Monthly Archives: June 2015

Don’t Forget to Include This Little-Known LAGERS Benefit in Your Financial Planning

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LAGERS is well-known for providing protected retirement benefits for Missouri’s local government workers.  But many LAGERS members don’t know about another benefit that may be available to their dependents if they die before retiring.  These benefits provide monthly payments to an eligible spouse or dependent children of the LAGERS member.  It is important for you to understand these benefits as they may affect how you decide to plan for end-of-life circumstances.

Let’s tackle some of the details about this vital benefit.  Keep in mind that this blog is addressing possible benefits available before you retire.  When you reach retirement, it is a whole other ballgame.  Check out this blog for information about retirement payment options.

What determines if a survivor will receive a monthly benefit?

LAGERS is designed to provide monthly income for members and for those who are financially dependent on the member.  Monthly payments would start immediately to your spouse or dependent children if you are vested in LAGERS and die while you are working for a LAGERS employer.  Monthly payments would begin to your spouse when you would have reached your normal retirement age if you are vested in LAGERS but are not working for a LAGERS employer when you die.  Your surviving spouse or dependent children would also be eligible for monthly payments if you are working for a LAGERS employer and your death is caused by your job, even if you are not vested.

Who is eligible for survivor benefit payments?

LAGERS is going to pay your surviving spouse a monthly lifetime benefit that would begin immediately if you are vested in LAGERS and die while you are working for a LAGERS employer.  You must be married for at least two years before your death for your spouse to be eligible.  But, if your death was caused by your job or an accident, the length of marriage does not matter. As long as you were married when the accident happened or illness started, your spouse would receive a benefit. If you are not married when you die, your dependent children would receive a monthly payment until they are no longer considered dependents.

How much money would the survivor receive?

Your spouse will receive a portion of the monthly benefit you would have received.  The amount of the monthly benefit is based on a choice members can elect at retirement called Option A.  This option pays your spouse the highest monthly amount.  If there is no spouse eligible for a monthly payment, we would pay each dependent child an equal share of 60% of the amount you would have received.  These monthly payments will continue to each child until each is no longer considered a dependent.  When one child’s payments end because they no longer meet the requirements, the other children’s payments would increase.  This way, LAGERS is always paying the same amount.

Who is considered a dependent child?

A child is considered a dependent until they reach age 18 or get married, whichever comes first.  The age limit of 18 extends to age 23 if the child continues, without interruption, as a full time student in an accredited college or university.  The age limit is extended further, but not beyond age 25, if the child is called away from school for active military duty.  A step child could also be considered a dependent if he was legally adopted by the deceased LAGERS member.  There is no age limit for a child that has been declared incapable to care for themselves by a court.

How does a survivor apply for these benefits?

If the unthinkable should happen, it is the survivor’s responsibility to apply to LAGERS for these benefits.  That is why it is vital that your spouse and dependent children are aware that monthly income may be available and who to contact if needed.  It is a good idea to keep a LAGERS brochure or booklet with your important documents.

What if I don’t have a spouse or dependent children?

If you die before retiring and do not have a spouse or dependent children, LAGERS will refund your employee contributions to the beneficiaries you have assigned.  If you have not paid any of your own money into LAGERS because your employer pays the full amount for your benefits, and you are not married and have no dependent children, nothing would be paid from LAGERS if you die before retiring.

 

LAGERS survivor benefits may be an important piece to your financial planning puzzle.  Keep these benefits in mind when looking into life insurance or other end-of-life benefits.  Tell your spouse and children about LAGERS and who to contact should something happen to you.  It is your life, maximize what is available to you by having a thorough understanding of your benefits.

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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The Prospective Perspective: Becoming a LAGERS Employer

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Adding or changing your employer’s retirement benefits is a big deal.  At one point or another, every LAGERS employer had to decide to provide LAGERS coverage to their employees.  While the actual process of joining LAGERS is fairly simple, figuring out how to fit LAGERS into an employee benefit package can raise some questions.  Here are some of the common issues that arise when employers consider adding LAGERS and how some of our most recent members addressed them.

Issue 1:  We are worried we are too small to join LAGERS.

