Agenda - Council Work Session - 06/10/2025

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NOTE 10 — DEFINED BENEFIT PENSION PLANS — STATE-WIDE (CONTINUED) E. Long -Term Expected Return on Investments The Minnesota State Board of Investment, which manages the investments of the PERA, prepares an analysis of the reasonableness on a regular basis of the long-term expected rate of return 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 assess allocation percentages. The target allocation and best -estimates of geometric real rates of return for each major asset class are summarized in the following table: Long -Term Expected Real Rate Asset Class Target Allocation of Return Domestic Equity 33.50% 5.10% International Equity 16.50% 5.30% Fixed Income 25.00% 0.75% Private Markets 25.00% 5.90% Total 100.00% F. Actuarial Methods and Assumptions The total pension liability for each of the cost -sharing defined benefit plans was determined by an actuarial valuation as of June 30, 2024, using the entry age normal actuarial cost method. The long- term rate of return on pension plan investments used to determine the total liability is 7.0%. The 7% assumption is based on a review of inflation and investment return assumptions from a number of national investment consulting firms. The review provided a range of investment return rates considered reasonable by the actuary. An investment return of 7% is within that range. Inflation is assumed to be 2.25% for the GERF and the PEPFF. Benefit increases after retirement are assumed to be 1.25% for the GERF and 1.0% for the PEPFF. Salary growth assumptions in the GERF range in annual increments from 10.25% after one year of service to 3.00% after 27 years of service. In the PEPFF, salary growth assumptions range in annual increments from 11.75% after one year of service to 3.00% after 24 years of service. Mortality rates for the GERF are based on the Pub-2010 General Employee Mortality Table. Mortality rates for the PEPFF are based on the Pub-2010 Public Safety Employee Mortality tables. The tables are adjusted slightly to fit PERA's experience. Actuarial assumptions for the GERF are reviewed every four years. The most recent four-year experience study for the GERF was completed in 2022. The assumption changes were adopted by the Board and became effective with the July 1, 2023 actuarial valuation. The PEPFF Plan was reviewed in 2024. PERA anticipates the experience study will be approved by the Legislative Commission on Pensions and Retirement and become effective with the July 1, 2025 actuarial valuation. 87