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CITY OF LINO LAKES, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />December 31, 2017 <br /> <br /> <br /> <br /> <br /> Assumed age difference was changed from separate assumptions for male members (wives <br />assumed to be three years younger) and female members (husbands assumed to be four years <br />older) to the assumption that males are two years older than females. <br /> The assumed percentage of female members electing Joint and Survivor annuities was <br />increased. <br /> The assumed post-retirement benefit increase rate was changed from 1.00 perfect for all years <br />to 1.00 percent per year through 2064 and 2.50 percent thereafter. <br /> <br />The long-term expected rate of return on pension plan investments is 7.5%. The State Board of <br />Investment, which manages the investments of PERA, prepares an analysis of the reasonableness on a <br />regular basis of the long-term expected rate of return using a building-block method in which best- <br />estimate ranges of expected future rates of return are developed for each major asset class. These <br />ranges are combined to produce an expected long-term rate of return by weighting the expected future <br />rates of return by the target asset allocation percentages. The target allocation and best estimates of <br />geometric real rates of return for each major asset are summarized in the following table: <br /> <br />Target Long-Term Expected <br />Asset Class Allocation Real Rate of Return <br />Domestic stocks 39%5.10% <br />International stocks 19%5.30% <br />Bonds 20%0.75% <br />Alternative assets 20%5.90% <br />Cash 2%0.00% <br />Totals 100% <br /> <br />F. DISCOUNT RATE <br /> <br />The discount rate used to measure the total pension liability was 7.5%. The projection of cash flows <br />used to determine the discount rate assumed that contributions from plan members and employees will <br />be made at the rate set in Minnesota statutes. Based on that assumption, the fiduciary net position of the <br />GERF and the PEPFF was projected to be available to make all projected future benefit payments of <br />current plan members. Therefore, the long-term expected rate of return on pension plan investments <br />was applied to all periods of projected benefit payments to determine the total pension liability. At <br />June 30, 2016, the Police and Fire Fund projected benefit payments to exceed the funds projected <br />fiduciary net position after June 30, 2056 and therefore used a single discount rate of 5.6%, which as <br />stated above, increased to 7.5% at June 30, 2017. <br /> <br /> <br />69