Monthly Archives: March 2015

LAGERS Shares Success Strategies of Best U.S. Plans

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Have you ever been not been picked for the kickball team?  Or maybe your invitation to that wedding got lost in the mail?  That’s how I feel right now.

A recent report published by the Center for State and Local Government Excellence outlined success strategies for well-funded pension plans.  The report looked at five US public pension plans that have a history of fiscal solvency and identified traits these plans share that explain their amazing track records.

The authors of the report identified the employers’ commitment to funding, recent lowering of the annual investment return assumption, adjustment of contributions, and benefit adjustments as the common characteristics that have made the plans in the report well-funded success stories.

After reading this report, I couldn’t help but ask why LAGERS wasn’t one of the plans referenced in this study?!  After all, LAGERS shares all of the same traits of the plans that were included.  In fact, the average funded rate of the five featured plans is 92.1%, and LAGERS currently sits at 91.7%!  So why not use this post to point out all of the reasons why LAGERS could have easily been the sixth public pension plan portrayed in the report?

Commitment to Funding

What is the #1 secret to a well-funded pension plan?  Commitment to making the full contribution necessary to fund the benefits promised to the members.

Think about your mortgage.  What would happen if you failed make your monthly payment or decided to only pay a fraction of the actual amount due each month?  It doesn’t take a math genius to figure that one out.  The same applies to pensions.  Pension benefits are designed to be funded over decades of time by contributions from employers and employees as well as the investment return generated from those contributions.  If the funding of the benefits is not a pension plan’s #1 priority, it will eventually run into problems.

This is not an issue for LAGERS or its members.  Each month, participating employers contribute the full amount that is due, which is required by Missouri State Law.  Our member employers are extremely dedicated to funding their employees’ benefits, but if an employer falls behind, LAGERS Board of Trustees has the authority to work with the state treasurer’s office to obtain the necessary funds.

Recent Lowering of the Annual Investment Return Assumption

LAGERS investment return assumption was lowered from 7.5% to 7.25% in 2010. This decision was based on historical returns as well an asset liability study projecting returns 30 years into the future. All of the plans featured in the report had conservative assumptions of 7.5% or lower.

The annual investment return assumption is referring to the return that pension plans assume they will make on their investments. Investment income matters, as investment earnings account for a majority of pension funding. A shortfall in long-term expected investment earnings must be made up by higher contributions or reduced benefits.

Funding a pension benefit requires the use of projections, known as actuarial assumptions, about future events. One actuarial assumption is the investment experience. This must be a realistic figure to ensure that members and employers (the other sources of funding) are not being undercharged or overcharged. If the assumption is too low, member and employer contributions must increase, if the assumption is too high, shortfalls in the investment performance would have to be made up by higher contributions or reduced benefits.

Remember, the #1 priority is commitment to funding.  While it is true that slight upward pressure was applied to LAGERS employers’ contribution rates in 2010 as a result of the change in the assumption, it reaffirmed to our commitment to funding.

Adjustment of Contributions and/or Benefit Levels

Participating employer contribution rates are adjusted each year to ensure funding is on track.  Each employer may change the contributions required by employees and its benefit levels to meet the needs of its workforce and budget.  The flexibility available within the LAGERS plan design is great for participating employers and a major factor in why the system is so well-funded.

Conclusion

The five pension plans featured in the Center’s report are shining examples of public retirement plan excellence because of their commitment to funding, conservative investment assumptions, and the ability to adjust plan provisions.  All of these traits are present in LAGERS’ plan structure and have contributed to the fiscal success of our system as well.

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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4 Things I Learned About Retirement Planning from a NCAA basketball game.

2011 Murray State University Men's Basketball

As many Americans have been doing, I was watching some exciting NCAA basketball recently. While I was watching the game, I noticed some interesting similarities between the basketball game and retirement planning. You may be wondering, how could two activities so different have any similarities? Well, let me explain through the four ideas I have listed below:

1.  Time is precious. As I watched the basketball game, I began to see just how valuable time is to success in the game. Once the teams realized that they were running short on time, their strategy changed. The team in the lead became more concerned with defending their lead and the one who was behind became more aggressive in their attempts to score. The value of time in a basketball game is very similar to value of time in retirement planning. Those who have been saving for quite some time are usually concerned with preserving their savings once they are nearing retirement. Whereas, those who have not been saving for long time will be more likely to aggressively save when nearing retirement just like the team that was behind in the game. If you have a lot of time before you retire, save now so you don’t have to aggressively save later.

2.  Don’t give up the freebies. One of my biggest pet peeves about my favorite college team is when they can’t make free throws. Those are free points that the other team is giving you and you should capitalize on those free opportunities. Well, the same is true about some opportunities you may have available to you for retirement savings. If your employer offers a match program for a deferred compensation program, you should utilize it. If you don’t, you are throwing away a free opportunity to get some additional savings. All your employer wants is for you to save a little money and because of your savings efforts they will reward you by matching at least a portion of what you have saved. So just like free throws, a match program is ‘free money.’ All you have to do is save.

