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<br />-43- <br />NOTE 6 – DEFINED BENEFIT PENSION PLAN – STATE-WIDE (CONTINUED) <br /> <br />E. Actuarial Assumptions <br /> <br />The total pension liability in the June 30, 2018 actuarial valuation was determined using an individual <br />entry-age normal actuarial cost method and the following actuarial assumptions: <br /> <br />Inflation 2.50% per year <br />Active member payroll growth 3.25% per year <br />Investment rate of return 7.50% <br />Salary increases were based on a service-related table. Mortality rates for active members, retirees, <br />survivors, and disabilitants for all plans were based on RP-2014 tables for males and females, as <br />appropriate, with slight adjustments to fit the PERA’s experience. Cost of living benefit increases after <br />retirement for retirees are assumed to be 1.25 percent per year for the GERF. <br /> <br />Actuarial assumptions used in the June 30, 2018 valuation were based on the results of actuarial <br />experience studies. The most recent six-year experience study in the GERF was completed in 2015. <br />Economic assumptions were updated in 2017 based on a review of inflation and investment return <br />assumptions. <br /> <br />The following changes in actuarial assumptions occurred in 2018: <br /> <br />GERF <br /> <br />• The mortality projection scale was changed from MP-2015 to MP-2017. <br />• The assumed post-retirement benefit increase was changed from 1.00 percent per year through <br />2044, and 2.50 percent per year thereafter, to 1.25 percent per year. <br />The State Board of Investment, which manages the investments of the PERA, prepares an analysis of the <br />reasonableness on a regular basis of the long-term expected rate of return using a building-block method <br />in which best-estimate ranges of expected future rates of return are developed for each major asset class. <br />These ranges are combined to produce an expected long-term rate of return by weighting the expected <br />future rates of return by the target asset allocation percentages. The target allocation and best-estimates <br />of geometric real rates of return for each major asset class are summarized in the following table: <br /> <br />Asset Class <br />Domestic stocks 36 % 5.10 % <br />International stocks 17 5.30 % <br />Bonds 20 0.75 % <br />Alternative assets 25 5.90 % <br />Cash 2 – % <br />Total 100 % <br />Allocation <br />Target <br />Real Rate of Return <br />Long-Term Expected <br />