Monthly Archives: September 2014

An Employer’s Road Map to Changing LAGERS Benefits

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It’s that time of year.  The air is crisp, leaves are changing color, the Cardinals and the Royals advanced to the playoffs, football has begun, and, the most exciting of all, it’s budget time!

This is the time of year when my phone calls and e-mails pick up as employers consider changing benefit levels for the upcoming fiscal year.  I thought this post would be a great opportunity to address some of the most common questions I receive from employers during these autumn months.

What is the process for changing LAGERS benefits?

  1. Request a supplemental valuation (cost study) from LAGERS’ actuary. This will tell you how the benefit change will affect your employer’s cost for retirement benefits. Each employer may receive one free supplemental valuation each year but may request more, for a fee.
  2. Make the valuation available for public inspection for 45 calendar days.
  3. The board of the local employer may adopt a resolution to formally install the benefit change after the 45 day public information period has expired.

How do we satisfy the 45 day public information period?

Many political subdivisions choose to include discussion of the valuation in official board minutes to start the 45 day clock.

When will the change take effect?

The board will set an effective date when it adopts the resolution.  The effective date can be the first of any future month the board chooses.  It does not have to match up with the employer’s fiscal year, LAGERS’ fiscal year, or calendar year.

Did you say the Royals made the playoffs?

This is hard for me to believe as well.  I was four years old the last time the Royals were playing baseball this late in the year.

Will former employees and retirees be affected by a benefit change?

No.  Only current employees’ benefits will be affected.

When is the earliest an employee can retire and be eligible for the newly elected benefits?

An employee may have a retirement effective date the same day as the effective date of the benefit change and be affected by the benefit change, so long as the employee receives credited service for the month immediately preceding the effective date of the benefit change.

How often can an employer change benefits?

An employer may make a benefit change once every two years.  This applies to each benefit category.  For example, if an employer changes to the L-3 benefit program in 2014, it cannot adopt a new benefit program until 2016.  However, it could elect the Rule of 80, for example, in 2015.

Can we make multiple changes at the same time?

Yes.  For example, many employers have recently made upgrades in the benefit program to increase benefits for future retirees while at the same time switching to employee contributory to offset some of the cost.

Can we change to any level we want or do we have to move one level at a time?

An employer may elect to move to any level.

Can we choose to apply the benefit change to new hires only or future service only?

Upgrades are retro-active and will be applied to all credited service the current employees have earned with that employer.  Downgrades will be applied to all current employees as well, but only to the future service the employees earn.  Removing the Rule of 80 applies to new hires only.

 

Have any questions not on this list? Let me know, I can help!

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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The Best Ways to Communicate Your LAGERS Benefits

Accountant business woman working with laptop in office.Are you having a hard time communicating the benefit of your LAGERS pension to your employees? When employees understand the value of their defined benefit plan, quit rates decrease by 20% (National Institute on Retirement Security – read article here). Below are a few tips that you can use when discussing your LAGERS pension with employees.

Secure retirement income has increasingly become a desirable benefit for workers. According to a Merrill Lynch survey, 82% of workers are willing to give up 5% of salary for dependable monthly retirement income. Dependable, modest, monthly income is exactly what LAGERS employers provide for their employees. Since secure retirement income is so desirable, try using words like “guaranteed, protected, lifetime retirement income” to promote your LAGERS benefits.

Have you noticed at times that the employees don’t seem to care about a benefit until they find out what’s in it for them? People want personalization. . One way personalize their retirement plan is by promoting their LAGERS annual statement. This statement has information about current and potential future benefit accruals. Another way to personalize is encouraging the usage of the myLAGERS portal. The myLAGERS portal allows employees to view their account(s), change personal information, view past annual statements, create benefit estimates and much more. Finally, another way to personalize an employee’s benefit is to show employee contributions vs. total potential payout illustration. This will give them a big picture view of how much of an impact their LAGERS benefit makes on their retirement security.

While illustrating the employee contribution vs. total potential payout illustration is helpful for personalizing an employee’s benefit, showing what the employer contributes on the employee’s behalf may be cause for confusion. When you show an employee what the employer has contributed, they may think that their employer is contributing funds into an individual account and this account balance will produce their retirement nest egg. . Keep the focus on the formula used to calculate benefits and the steady stream of income this formula produces. .

