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CITY OF ORONO, MINNESOTA <br />Notes to Financial Statements (continued) <br />December 31, 1995 <br />NOTE 8 - DEFINED BENEFIT PENSION PLANS - STATEWIDE (CONTLNUED) <br />C. Funding Status and Progress <br />1. Pension Benefit Obligation <br />The "pension benefit obligation" is a standardized disclosure measure of the present value of <br />pension benefits, adjusted for the effects of projected salary increases and step-rate benefits, <br />estimated to be payable in the funire as a result of employee service to date. The measure, which <br />is the actuarial present value of credited projected benefits, is intended to help users assess PERA's <br />funding stams on a going-concern basis, assess progress made in accumulating sufficient assets to <br />pay benefits when due. and make comparisons among Public Employees’ Retirement Systems and <br />participating employers. The measure is independent of the actuarial funding method used to <br />determine required contributions, which is discussed in Note B. PERA does not make separate <br />measurements of assets and pension benefit obligation amounts for individual participating <br />employers. <br />The pension benefit obligations for the PERF and the PEPFF as of June 30, 1995 are shown <br />below: <br />PERF PEPFF <br />I <br />I <br />I <br />I <br />I <br />I <br />I <br />Total pension benefit obligation <br />Net assets available for benefits, at cost <br />(market values for PERF * $5,266,688,(XX); <br />PEPFF = $1,445,345,000) <br />Unfunded (assets in excess oO <br />pension benefit obligation <br />$ 5,994.492,000 $ 1,113,225,000 <br />5.074.357.000 1,356.179,000 <br />$ 920,135,000 $ (242,954,000) <br />The pension benefit obligation was determined as part of an actuarial valuation at July 1, 1995. <br />For the PERF. significant actuarial assumptions used in the calculation of the pension benefit <br />obligation include: (a) a rate of return on the investment of present and future assets of 8.5% per <br />year, compounded annually, prior to retirement, and 5.0% per year, compounded annually, <br />following retirement; (b) projected salary increases taken from an age related table which <br />incorporates a 5.0% base inflation assumption; (c) payroll growth at 6.0% per year, consisting of <br />5.0% for inflation and 1.0% due to growth in group size; (d) post-retirement benefit increases that <br />are accounted for by the 5.0% rate of return assumption following retirement; and (e) mortality <br />rates based on the 1983 Group Annuity Mortality Table set forward one year for retired members <br />and set back five years for each active member. <br />-48-