Monthly Archives: January 2015

This City did Something Very Cool to Improve the Retirement Security of its Employees

Savings

When Bill Johnson came to work as the Director of Administration for the City of Fulton in 1996, the City was facing some challenges with its workforce.

“We were experiencing a lot of turnover and the City Council wanted me to investigate ways to fix the turnover.  We identified the retirement plan as being one item we could look at.” Bill said.

Competition for quality workers was high because Fulton contends with the City of Columbia, City of Jefferson, and the City of Mexico for employees.  All of those cities had higher LAGERS benefits than Fulton at the time.  Unfortunately, the cost for the 2% LAGERS multiplier was higher than the City could afford then.

“But we still wanted to do something for the employees in terms of their retirement,” said Bill.  “So we decided to form a 401 defined contribution plan in addition to the defined benefit plan.  So in the year 2000 we got it going and some of the rules we had were that the City would match up to 3% after your first year and after five years of service we’d match 5% of salary.”

Employees were slow to sign up for the new plan.  “It didn’t catch on very well at all.  For the first several years we had less than 50% of the eligible employees participating,” said Bill.  However, participation really picked up in the late 2000’s.

“The intent was that once the cost to the City for funding the match to the 401 exceeded the additional cost to go to the 2% on the LAGERS, we were going to kill

Bill Johnson

Bill Johnson

the match and then use the money we were using for the match to fund the difference,” he said.  “The thought process was that it would not be a major hit all at once.”

In 2013, the City reached the point that they had been waiting for and looked, once again, into the cost for the 2% LAGERS program.  What they found now was that it was ultimately going to be a savings to the City to carry out Bill’s plan, but, the employees were going to have to contribute 4% of their monthly salary to LAGERS to make it all work.

This plan met some opposition from a small group of employees.  There were some that believed the 401 match was a better option for employees because they had the individual choice to contribute towards their retirement, where LAGERS contributions from employees are mandatory.

“The City Council saw it differently,” Bill said.  “They wanted to make sure every City employee was taken care of with an adequate, well-funded, lifetime benefit.”

The City organized several employee meetings with a LAGERS representative to explain the plan, but did not take a formal poll of the workers.  Bill said he tried this once at another city where he worked and the results were unfavorable.  The question put to the employees was, “Would you rather have a 4% raise in salary or an increase in your LAGERS retirement benefits?”  The employees overwhelmingly voted in favor of the raise even though the LAGERS upgrade was going to cost the City twice as much.

Bill asked one of the employees why he voted for the raise and his response was “I want the money for beer on Saturday night.”

“So, he got his money for beer,” said Bill.

At the City of Fulton, on the other hand, the majority of employees expressed support of the proposal and the changes went into effect in January 2014.

Not only has this plan saved the City money, it has helped to recruit and retain quality workers.  “I really think it has helped with retainage,” said Bill.  “The day the LAGERS statements come, everyone is looking at them, talking about them, and feeling pretty good about it.”

Bill says providing LAGERS is not just a benefit for the City’s employees, but for the taxpayers as well.

“We need to keep the employees that we have in order to maintain the level of service that the citizens have grown accustom to,” he said.  “If we didn’t have these employees we would be training new ones and the quality of service would decrease.”

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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Taxes and Your LAGERS Retirement

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As we flip our calendars to 2015, we’re all thinking about what lies ahead, New Year’s resolutions, and much more. One thing we may not be thinking about is taxes. For one reason or another, we sometimes forget about taxes until April. You may be thinking, “I’m retired (retiring) and my taxes won’t be a big deal, so, I won’t worry about it until April.” Don’t just count on your taxes being lower without some tax planning with a qualified tax professional or CPA. Let’s discuss the taxation of your LAGERS benefit and how it may affect your taxable income.

Is my benefit subject to Federal income tax?

Yes. However, if an employee was required to contribute 4% of their compensation while employed, those contributions have already been taxed. Once the member begins receiving a monthly benefit, a portion of the benefit will not be taxable.

Is my benefit subject to Missouri income tax?

