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CITY OF SAN LEANDRO NOTES TO BASIC FINANCIAL STATEMENTS For The Year Ended June 30, 2019 NOTE 13 – PENSION PLAN (Continued) In determining the long-term expected rate of return, CalPERS took into account both short-term and long-term market return expectations as well as the expected pension fund cash flows. Using historical returns of all the funds’ asset classes, expected compound geometric returns were calculated over the short-term (first 10 years) and the long-term (11+ years) using a building-block approach. Using the expected nominal returns for both short-term and long-term, the present value of benefits was calculated for each fund. The expected rate of return was set by calculating the single equivalent expected return that arrived at the same present value of benefits for cash flows as the one calculated using both short-term and long-term returns. The expected rate of return was then set equivalent to the single equivalent rate calculated above and adjusted to account for assumed administrative expenses. The table below reflects the long-term expected real rate of return by asset class. The rate of return was calculated using the capital market assumptions applied to determine the discount rate and asset allocation. These rates of return are net of administrative expenses. New Strategic Real Return Real Return Asset Class (a) Allocation Years 1-10 (b) Years 11+ (c) Global Equity 50.0% 4.80% 5.98% Fixed Income 28.0% 1.00% 2.62% Inflation Assets 0.0% 0.77% 1.81% Private Equity 8.0% 6.30% 7.23% Real Assets 13.0% 3.75% 4.93% Liquidity 1.0% 0.00% -0.92% Total 100.0% (a)In the CalPERS CAFR, Fixed Income is included in Global Debt Securities; Liquidity is included in Short-term Investments; Inflation Assets are included in both Global Equity Securities and Global Debt Securities. (b) An expected inflation of 2.0% used for this period (c) An expected inflation of 2.92% used for this period 79226