2018 City of Shakopee Comprehensive Annual Financial Report

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

NOTE 14 – POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS (CONTINUED) C. Actuarial Methods and Assumptions (Continued) The total OPEB liability in the December 31, 2017 actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement, unless otherwise specified:

Discount Rate

3.31%

Expected Long-Term Investment Return

N/A

20-Year Municpal Bond Yield

3.31% 2.50%

Inflation Rate

6.90% in 2018 grading to 5.20% over 4 years until 2047 grading down to 4.00% ultimate rate in 2075

Medical Trend Rate

The Actuarial Standards Board (ASB) provides coordinated guidance for measuring pension and retiree group benefit obligations through a series of Actuarial Standards of Practice (ASOPs). ASOP No. 27, Selection of Economic Assumptions for Measuring Pension Obligations, requires that the actuary disclose the rationale used in selecting each non-prescribed economic assumption and any changes to non-prescribed economic assumptions. All non-prescribed economic assumptions are summarized below. The discount rate used to measure the total OPEB liability was 3.31 percent. Per GASB guidance, the single rate that produces the same present value of expected benefit payments as (1) the expected long- term rate of return on plan assets during the period when projected assets are sufficient to pay future retiree benefits, and (2) the 20-year municipal bond rate after assets are projected to be exhausted. The Fidelity 20-Year Municipal GO AA Index is used because it meets the GASB requirements and is based on a large amount of municipal security data. Mortality rates were based on the current actuarial assumptions for the pension plan in which the current or future retiree participates. The inflation rate used to measure the OPEB liability was 2.50%. Based on analysis of historical CPI-U and 30-year TIPS data, the Federal Open Market Committee target inflation rate, and the 2018 Survey of Capital Market Assumptions produced by Horizon Actuarial Services. Annual salary increases were based on the most recently disclosed assumption for the pension plan in which the employee participates.

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