, long-term expected real rate of return for the portfolio. Inflation expectations were applied to derive the nominal rate of return for the portfolio. 3. Description of significant investment policy changes during the year The SB! made no significant changes to their investment policy during fiscal year 2017 for the Statewide Volunteer Firefighter Retirement Plan. IV-33