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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