Depending on your adjusted gross income, your public pension benefits may be up to 100% exempt from Missouri state income tax. Married couples with an adjusted gross income of less than $100,000 and single individuals with an adjusted gross income of less than $85,000, will qualify for their public pension income to be 100% tax exempt, limited to $36,442 for each spouse. If your income exceeds the limit, you may qualify for a partial exemption. To learn more visit www.dor.mo.gov or contact a qualified tax professional.

Will LAGERS withhold taxes from my monthly benefit?

Yes. If you choose, LAGERS will withhold Federal and /or State of Missouri income taxes. You can have LAGERS withhold a specified dollar amount, apply the tax tables based on the income you are receiving from LAGERS, or apply the tax tables with an additional dollar amount withheld. You can change your tax withholding at any time throughout retirement. Also, if you move out of state, notify LAGERS to stop withholding State of Missouri income taxes (if applicable).

Will LAGERS produce tax documentation I can use to file my taxes?

LAGERS will send you a 1099-R by January 31st of every year. The 1099-R illustrates the taxable income that you received from LAGERS, the amount of taxes withheld from your benefit, and much more. You also can access these documents on the myLAGERS portal.

I am going to receive a Partial Lump Sum (PLUS). How are taxes applied to the Partial Lump Sum?

Taxation of the Partial Lump Sum depends on how you decide receive the money. If you elect to receive the benefit directly, the Partial Lump Sum (PLUS) is fully taxable and LAGERS has been instructed to forward 20% of the PLUS to the IRS. The 20% withholding will not include any State of Missouri income taxes and depending on your income level, your tax liability may be more or less when you file your taxes. Also, general employees younger than 55 and public safety employees (Police / Fire) younger than 50 who receive the partial lump sum will be subject to a 10% early distribution penalty. This penalty will be assessed when you file your taxes.

By the sound of the above paragraph, you may be thinking you shouldn’t take the Partial Lump Sum because of all the taxation and / or penalties. However, you can delay the taxation and potentially avoid the penalties by doing a direct rollover of the PLUS into a qualified retirement account (401k, 457b, IRA). By having the PLUS directly rolled over, the lump sum takes the characteristics of the account where the money is being deposited and 20% is not withheld for the IRS. Instead, the money will be taxed when you withdraw it from the qualified retirement account. Keep in mind, if you withdraw any amount of the Partial Lump Sum from the qualified retirement account before the above early distribution guidelines (General younger than 55, Public Safety younger than 50), you will still be assessed the 10% early distribution penalty.

As you can tell there is a substantial amount of information about the taxation of you LAGERS benefit! On top of that, this blog does not include any of the other variety of taxable events that can occur with your other retirement accounts and / or other retirement income. So, as I said in the beginning, a little planning and discussion with a qualified tax professional about your taxation in retirement can go a long way.

Jeff Pabst, CRC Public Relations Specialist

Jeff Pabst, CRC
Public Relations Specialist

The above information is intended as general information and should not be used for purposes of tax advice.

A True Legend: Bill Schwartz

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Seldom are you afforded the privilege to know a TRUE LEGEND. And that is exactly what Bill Schwartz was to the Missouri Local Government Employees Retirement System (LAGERS) and his family. Bill truly cared about family; his immediate family and relatives, the LAGERS staff and their family, the LAGERS membership and their family, and various professional contacts and their family.

Bill was a faithful employee of LAGERS for 36 years. He was appointed Director of the LAGERS retirement system at the age of 26.  At the time of his retirement, he had served as director for 32.5 years which he believed was the 2nd longest serving director in the country. But Bill was more than just the Director; he knew every employee’s spouses name and in many cases even knew the children’s names. And family always came first when there were school activities or a physical need. Bill enjoyed family stories and laughed and cried with the employees. If you should be so unlucky as to have a severe illness, rest assured Bill would be there whether at the hospital or at home. Most of the time he was there to simply provide encouragement, but he shared in his own unique way that you were still needed back at the office. That is the caring boss and mentor that LAGERS staff will always remember.