At times, an employee may have some difficulty with the calculation of the benefit. A great way to express the calculation of LAGERS benefits is through replacement ratios. A replacement ratio illustrates their benefit through a percent of salary replaced. The way you calculate a replacement ratio is by taking your benefit factor times the number of years the employee has worked or plans to work. For example: I have the 1.50% multiplier and I plan to work for 25 years, my LAGERS benefit will replace 37.5% of my pay when I retire. This will also show the employee the need for personal savings as well, because LAGERS is not intended to be his or her sole source of retirement income.

Give some or all of these methods a shot, you may find that the employees have a better appreciation of their retirement benefits and it may make your job just a little easier.

 

Jeff Pabst, CRC Public Relations Specialist

Jeff Pabst, CRC
Public Relations Specialist

Another Year in the Books, Another Strong Year for LAGERS Portfolio

Close-up image of an office worker using a touchpad to analyze s

 

As we prepare to present LAGERS’ fiscal year-end portfolio returns at the 3rd Quarter Board Meeting, I thought I’d give our blog readers a sneak peek. I am thrilled to report the portfolio returned 19.0% for the year ending June 30, 2014.

We crushed our assumed rate of return of 7.25% by 11.75%.  Our passive policy benchmark returned 14.7%, which means we outpaced the indexes by 4.3% bringing in over $200 million extra dollars for the year. That’s right, $200 million!

This great one year return feeds into our 5-year return of 15.0%, 10-year return of 8.7% and 20-year return of 9.4%. All exceeding our assumed rate of return.  This translates into downward pressure on employer contributions and a higher funding status (more secure pension), which is a win, win!

What amazes me is that this was achieved after having a return of 14.5% for the fiscal year ending June 30, 2013. I recall having a conversation with the Chairman of LAGERS, Bob Ashcroft, on how we shouldn’t expect to have another high returning year since the last four years had been positive.  Markets tend not to go in one direction for long periods of time, but we ended up 5.5% better than the previous year.

Even though we felt it might be overly optimistic to expect to have another double digit year, we did not change the portfolio’s long-term asset allocation.  We continue to have an asset allocation mix of roughly 50% equities, 25% fixed income and 25% alternatives (e.g., Timber, Commodities, Real Estate, Private Equity).      {Look for another blog posting on asset allocation in near future.}

We rebalanced throughout the year to maintain such allocations and ended the year on target.  This mix of assets was designed to achieve our long-term goal of 7.25% and LAGERS continues to hold a long-term view.  We don’t let the short-term moves in the market alter our long-term design.  I like to say, “You design a house to handle any weather, you don’t design a house based on the current weather outside.”

 

Investment return numbers have not been audited as of this posting.

 

Brian Collett, Chief Investment Officer

Brian Collett, Chief Investment Officer

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There’s More to myLAGERS Than Meets the Eye!

DeathtoStock_Desk1If you haven’t signed up for your myLAGERS account yet, you’re missing out! Just like using online banking to monitor your finances, there are so many great benefits of having instant access to your retirement information. And just because you are more than a few years away from retirement doesn’t mean there’s nothing on myLAGERS for you.

For starters, there is a lot that you can do. When the LAGERS team sat down to design this system, the number one focus was to give members as much access and control over their information online as possible. This goes beyond just being able to change your address and update beneficiaries (which you can do that too). You can create custom benefit estimates, estimate the cost of purchasing additional service, view what wages your employer is reporting to LAGERS, and so much more! Here are a couple other ways of using your myLAGERS account that you may not have thought of.

 

Not sure if that retirement date you picked is the right choice for you? myLAGERS can help!

One of the most common questions we get in the LAGERS office is: “I’m not sure if an early retirement is right for me” or “I can’t decide if working a couple more years is worth it.” Because every member has a unique retirement situation with unique circumstances surrounding them, you are the only one who knows the right answer to these questions, however, myLAGERS can offer some tools to help you make an informed decision. Trying to decide between two retirement dates? Run two benefit estimates, one for each potential retirement date, and set the two side by side. Trying to decide between taking a new job or sticking with your current employer? Run a couple estimates, one working to retirement age, and another leaving employment early. Understanding the financial impact of your decision on your retirement benefit, may help you make a more educated choice about which move is right for you.

 

Take your benefit estimates to the next level.

