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CITY OF SAN LEANDRO <br />NOTES TO BASIC FINANCIAL STATEMENTS <br />For The Year Ended June 30, 2018 <br />I NOTE 13 -PENSIONS PLAN (Continued) I <br />Actuarial Assumptions The total pension liabilities in the June 30, 2016 actuarial valuations were <br />determined using the following actuarial assumptions: <br />Valuation Date <br />Measurement Date <br />Actuarial Cost Method <br />Actuarial Assumptions: <br />Discount Rate <br />Inflation <br />Payroll Growth <br />Projected Salary Increase <br />Investment Rate of Return <br />Mortality <br />(1) Depending on age, service and type of employment <br />All Plans <br />June 30, 2016 <br />June 30, 2017 <br />Entry-Age Normal Cost Method <br />7.15% <br />2.75% <br />3.0% <br />3.2% -12.2% (1) <br />7.15% (2) <br />Derived using CalPERS Membership <br />Data for all Funds (3) <br />(2) Net of pension plan investment expenses, including inflation <br />(3) The probabilities of mortality are based on the 2010 CalPERS Experience Study for the period <br />from 1997 to 2007. Pre-retirement and Post-retirement mortality rates include 5 years of <br />projected mortality improvement using Scale AA published by the Society of Actuaries. <br />For the measurement date of June 30, 2017, the accounting discount rate was reduced from 7.65 to 7.15 <br />percent. <br />Discount Rate -The discount rate used to measure the total pension liability was 7.15% for each Plan. <br />To determine whether the municipal bond rate should be used in the calculation of a discount rate for each <br />plan, CalPERS stress tested plans that would most likely result in a discount rate that would be different <br />from the actuarially assumed discount rate. Based on the testing, none of the tested plans run out of assets. <br />Therefore, the current 7 .15 percent discount rate is adequate and the use of the municipal bond rate <br />calculation is not necessary. The long term expected discount rate of 7.15 percent will be applied to all <br />plans in the Public Employees Retirement Fund (PERF). The stress test results are presented in a detailed <br />report that can be obtained from the CalPERS website. <br />The long-term expected rate of return on pension plan investments was determined using a building-block <br />method in which best-estimate ranges of expected future real rates of return ( expected returns, net of <br />pension plan investment expense and inflation) are developed for each major asset class. <br />In determining the long-term expected rate of return, CalPERS took into account both short-term and <br />long-term market return expectations as well as the expected pension fund cash flows. Using historical <br />returns of all the funds' asset classes, expected compound returns were calculated over the short-term <br />(first 10 years) and the long-term (11-60 years) using a building-block approach. Using the expected <br />nominal returns for both short-term and long-term, the present value of benefits was calculated for each <br />fund. The expected rate of return was set by calculating the single equivalent expected return that arrived <br />at the same present value of benefits for cash flows as the one calculated using both short-term and long- <br />term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated <br />above and rounded down to the nearest one quarter of one percent. <br />77 542