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CITY OF CENTERVILLE, MINNESOTA NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2015 Note 4: DEFINED BENEFIT PENSION PLANS - STATEWIDE - CONTINUED The long-term expected rate of return on pension plan investments is 7.9 percent. The State Board of Investment, which manages the investments of PERA, prepares an analysis of the reasonableness of the long-term expected rate of return on a regular basis 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 arithmetic real rates of return for each major asset class are summarized in the following table: Target Asset Class Allocation Domestic stocks 45.00 % International stocks 15.00 Bonds 18.00 Alternative assets 20.00 Cash 2.00 Total 100.00 % F. Discount rate Long-term Expected Real Rate of Return 5.50 % 6.00 1.45 6.40 0.50 The discount rate used to measure the total pension liability was 7.9 percent. The projection of cash flows used to determine the discount rate assumed that employee and employer contributions will be made at the rate specified in statute. Based on that assumption, each of the pension plan's fiduciary net position was projected to be available to make all projected future benefit payments of current active and inactive employees. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. G. Pension liability sensitivity The following presents the City's proportionate share of the net pension liability for all plans it participates in, calculated using the discount rate disclosed in the preceding paragraph, as well as what the City's proportionate share of the net pension liability would be if it were calculated using a discount rate 1 percentage point lower or 1 percentage point higher than the current discount rate: GERF H. Pension plan fiduciary net position City Proportionate Share of NPL 1 Percent 1 Percent Decrease (6.90%) Current (7.90%) Increase (8.90%) 676,347 $ 430,149 $ 226,827 Detailed information about each defined benefit pension plan's fiduciary net position is available in a separately -issued PERA financial report that includes financial statements and required supplementary information. That report may be obtained on the Internet at www.mnpera.org; by writing to PERA at 60 Empire Drive #200, St. Paul, Minnesota, 55103- 2088; or by calling (651) 296-7460 or (800) 652-9026. -65-