VLAWMO Annual Financial Report 2018

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VADNAIS LAKE AREA WATER MANAGEMENT ORGANIZATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2018 NOTE 4 DEFINED BENEFIT PENSION PLANS — STATEWIDE (CONTINUED) Actuarial Assumptions (Continued) 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 Stock 36.00% 5.10% International Stock 17.00 5.30 Bonds 20.00 0.75 Alternative Assets 25.00 5.90 Cash 2.00 Total 100.00% Discount Rate The discount rate used to measure the total pension liability in 2018 was 7.50%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employers will be made at rates set in Minnesota Statutes. Based on these assumptions, the fiduciary net positions of the General Employees Fund, the Police and Fire Fund, and the Correctional Fund were projected to be available to make all projected future benefit payments of current plan 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. Pension Liability Sensitivity The following presents the Organization's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the Organization's proportionate share of the net pension liability would be if it were calculated using a discount rate one percentage point lower or one percentage point higher than the current discount rate: GERF City Proportionate Share of NPL 1% 1% Decrease (6.50%) Current (7.50%) Increase (8.50%) $ 387,668 $ 238,546 $ 115,450 (38)