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CITY OF LAKE ELMO, MINNESOTA NOTES TO THE BASIC FINANCIAL STATEMENTS DECEMBER 31, 2024 63 NOTE 3 DEFINED BENEFIT PENSION PLANS – STATEWIDE (Continued) Aggregate Pension Expense The total pension expense for all plans recognized by the City for the year ended December 31, 2024, including the amortization of deferred balances, was negative $15,577. Long-Term Expected Return on Investment 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 alloca tion and best estimates of geometric real rates of return for each major asset class are summarized in the following table: Asset Class Target Allocation Long-Term Expected Real Rate of Return Domestic Equity 33.50% 5.10% International Equity 16.50% 5.30% Fixed Income 25.00% 0.75% Private Markets 25.00% 5.90% Total 100% Actuarial Methods and Assumptions The total pension liability for each of the cost-sharing defined benefit plans was determined by an actuarial valuation as of June 30, 2024, using the entry age normal actuarial cost method. The long-term rate of return on pension plan investments used to determine the total liability is 7.0 percent. The 7.0 percent assumption is based on a review of inflation and investment ret urn assumptions from a number of national investment consulting firms. The review provided a range of investment return rates considered reasonable by the actuary. An investment return of 7.0 percent is within that range. Inflation is assumed to be 2.25 percent for the General Employees Plan and Police and Fire Plan. Benefit increases after retirement are assumed to be 1.25 percent for the General Employees Plan and 1.0 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 3.0 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 3.0 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 General Employees Plan was last reviewed in 2022. The assumption changes were adopted by the board and became effective with the July 1, 2023 actuarial valuation. The Police & Fire Plan was reviewed in 2024. PERA anticipates the experience study will be approved by the Legislative Commission on Pensions and Retirement and become effective with the July 1, 2025 actuarial valuation.