One common reason employers are hesitant to inquire about LAGERS is because they think they are too small to qualify.  Any local political subdivision in the state of Missouri is eligible to join, regardless of size!  In fact, 75% of the employers who have joined LAGERS in the past two years, have had less than 15 employees.   Johnson County Fire Protection District, for example, joined LAGERS January 2015 with just one full time employee.  LAGERS believes that retirement security should be for everyone and that LAGERS remains the most effective way to provide secure lifetime income to employees of Missouri’s local governments, both big and small!

Issue 2: We have budget concerns and need to control cost.

Budgets are tight, and I have yet to meet with a municipality that wasn’t concerned about being responsible with their budget.  There are many ways an employer may choose to control the cost of their LAGERS plan.  For starters, each governing body has complete control over the level of benefits they elect.  LAGERS has over 100 different combinations of benefits that an employer can tailor to help meet both their employees’ retirement needs and employer’s budget needs.  On top of that, those plans can be changed once every two years.  While more often, employers move to a better benefit package over time, an employer certainly could reduce future benefits if cost becomes an issue.

Another cost-controlling strategy that joining employers sometimes use is opting to cover less than 100% of their employee’s prior service (the time employees worked before their employer joined LAGERS).  Providing Prior Service Coverage can be a great way to make employees ‘whole’ if an employer has never provided a retirement benefit.  However, there is a cost for funding those past years of benefit, and if an employer has a group of employees with many years of service, the cost can quickly grow.   If this portion of the cost makes LAGERS cost-prohibitive, or if an employer feels as if they have provided adequate retirement benefits in the past, some employers choose at the time they join to cover less of that Prior Time, hence reducing the cost.  Employees who receive less than 100% of their prior service from their employer may have the option to individually purchase that time if they choose.

When the City of New Haven joined LAGERS in 2013, cost of the plan was on the Board of Alderman’s minds.  At the same time, however, the City and their Administrator, Steve Roth, felt that a benefit like LAGERS was important to help improve retention and recruitment of quality employees.  “We had to accept 25% prior service credit and 4% employee contribution to get Board approval [as] we recognize there will be give and take with the employee benefit package.  Now retirement is a clear goal and I feel employees may be more engaged in the whole budget process as a result.”

Another creative compromise occurred when Wright City joined the LAGERS system in 2014.  “[Joining LAGERS] was something the employees had asked the City to look into and the Board had been discussing ways to keep employees, recalls city Treasure Karen Girondo.   [In compromise, our] employees gave up a 3% across the board raise for 2014, so LAGERS could be joined.”

Whether it’s through modest benefit elections, reduced prior service, required employee contributions, or even foregone pay increases, there are many ways that employers can control the cost.

Issue 3:  We already have a retirement plan.

Many employers who join the LAGERS system already have some type of retirement or investment plan in place.  LAGERS reviews each of these plans individually to determine if they can or cannot coexist with LAGERS and also how it may impact LAGERS Prior Service Options.  Regardless of what type of plan you have currently, you still can be eligible for LAGERS membership.  Mary Beth Revels, Director of St. Joseph Public Library says “we were unhappy with the fees associated with the retirement plan with which we were participating.  Employees have expressed the opinion that the defined benefit plan offered through LAGERS will provide them with a better retirement than the previous plan that was a defined contribution plan.”

While some employers terminate their old plans entirely, others choose to keep all or a portion of their prior plans and simply provide LAGERS in addition.  For example, an employer would have the option to keep a voluntary 457 deferred compensation plan so that employees have an individual way to supplement their retirement savings.

Issue 4:  This information is so confusing!

The amount of information throughout the joining process can be overwhelming, but LAGERS is always available as an informational resource to employers whether by phone or in person with your Administration or Board (at no cost).

Such was the case with a recent LAGERS employer who had been trying to join system since the 80s.  Each time the proposal came before the council, the information was so overwhelming, they were never able to move forward.  Once city administration invited a LAGERS representative to meet with them and go over the information, the level of understanding improved drastically, and they were able to decide which LAGERS plan was the right choice for them. Now, almost three decades later, the City’s employees finally have a retirement benefit they can count on.

There are many challenges facing our local employers across Missouri, but retirement security doesn’t have to be one of them.  There is no cookie cutter answer when it comes to LAGERS, but prospective employers should know that LAGERS can be a flexible option that can work for them too!

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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How are Employer Contribution Rates Determined?

