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CITY OF SAN LEANDRO NOTES TO BASIC FINANCIAL STATEMENTS For The Year Ended June 30, 2022 NOTE 15 – OTHER POST EMPLOYMENT BENEFITS (Continued) B. Net OPEB Liability Actuarial Methods and Assumptions – The City’s net OPEB liability was measured as of June 30, 2022 and the total OPEB liability used to calculate the net OPEB liability was determined on actuarial valuation date that was rolled forward using standard update procedures to determine the total OPEB liability as of the measurement date, based on the following actuarial methods and assumptions: Actuarial Assumptions June 30, 2022 Measurement Date Valuation Date • June 30, 2021 Actuarial Cost Method • Entry Age Normal Level Percentage of Payroll Funding Policy • City contributes full Actuarial Determined Contribution Discount Rate • 4.50% General Inflation • 2.50% annually Mortality, Retirement, Disability, Termination • CalPERS 1997-2015 Experience Study Salary Increases • 2.75% • Additional merit-based on CalPERS merit 1997 - 2015 Experience Study Healthcare Cost Trend • Non-Medicare - 6.50% for 2023, decreasing to an ultimate rate of 3.75% in 2076 • Medicare - 5.60% for 2023, decreasing to an ultimate rate of 3.75% in 2076 Mortality Improvement • Mortality projected fully generational with Scale MP-2021. PEMHCA Minimum Increases • 4.00% Annually. The long-term expected rate of return on OPEB plan investments (comprised of capital appreciation and reinvestment of dividends, interest, and other distributions) is determined through a combination of historical rates of returns, valuation projections, and economic expectations. The expected return is then calculated by weighting the returns for each asset class according to the exposure as determined by HighMark’s current strategic allocation. Expected returns are developed and annually reviewed. The target allocation and best estimates of real rates of return for each major asset class are summarized in the following table: Long-Term Target Expected Real Asset Class Allocation Rate of Return Global Equity 29.00% 4.56% Fixed Income 65.00% 0.78% REITs 1.00% 4.06% Cash 5.00% -0.50% Total 100.0% Discount Rate – The discount rate used to measure the total OPEB liability is 4.50% for fiscal year 2022, which was a decrease in the discount rate of 5.25% used in the prior year’s valuation. This is the expected long-term rate of return on City assets using a Moderately Conservative Highmark PLUS fund within the Public Agency Retirement Services (PARS). The projection of cash flows used to determine the discount rate assumed that the City contribution will be made at rates equal to the actuarially determined contribution rates. Based on those assumptions, the OPEB plan's fiduciary net position is projected to cover all future OPEB payments. Therefore, the discount rate was set equal to the long-term expected rate of return. 86