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CITY OF RAMSEY, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 1995 Note 10. DEFINED BENEFIT PENSION PLANS - STATEWIDE (continued) C. Funding Status and Progress (continued) 1. Pension Benefit Obligation (continued) The measurement of the pension benefit obligation is based on an actuarial valuation as of June 30, 1995. Net assets available to pay pension benefits were valued as of June 30, 1995. For the PERF, significant actuarial assumptions used in the calculation of the pension benefit obligation include (a) a rate of return on the investment of present and future assets of 8.5 percent per year, compounded annually, prior to retirement, and 5 percent per year, compounded annually, following retirement; (b) projected salary increases taken from a select and ultimate table; (c) payroll growth at 6 percent per year, consisting of 5 percent for inflation and 1 percent due to growth in group size; (d) post - retirement benefit increases that are accounted for by the 5 percent rate of return assumption following retirement; and (e) mortality rates based on the 1983 Group Annuity Mortality Table set forward one year for retired members and set back five years for each active member. Actuarial assumptions used in the calculation of the PEPFF include (a) a rate of return on the investment of present and future assets of 8.5 percent per year, compounded annually, prior to retirement, and 5 percent per year, compounded annually, following retirement; (b) projected salary increases of 6.5 percent per year, compounded annually, attributable to the effects of inflation; (c) post - retirement increases that are accounted for by the 5 percent rate of return assumption following retirement; and (d) mortality rates based on the 1971 Group Annuity Mortality Table projected to 1984 for males and females. 2. Changes in Plan Provisions The 1995 legislative session did not include any benefit improvements which would impact funding costs for the PERF and the PEPFF. 3. Changes in Actuarial Assumptions Prior to fiscal year 1994, the salary increase assumption and the mortality tables used in the calculation of pension benefit obligation for the PERF were the same as those specified for the PEPFF. For the July 1, 1994 actuarial valuation, PERA's board of trustees approved new mortality rates updated to the 1983 Group Annuity Mortality Table, salary increases which were changed to a select and ultimate table and a new payroll growth assumption which was changed from 6.5 percent to 6 percent. These changes were made to reflect actual experience of the plan. Since the July 1, 1994 acttuarial valuation, there were no changes in actuarial assumptions of the PERF and the PEPFF which impacted funding costs. Potential changes in the assumptions used for the PEPFF may be made in the future. Results of an experience study for the PEPFF, for the period ending June 30, 1994, disclosed (a) retirees are living longer; (b) the expected active member death rate is declining; (c) the trend toward earlier retirement continues; and (d) the pattern of salary increases varies substantially by ages. Based on these results, Pera will soon consider revising the actuarial assumptions for retirement age, mortality, payroll growth, and individual salary increases. These changes, if adopted within fiscal year 1996, will significantly impact the July 1, 1996 actuarial valuation of the PEPFF. —26--