CAFR 2017

Actuarial Assumptions The entry age normal actuarial cost method, amortized on a level dollar closed period was used in the December 31, 2015 actuarial valuation. The total pension liability rolled forward to December 31, 2016 was determined using the following actuarial assumptions, applied to all periods included in the measurement:

Inflation

3.0 percent

Salary Increases

3.50 to 7.35 percent, including inflation

Investment rate of return

4.00 percent, net of pension plan investment expense, including inflation

Since the prior measurement date, the assumed rate of return was increased from 3.57% to 4.00% to reflect the change from the municipal bond rate to the long-term expected rate of return. The plan currently uses mortality tables that vary by age, and health status (i.e. disabled and healthy). The current mortality rates are based on published tables and based on studies that cover significant portions of the U.S. population. The healthy mortality rates also contain a provision to reflect future mortality improvements. The actuarial assumptions used in the December 31, 2015 valuation were based on the results of an actuarial experience study for the period January 1, 2010 through December 31, 2014. The rates of mortality for the period after service retirement are according to the RP-2014 Healthy Annuitant base rates projected to the valuation date using MP-2015, projected forward generationally from the valuation date using MP-2015. Rates

are adjusted by 104% for males and 100% for females. Investment Policy and Long-Term Expected Rate of Return

The Separation Allowance’s investment policy, adopted by the City Council in April 2017, allows for investment in instruments authorized by G.S. 159-30 as well as investments available to the North Carolina State Treasurer when managing funds with the same purpose. The investment policy may be amended by a majority vote of Council members. The following was the City Council’s adopted asset allocation policy as of June 30, 2017:

Target

Long-TermExpected Real Rate of Return

Asset Class

Allocation

Equity IndexFund Bond IndexFund

60.0% 40.0% 100.0%

4.46% 0.64%

Total

For the year-ended June 30, 2017, the annual money-weighted rate of return on Separation Allowance investments, net of investment expense, was 0.91%. The money-weighted rate of return expresses investment performance, net of investment expense, adjusted for the changing amounts actually invested. Investments are valued at fair market value. The projected long-term investment returns and inflation assumptions are developed through review of current and historical capital markets data, sell-side investment research, consultant whitepapers, and historical performance of investment strategies. Best estimate ranges of expected future real rates of return are developed for each major asset class. These projections are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target allocation and best estimates of arithmetic real rates of return for each major asset class as of June 30, 2017 are summarized in the table above. The long-term nominal rates of return underlying the real rates of return are 10-year geometric compounded annualized figures. The real rates of return are calculated from nominal rates by multiplicatively adjusting for a long-term inflation assumption of 2.19%. All rates of return and inflation are annualized.

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