You also have a free opportunity with your LAGERS system to become more educated about your retirement system through pre-retirement seminars. Someone who is within 5 years of retirement should begin attending seminars. Click Here for more information about our seminars.

3.  A good coach is important to success. Ever wonder why coaches like Mike Izzo and Rick Pitino have been around for what seems like forever and others move on quickly? The long tenured coaches stick around because of their success. A good coach has the ability to make their student athletes perform at the highest levels possible while showing the athletes how to be successful in the world. So, a coach is very important to the program and the student. The same is true for you if you hire a financial advisor (coach). When hiring a financial advisor, use caution and trust yourself. When you are looking for a financial advisor, here are some things to think about: how does he or she get paid (hourly, commission, etc.), how did you hear about them, what do their certifications (if any) mean, and do they really have your best interests in mind or are they just trying to sell you something? Do your research on the advisor and / or financial products and trust your instincts. If you don’t feel comfortable with a product or advisor, don’t buy the product or hire the advisor. It’s as simple as that.

4.  It’s OK to foul every once in a while. As I was watching the game, one of my friends said ‘that was a good foul.’ Many of you may have heard this term before and refers to when a foul prevented some points being scored. Sometimes in retirement planning it is acceptable to foul as well. At times you have to break your current savings plan to accommodate change in your lifestyle. For example, a new child (or two) may change your savings habits because of the costs of raising a child. Sometime life happens and you have to change your retirement savings habits. However, you should still always be saving in some capacity. Even if you only save enough to receive your employer’s match, it is better than not saving at all.

As you can see, there is a lot you can learn about retirement savings from a college basketball game. So, the next time you think about retirement planning or college basketball, think about winning the game and saving for your future self.

Jeff Pabst, CRC Public Relations Specialist

Jeff Pabst, CRC
Public Relations Specialist

The Extra LAGERS Benefits that You May Not Know You Have

DeathtoStock_Creative Community8When you think about your LAGERS benefit, probably the first words that come to mind are ‘retirement benefit.’ After all, Retirement System is in our name. But don’t forget that there is more to your benefit than the name may suggest; LAGERS also provides our members with disability and survivor’s benefits.

Don’t think your employer elected these benefits? Think again. Every LAGERS member is automatically covered by both disability and survivor’s benefits. Here’s what you need to know about this important benefit:

All LAGERS members are immediately entitled to duty-related disability and survivors benefits, and all vested members may also be eligible for benefits in the event of a non-duty related death or disability.

Because these benefits are designed to protect a member and those who are financially dependent on the member’s income from financial hardship in the event of a death or disability, a member (or beneficiary) that becomes eligible for one of these benefits receives monthly protected payments for his or her lifetime, plus any applicable cost of living adjustments.

The amount of benefit payable depends on what caused the death or disability. Duty related benefits are paid when a disability or death was caused by your job, and therefore generally pay a more robust benefit to make up the difference in years a member would have worked and continued to earn a benefit had he not become disabled or passed away. However, benefits to vested members may also be payable if the cause of death or disability happened off the job; the benefit then is based upon how much service the member had earned to date.

Here’s one more thing you should remember about these added benefits: make sure you have saved information regarding LAGERS disability/survivors benefits somewhere that is readily available for you and loved ones. For example, put a LAGERS brochure or statement in with your life insurance policies. Members or spouses of members that becomes eligible for these benefits often find themselves in an unexpected situation. Making it as easy as possible to gather information regarding potential benefits can really help to reduce the stress of an already difficult experience. Even more importantly, simply ensuring that a spouse is aware that benefits may be payable should be an important part of your financial plan.

If you ever consider taking a job outside of the LAGERS system, there may still be some benefits payable on a vested account, but payments wouldn’t start until normal retirement age. It’s always a good idea when considering a change in employers to consider your entire benefit package, after all, not all retirement plans offer similar benefits. If a potential employer does not offer similar disability and survivor benefits, it may be worth considering purchasing supplemental insurance to make up the difference.

No one wants to ever find themselves disabled or leave a loved one behind who is unable to financially support themselves. With your LAGERS benefits, it’s one less worry. Visit our website to learn more about this great benefit!

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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WHAT A GREAT RETIREMENT PLANNING TOOL!

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The main purpose of a pension plan like LAGERS is to provide a steady stream of income during your years in retirement.  Knowing what your LAGERS benefit will be, even if it’s not a lot, can help tremendously when you are trying to solve the retirement puzzle.

LAGERS members receive an annual statement, distributed by their employers, that shows information that is vital to retirement planning.  Want to know what your benefit will be if you quit today?  It’s there.  How about if you continue to work until your normal retirement age?  That’s there too.

