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<br />-40- <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, 2019 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, 2019 valuation were based on the results of actuarial <br />experience studies. The most recent four-year experience study in the GERF was completed in 2019. <br />Economic assumptions were updated in 2018 based on a review of inflation and investment return <br />assumptions. <br /> <br />The following changes in actuarial assumptions and plan provisions occurred in 2019: <br /> <br />GERF – CHANGES IN ACTUARIAL ASSUMPTIONS <br /> <br />• The mortality projection scale was changed from MP-2017 to MP-2018. <br /> <br />GERF – CHANGES IN PLAN PROVISIONS <br /> <br />• The employer supplemental contribution was changed prospectively, decreasing from <br />$31.0 million to $21.0 million per year. The state’s special funding contribution was changed <br />prospectively, requiring $16.0 million due per year through 2031. <br /> <br />The Minnesota State Board of Investment, which manages the investments of the PERA, prepares an <br />analysis of the reasonableness on a regular basis of the long-term expected rate of return using a <br />building-block method in which best-estimate ranges of expected future rates of return are developed for <br />each major asset class. These ranges are combined to produce an expected long-term rate of return by <br />weighting the expected future rates of return by the target asset allocation percentages. The target <br />allocation and best-estimates of geometric real rates of return for each major asset class are summarized <br />in the following table: <br /> <br />Asset Class <br />Domestic equity 35.5 % 5.10 % <br />Private markets 25.0 5.90 % <br />Fixed income 20.0 0.75 % <br />International equity 17.5 5.90 % <br />Cash equivalents 2.0 – % <br />Total 100.0 % <br />Allocation <br />Target <br />Real Rate of Return <br />Long-Term Expected <br />