Being born and raised in Central Missouri, Bill had a special connection with the LAGERS membership. Bill truly ‘Got it’; that the membership was a group of hard working employees that had dreams and aspirations for their local community. Daily he strived to assure that those employees would be financially supported in their retirement years, thereby giving back to the communities in their retirement years. Again, Bill knew the people, individuals and was saddened when adversity came to their doorstep. He also expressed great pride when the system was able to support a member through a lengthy retirement of 40 plus years.

Additionally, Bill made close relationships with various professional contacts over the years and served in multiple leadership positions beyond LAGERS.  His leadership positions included: the Missouri Association of Public Employee Retirement Systems (MAPERS), the Missouri Society of Association Executives (MSAE), the National Association of State Retirement Administrators (NASRA), and the Government Financial Officers Association (GFOA). He was definitely a thought leader on public pensions and especially public pension accounting authoring numerous articles, handbooks, etc.

And though Bill was a Public Pension Legend, it was his family that brought him the most enjoyment. He was extremely proud of his children’s accomplishments and the Schwartz family regularly attended conventions, combining business and a family vacation. Bill and his wife, Sandy, were nearly inseparable at the numerous events that required Bill’s attendance. They were definitely a team. And because of his heartfelt commitment to family, Bill will always be a TRUE LEGEND to each of us that had the privilege to know him.

Millennials are Super Savers? You Must be Joking.

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I often wonder if I would care as much about my retirement if I didn’t work for a pension plan.  Probably not.

We millennials, those of us born between 1979-1996, seem to be focused on starting careers, buying homes, SUVs, and paying off student loan debt.  Not to mention saving for our own kids’ college.  Many of us also are entering the workforce during challenging economic times which have made it difficult to find work.  With all of these financial distractions it would be easy to assume that the Millennials are a generation whose retirement dreams are on shaky ground.  I cerainly have made this assumption based on my obversations.  But maybe I was wrong.

Recent research suggests there is hope for me and my peers.  A report by the Transamerica Center for Retirement Studies calls Millennials ‘super savers’ for their focus on stashing money away for retirement.

Super savers?  Us?  No Way!

Yep, it’s true according to Transamerica.  The study reports that 75% of working Millennials are saving for retirement and that many started saving around 22 years of age – very young compared to other generations.  Transamerica also found that the median contribution rate is 10% of pay for this group!

Wow, I had no idea we were doing so well.

Or are we?  The Transamerica report focused on a single aspect, the number of millennials saving for retirement.  But what about other aspects of financial health?  I decided to do a little more digging to see if it’s too early for us Millennials to pat ourselves on the back.

Millennials are more likely to cash out retirement savings when they switch jobs.  According to Fidelity Investements, 35% of workers cash out their retirement savings when switching jobs.  Of those workers in the 20-39 age group, the percentage is 40%.  Millennials are also chronic job hoppers and leave thousands of employer paid retirement dollars on the table each year because they change jobs before they are vested.

Millennials carry the lowest credit card balances.  Experian’s 2013 State of Credit study found that the average credit card balance for Millennials is $2,682, the lowest of any generation included in the study.  Baby Boomers carry the highest average balance at $5,347 and Generation X is right behind them at $5,343.  Experian also reports that Millennials are below the national average in total debt and hold the lowest number of bankcards compared to other generations.  However, we do have trouble paying bills on time and have the lowest credit scores of any other age group.

Paying off student loan debt accounts for 12% of of monthly pay.  A recent study conducted by Wells Fargo found that Millennials are spending a significant portion (12%) of their monthly income paying down student loan debt and 40% of survey respondents said they felt “overwhelmed” by debt.  However, the average student loan balance for a 2012 graduate is around $29,600 so this burden does seem managable.

In scrolling through articles about millennials and finances I found a recurring message that young people in America are a generation of savers.  We apparently learned our lesson as witnesses to the Great Recession and are taking steps toward securing our financial future and stashing funds away.  Now if we could just learn about retirement plan rollovers and how to pay our bills in a timely fashion.

 

Do you agree that Millennials are super savers?

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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