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PENINSULA AIRPORT COMMISSION
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2023
24
Note 9—Defined benefit pension plan (continued)
Long-Term Expected Rate of Return – The long-term expected rate of return on pension VRS investments was
determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of
return (expected returns, net of pension System investment expense, and inflation) are developed for each major
asset class. These ranges 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 asset allocation and best estimate of arithmetic real rates of return for each major asset class are
summarized in the following table:
Weighted
Arithmetic
Average
Long-Term
Long-Term
Target
Expected
Expected
Asset Class (Strategy)
Allocation
Rate of Return
Rate of Return
Public equity
34.00%
5.71%
1.94%
Fix income
15.00%
2.04%
0.31%
Credit strategies
14.00%
4.78%
0.67%
Real assets
14.00%
4.47%
0.63%
Private equity
14.00%
9.73%
1.36%
MAPS - multi-asset public strategies
6.00%
3.73%
0.22%
PIP - private investment partnership
3.00%
6.55%
0.20%
100.00%
5.33%
Inflation
2.50%
*Expected arithmetic nominal return
7.83%
* The above allocation provides for a one-year return of 7.83%. However, one-year returns do not take into
account the volatility present in each of the asset classes. In setting the long-term expected rate of return for
the System, stochastic projections are employed to model future returns under various economic conditions.
The results provide a range of returns over various time periods that ultimately provide a median return of 6.94%,
including expected inflation of 2.5%. The VRS board elected a long-term rate of 6.75% which is roughly at the
40th percentile of expected long-term results of the VRS fund asset allocation. On October 10, 2019, the VRS
Board elected a long-term rate of return of 6.75%, which was roughly at the 40th percentile of expected long-term
results of the VRS fund asset allocation at that time, providing a median return of 7.11%, including expected
inflation of 2.50%.
Discount Rate – The discount rate used to measure the total pension liability was 6.75%. The projection of cash
flows used to determine the discount rate assumed that VRS member contributions will be made per the VRS
statutes and the employer contributions will be made in accordance with the VRS funding policy at rates equal to
the difference between actuarially determined contribution rates adopted by the VRS Board of Trustees and the
member rate. Consistent with the phased-in funding provided by the General Assembly for state and teacher
employer contributions, political subdivisions were also provided with an opportunity to use an alternate
employer-contribution rate. For the year ended June 30, 2023, the alternate rate was the employer contribution
rate used in FY 2012 or 100% of the actuarially determined employer-contribution rate from the June 30, 2017,
actuarial valuations, whichever was greater. From July 1, 2021, on, participating employers are assumed to
continue to contribute 100% of the actuarially determined contribution rates. Based on those assumptions, the
pension plan’s fiduciary net position was projected to be available to make all projected future benefit payments
of current active and inactive employees. Therefore, the long-term expected rate of return was applied to all
periods of projected benefit payments to determine the total pension liability.
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