2018 City of Shakopee Comprehensive Annual Financial Report

CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2018

NOTE 13 – PENSION PLANS (CONTINUED) Defined Benefit Pension Plan – Volunteer Fire Fighter's Relief Association (Continued) E. Net Pension Liability (Continued) Actuarial assumptions . The total pension liability in the December 31, 2017, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement: Inflation 2.75 % Salary increase 0.00 %, average, including inflation Investment rate of return 5.75 %, net of pensions plan investment expense: including inflation The Association is comprised of volunteers; therefore, there are no salary increases. The value of death benefits is similar to the value of the retirement pension. Because of low retirement ages, the plan assumes no pre-retirement mortality. Post-retirement mortality does not apply as the benefit structure and form of payment do not reflect lifetime benefits. The long-term return on assets has been set based on the plan's target investment allocation along with long-term return expectations by asset class. When there is sufficient historical evidence of market outperformance, historical average returns may be considered. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of the measurement date are summarized in the table below.

Target Allocation

Long-TermExpected Real Rate of Return

Asset Class

Domestic Equity International Equity

40.0% 15.0% 30.0%

5.39% 5.20% 1.98% 4.25% 0.79%

Fixed Income

Real Estate and Alternatives

0.0%

Cash and Equivalents

15.0%

Total

100.0%

Discount rate. The discount rate used to measure the total pension liability was 5.75 %. Assets were projected using expected benefit payments and expected asset returns. Expected benefit payments by year were discounted using the expected asset return assumption for years in which the assets were sufficient to pay all benefit payments. Any remaining benefit payments after the trust fund is exhausted are discounted at the municipal bond rate. The equivalent single rate is the discount rate. 86