2021 Annual Comprehensive Financial Report

CITY OF SHAKOPEE NOTES TO THE FINANCIAL STATEMENTS DECEMBER 31, 2021

NOTE 14 – PENSION PLANS (CONTINUED)

Defined Benefit Pension Plan – Volunteer Fire Fighter's Relief Association (Continued)

E. Net Pension Liability

The City's net pension liability was measured as of December 31, 2020, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date.

Actuarial assumptions.

The total pension liability in the December 31, 2020, actuarial valuation was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Inflation Salary increase Investment rate of return

2.25

% %, average, including inflation %, net of pensions plan investment expense:

0

4.75

including inflation

The Association is comprised of volunteers; therefore, there are no salary increases. The value of death benefits is similar to the value of the retirement pension. Because of low retirement ages, the plan assumes no pre-retirement mortality. Post-retirement mortality does not apply as the benefit structure and form of payment do not reflect lifetime benefits. The long-term return on assets has been set based on the plan's target investment allocation along with long- term return expectations by asset class. When there is sufficient historical evidence of market outperformance, historical average returns may be considered. Best estimates of arithmetic real rates of return for each major asset class included in the pension plan's target asset allocation as of the measurement date are summarized in the table below.

Target

Long-Term Expected

Allocation Real Rate of Return

Asset Class

International Equity Domestic Equity

0.0% 15.0% 30.0% 15.0% 40.0%

4.43% 0.09% 1.40% 5.32% 4.90%

Fixed Income

Real Estate and Alternatives

Cash and Equivalents

Total

100.0%

The discount rate used to measure the total pension liability was 4.75%. Assets were projected using expected benefit payments and expected asset returns. Expected benefit payments by year were discounted using the expected asset return assumption for years in which the assets were sufficient to pay all benefit payments. Any remaining benefit payments after the trust fund is exhausted are discounted at the municipal bond rate. The equivalent single rate is the discount rate. Discount rate.

88