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CITY OF LAKE ELMO, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2023 62 NOTE 3 DEFINED BENEFIT PENSION PLANS – STATEWIDE (Continued) Actuarial Methods and Assumptions The total pension liability in the June 30, 2023, actuarial valuation was determined using an individual entry-age normal actuarial cost method. The long-term rate of return on pension plan investments used in the determination of the total liability is 7.00 percent. This assumption is based on a review of inflation and investments return assumptions from a number of national investment consulting firms. The review provided a range of investment return rates deemed to be reasonable by the actuary. An investment return of 7.00 percent was deemed to be within that range of reasonableness for financial reporting purposes. Inflation is assumed to be 2.25 percent for the General Employees Plan and 2.25 percent for the Police and Fire Plan. Benefit increases after retirement are assumed to be 1.25 percent for the General Employees Plan and 1.00 percent for the Police and Fire Plan. Salary growth assumptions in the General Employees Plan range in annual increments from 10.25 percent after one year of service to 3.00 percent after 27 years of service. In the Police and Fire Plan, salary growth assumptions range from 11.75 percent after one year of service to 3.00 percent after 24 years of service. Mortality rates for the General Employees Plan are based on the Pub-2010 General Employee Mortality Table. Mortality rates for the Police and Fire Plan are based on the Pub-2010 Public Safety Employee Mortality tables. The tables are adjusted slightly to fit PERA’s experience. Actuarial assumptions for the General Employees Plan are reviewed every four years. The most recent four-year experience study for the General Employees Plan was completed in 2022. The assumption changes were adopted by the Board and became effective with the July 1, 2023 actuarial valuation. The most recent four-year experience studies for the Police and Fire Plan were completed in 2020 and were adopted by the Board and became effective with the July 1, 2021 actuarial valuation. The following changes in actuarial assumptions and plan provisions occurred in 2023: General Employees Fund Changes in Actuarial Assumptions: • The investment return assumption and single discount rate were changed from 6.50 percent to 7.00 percent. Changes in Plan Provisions • An additional one-time direct state aid contribution of $170.1 million will be contributed to the Plan on October 1, 2023. • The vesting period of those hired after June 30, 2010 was changed from five years of allowable service to three years of allowable service. • The benefit increase delay for early retirements on or after January 1, 2024 was eliminated. • A one-time, non-compounding benefit increase of 2.50 percent minus the actual 2024 adjustment will be payable in a lump sum for calendar year 2024 by March 31, 2024. Police and Fire Fund Changes in Actuarial Assumptions: • The investment return assumption was changed from 6.50 percent to 7.00 percent. • The single discount rate changed from 5.40 percent to 7.0 percent.