Your LAGERS benefit provides a monthly guaranteed base that is one slice of the overall retirement income pie.  Combined with Social Security, personal savings and investments, your LAGERS benefit helps you achieve financial independence when you decide to stop working.

We believe the annual statements are a great way to assist in your financial planning, but LAGERS has something that’s even better:  myLAGERS.  The annual statements show what you have earned to date and what you could potentially earn if you keep working.  But what if you want to retire early or work longer?  What about choosing a payout option that provides for a spouse or someone else?  With myLAGERS access, you can create customized benefit estimates, showing all available payout options, with just a few clicks!

That’s why starting in 2016, LAGERS members that have a myLAGERS online account will only receive an electronic annual statement by accessing their online profile.  We believe myLAGERS is the best retirement planning tool we offer and this change will promote improved retirement readiness of our membership and save a few trees at the same time.

In the meantime, we have compiled some frequently asked questions to help in reviewing your annual statement.

“What You’ve Earned as of 12-31-2014” Section

  • Your statement is as of 12-31-2014. Any changes to your account since then will not be reflected on this year’s statement.
  • Benefit amount does not include any temporary benefit (for LT programs) if you are not yet age eligible to retire.
  • The Final Average Salary used is your current last 36/60 month average of wages.
  • If you are not yet vested, your statement will only include projected benefit amounts.

“What You Could Earn if Your Keep Working” Section

  • Service is extended to your normal (or Rule of 80) retirement age.
  • If you are already retirement age, you will not see this section.
  • The “projected benefit” on your Statement is not the same as a Benefit Estimate. Benefit estimates include much greater detail regarding all of your payout options and are based on a retirement date specified by you. Try the benefit estimator on myLAGERS to get more in-depth with your planning.

Your LAGERS Account Balance

  • This amount does not represent your benefit amount.
  • Includes your member contributions (if any) from all employers, service purchases, and interest earnings.
  • You will see “$0.00” if you have not made contributions to LAGERS because your employer(s) has elected to make all necessary contributions or if you previously made contributions but they were refunded to you.

 

Most of us will only get one shot at retirement.  Utilizing the tools you have available to you will help you create the future life you deserve!

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

 

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HOW TO MAKE AN UNFUNDED LIABILITY DISAPPEAR

Dock, Beach, Ocean

 

Rolla Municipal Utilities wanted to improve the benefit package for its workers in an effort to help recruit and retain quality employees.  So in 2008, the board of RMU decided to enhance LAGERS benefits to the 2% multiplier.

“In 2008 we had a very well-funded plan, another reason it made the change a little easier at that time was the fact that we were slightly overfunded,” said Rodney Bourne, General Manager of RMU.

Being overfunded basically means that RMU had completely paid off its unfunded liability and, at that time, had slightly higher assets in LAGERS than it had liabilities for retirement benefits.  But that all changed when the recession hit later that same year.

“In the combination of changing plans and the markets going down, we went from being slightly overfunded to significantly underfunded in a matter of two

Rodney Bourne

Rodney Bourne

years,” Rodney said.  “A lot of that was attributed to the markets.”

RMU again had an unfunded liability.  And even though LAGERS provides a sound, structured method to pay of this liability, RMU had other plans.

“We knew the markets, over time, would recover but what we chose to do is to make additional payments toward our unfunded accrued liability to help in that recovery,” said Rodney.

So in 2010, RMU decided to make monthly payments to LAGERS, in addition to its normal contributions, until it was once again fully funded.

“Our goal is to again be 100% funded.  With the markets coming back slowly and our additional contributions, we’ve been able to recover back to 90% funded in 2014,” Rodney said.  “So now we’re at a funded status that looks a lot better and that has reduced our monthly contribution rate.”

LAGERS proven process for funding benefits isn’t broken.  As participating employers make their required monthly contribution, their liabilities are paid for over a pre-determined time frame, very similar to the way that a house is funded through a mortgage.

However, some employers, such as RMU, believe funding this obligation faster is a good business practice and one that takes some planning.

“You need to take a steady approach and think about how LAGERS is going to perform,” Rodney said.  “[LAGERS] performance on our investments has been outstanding.  So we were confident between the markets improving, the performance of LAGERS and making these additional contributions that we could achieve our goal of recovery in five to 10 years.”

RMU believes that by taking these steps, they are demonstrating that they take their employees’ retirement security seriously.

“We could have let it languish, each year it coming up a couple percent and it would have slowly recovered.  But we became very proactive and wanted to let our staff know that bringing that funded percentage back up to where we think it should be is very important,” said Rodney.

But it doesn’t stop there.  RMU is serious about customer service as well.  And providing good benefits to help attract and retain quality workers ultimately will reflect in the quality of service the utility provides.

“It takes our employees a long time to develop the skills necessary to do the work and to do it safely,” Rodney said.  “We’re serving our citizens every day.”

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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