Page 93 - Moreno Valley 2025 Annual Financial Report

City of Moreno Valley, California

Notes to Financial Statements
For the Year Ended June 30, 2025

Note 8. Employee Pension Plan (Continued)

The underlying mortality assumptions and all other actuarial assumptions used in the
June 30, 2023 valuation were based on the results of a 2021 CalPERS Experience Study
and Review of Actuarial Assumptions. Further details of the Experience Study can be found
on the CalPERS website.

Discount Rate – The discount rate used to measure the total pension liability was 6.90% for
the Plan. To determine whether the municipal bond rate should be used in the calculation
of a discount rate for each plan, CalPERS stress tested plans that would most likely result
in a discount rate that would be different from the actuarially assumed discount rate.
Based on the testing, none of the tested plans run out of assets. Therefore, the current
7.15% discount rate is adequate and the use of the municipal bond rate calculation is not
necessary. The long-term expected discount rate of 6.90% is without reduction of pension
plan administrative expenses and will be applied to all plans in the Public Employees
Retirement Fund (PERF). The stress test results are presented in a detailed report that
can be obtained from the CalPERS website.

The long-term expected rate of return on pension plan investments was determined using a
building-block method in which best-estimate ranges of expected future real rates of return
(expected returns, net of pension plan investment expense and inflation) are developed
for each major asset class.

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
returns were calculated over the short-term (first 10 years) and the long-term (11-60 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 rounded down to the nearest one quarter
of one percent.

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