Creating a standard benefit estimate is nice, but there is so much more you can do with your myLAGERS benefit estimator. One of my absolute favorite features is a button on the benefit estimator that allows a member to apply taxes to their benefit so that they can see what a take-home benefit will look like. While this shouldn’t replace a pre-retirement conversation with your tax professional, it’s a quick and easy way to get a general idea of what your net benefit may look like at retirement…something a lot of pre-retirees forget to do!

Or maybe you are years and years from retirement and are trying to pinpoint how much you can expect from your benefit down the road. Try creating a benefit estimate and add wage inflation to the formula to account for all those big raises your boss is going to give you in the future!

 

Skip the Paper, Retire Online.

In a day and age where everything is going paperless, so can your retirement. Not only can you apply for your benefits online, but if you are someone who likes (or needs) a little extra hand holding when working on something unfamiliar, myLAGERS is the way to go. When you apply for benefits, you will be walked step by step through the entire process and can track your application progress as you go. If you forgot to send us something, the step-by-step wizard will let you know! Retiring online makes starting your benefits easier than ever!

 

It doesn’t end with retirement!

Once you have retired, remember that there’s still plenty to do on your myLAGERS account. Did you know that you can adjust your tax withholdings at any time on myLAGERS? Or say you are applying for financing and need to produce verification of your pension income? You can instantly generate an income verification letter from the comfort of your own home.

One of the most helpful features for retirees on myLAGERS is the ability to track your benefit payments online. Not only can you see your past payments, but can also see your next upcoming payment. This can be especially useful if you are wondering what your next COLA will be. Every retiree can log on to their myLAGERS account and see their October increase in September.

 

There are so many other things that you can use your myLAGERS account for, and if nothing else, using it to keep your contact information up to date can help LAGERS communicate valuable information about your benefits. Can’t wait any longer to sign up? Click here to get started today!

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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5 Things You Must Consider When Setting Up a Retirement Plan for Your Employees

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It’s no secret that retirement is the most important and expensive purchase we will ever make and many Americans are woefully unprepared. In fact, recent research by the National Institute on Retirement Security gave Missouri a mere average rating for its citizens’ retirement preparedness, meaning many of our retirement dreams may someday turn into nightmares.

How can we turn this around?

Retirement preparedness can be strengthened through commitment from employers and employees alike. Offering a well-structured, employer-sponsored retirement plan is not just good for workers, but can have great benefits for an employer as well.  Here are five things to consider when structuring a retirement plan for your workforce:

1.  If you don’t know where you’re going, any road will take you there.

Figure out what you are trying to accomplish with your retirement plan and how it fits in with your overall compensation package.  Maybe you want to reduce employee turnover? Encourage earlier retirements?  Increase productivity and morale?  Attract high quality workers? These are all noble goals that a retirement plan can help achieve.

2.  How much should a retiree expect to receive from the plan?

There is a new focus on the importance of steady monthly income during the retirement years.  A recent Merrill Lynch survey found that 82% of workers would be willing to give up 5% of their salary in exchange for dependable monthly retirement income.

A retirement plan must be designed to replace enough salary so that employees are encouraged to retire when they are supposed to.  So what is an acceptable level of salary replacement? Traditionally, financial planners have recommended a person replace somewhere between 75%-90% of their working salary, depending upon the individual’s desired lifestyle. This number should take into account benefits from Social Security, the employee’s personal savings, as well as your employer-sponsored retirement plan. A defined benefit plan guarantees a certain income replacement based on a formula while income replaced by an individual account plan will be based on how much the worker was able to accumulate during her career.

3.  Cost.

Giving consideration to cost is a no-brainer. Every employer must determine how their retirement plan fits in with their total compensation package and their budget. Also figure out if the employees will help fund the benefit.

4.  Should employees be required to participate in the plan?

Typically all employees who work a certain number of hours are covered under a defined benefit plan and may or may not be covered under an individual account type plan. The point is to get as many people into the plan as possible so you can achieve your goals. Also give thought to whether the employees should direct their own investments or if that should be left to professionals.

5.  Who should be the administrator of the plan?

When choosing the agency that will administer your retirement plan, ask about fees. How much and who pays? Also, what is the historical record of stability with this agency and what about customer service? Will your employees have access to personalized online tools to help them plan their retirement? Is there access to in-person consultations?

Talking through these items with your team before contacting potential plan administrators will make for a better end result for your employer and for your workers.  Also remember that open communication with employees during the benefit selection process is key for successful integration.


Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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