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NOTE 9—DEFINED BENEFIT PENSION PLANS—STATE-WIDE(CONTINUED) E. Long-Term Expected Return on Investments The Minnesota State Board of Investment, which manages the investments of the 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: Target Long-Term Expected Asset Class Allocation 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 100.00 % F. 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, 2025, using the 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 considered reasonable by the actuary.An investment return of 7.00 percent is within that range. Inflation is assumed to be 2.25 percent for the General Employees Plan and the Police and Fire Plan.Benefit increases after retirement are assumed to be 1.50 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 11.50 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 in annual increments from 10.75 percent after one year of service to 3.00 percent after 23 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 the 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 and Fire Plan was reviewed in 2024. The assumption changes were adopted by the Board and became effective with the July 1, 2025 actuarial valuation. -56-