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IV-33CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2018 Year Ended December 31, 2019 2020 2021 2022 2023 Thereafter Pension E!!!!ense ($91,934) (204,554) (394,691) (1,060,238) (96,467) The net pension liability will be liquidated by the general, water and sewer funds. E. ACTUARIAL ASSUMPTIONS The total pension liability in the June 30, 2018 actuarial valuation was determined using the following actuarial assmnptions: Inflation Salary Growth Investment rate of return GERF 2.50% per year 3.25% per year after 26 years of service 7.50% PEPFF 2.50% per year 3.25% per year after 25 years of service 7.50% The total pension liability for each of the defined benefit cost-sharing plans was determined by an actuarial valuation as of June 30, 2018, using the entry age normal actuarial cost method. Inflation is assumed to be 2.50 percent for the General Employees Plan. Salary growth assumptions in the General Employees Plan decrease in annual increments from 11.25 percent after one year of service, to 3.25 percent after 26 years of service. In the Police and Fire Plan, salary growth assumptions decrease from 12.25 percent after one year of service to 3.25 percent after 25 years of service. Mortality rates for all plans are based on RP-2014 mortality tables. The tables are adjusted slightly to fit PERA's experience. Actuarial assumptions for the General Employees Plan are reviewed every four to six years. The most recent six-year experience study for the General Employees Plan was completed in 2015. The most recent four-year experience study for the Police and Fire Plan was completed in 2016. The following changes in actuarial assumptions occurred in 2018: General Employees Fund The mortality projection scale was changed from MP-2015 to MP-2017. The assumed benefit increase was changed from 1.0 percent per year through 2044 and 2.50 percent per year thereafter to 1.25 percent per year. Police and Fire Fund The mortality projection scale was changed from MP-2016 to MP-2017. 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 CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2018 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: Target Long-Term Expected Asset Class Allocation Real Rate of Return Domestic stocks 36% 5.100/o International stocks 17% 5.300/o Bonds (fixed income) 200/o 0.75% Alternative assets (private markets) 25% 5.900/o Cash 2% 0.000/o Totals ~ F. DISCOUNTRATE The discount rate used to measure the total pension liability was 7.5%. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and employees will be made at the rate set in Minnesota statutes. Based on that assumption, the fiduciary net position of the GERF and the PEPFF was 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. G. PENSION LIABILITY SENSITIVITY The following presents the City'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 City's proportionate share of the net pension liability would be ifit were calculated using a discount rate I percentage point lower or I percentage point higher than the current discount rate: 1 % Decrease in I% Increase in DiscouotRate (6.5%! Discount Rate !7.5%! Discount Rate (8.5%! City's proportionate share of the GERF net pension liability $3,434,922 $2,113,632 $1,022,944 City's proportionate share of the PEPFF net pension liability $5,544,259 $2,585,866 $139,398 H. PENSION PLAN FIDUCIARY NET POSfflON Detailed information about each pension plan's fiduciary net position is available in a separately-issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained at www .mnpera.org.