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As a part of LAGERS coverage, an employer has a monthly contribution rate that may change annually.  This rate is what is needed fund the employer’s current level of LAGERS benefits. Several factors go into the calculation of these rates. For this blog, we will discuss 4 driving factors that may have an effect on an employer’s contribution rate.

Before we discuss 4 driving factors that affect an employer’s contribution rate, let’s generally discuss the process performed by LAGERS’ actuary to calculate an employer’s contribution rate(s). Annually on the last day of February, LAGERS’ actuary ‘stops the clock’ and compares what happened in the last year versus LAGERS’ actuarial assumptions. The difference between the assumptions and what actually happened create actuarial gains or losses. Actuarial gains result in downward pressure on the employer’s rate(s) and the opposite for actuarial losses.

An employer’s group of employees have an effect on an employer’s rate(s). For example, if the employer has a lower increase in payroll than expected, this is considered an actuarial gain and could result in downward pressure on an employer’s rate(s). However, larger than anticipated payroll increases would create an actuarial loss.  The number of retirements and employee turnover may also impact the contribution rate. These are a few of the ways the  group of employees may effect a contribution rate.

The higher the benefits, the higher the cost to the employer. Each employer individually elects what level of benefits it would like to provide for its employees. Generally, the higher the benefits an employer provides, the higher the contributions needed to fund the benefits. Also, when an employer makes an upgrade, there is an increase in the monthly contributions. And, since upgrades to the benefit program are retroactive, a portion of the additional monthly contribution is for previous service.

Investment return of the overall system has a significant impact on an employer’s rate(s). LAGERS has an assumed investment rate of return of 7.25% per year. In general, if LAGERS’ investment portfolio meets the assumed rate of return this will help to keep employer rates level. However, if the LAGERS’ investment portfolio exceeds the assumed rate, this is an actuarial gain and will put downward pressure on all employers’ contribution rates. The opposite is true if LAGERS investment portfolio does not meet or exceed the assumed rate of return.

Another caveat of investment returns that plays into the determination of employer rates is that all of LAGERS’ investments gains / losses are smoothed over a 5 year period. This creates a bit of rate stability because instead of realizing gains and losses all at once, they are smoothed and create less drastic rate changes.

One final factor that could cause rate fluctuations is changes to the plan design or assumptions being used to calculate rates. If an assumption that is being used to calculate an employer’s rate(s) is changed going forward, this may cause a rate decrease / increase. Every 5 years, LAGERS does an experience study to ensure the assumptions being used are aligned with the system’s actual experiences.  This may or may not cause an adjustment to the actuarial assumptions for the next 5 years. For example, a change in the number of disability retirements may require an adjustment in the disability cost.

LAGERS is designed to keep employer rates as level as possible. However, when there is a change in contribution rates, it can more than likely be attributed to one of the above 4 factors or to unusual employer experience.

Jeff Pabst, CRC Public Relations Specialist

Jeff Pabst, CRC
Public Relations Specialist

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How Should You Talk About Your LAGERS Benefits to Your Friends and Family? Here are Five Tips for a Positive Pension Chat.

Image of big family sitting at festive table and eating salad and roasted turkey

Image of big family sitting at festive table and eating salad and roasted turkey

 

The number of Americans covered under a traditional pension plan, like LAGERS, has been steadily declining since the mid-1970s.  While 75% of state and local government workers still participate in such plans, only 50% of workers in the private sector have access to any type of retirement plan.

You should be proud of your LAGERS benefits.  LAGERS pension benefits are good for you, your employer, and your community.  You know this.  But there are still many common misconceptions about pensions that are frequently heard in the media and from friends and family.  So how do you articulate the value of your pension to someone that doesn’t understand?  Read on for some quick tips!

Common Misconception:  Pensions are all going broke.

Response:  My LAGERS system is one of the strongest in the country, at 94.4% funded.  The LAGERS system is strong and getting stronger as about 15 new local government agencies join each year.

 

Common Misconception:  Pensions cost too much.

Response:  Well managed pensions, like my LAGERS system, typically are not a financial burden for state and local governments as they account for only about 3.9% of total spending.

 

Common Misconception:  Pensions are too generous.

Response:  The benefits earned by local government workers in Missouri are moderate and sustainable.  The average monthly benefit for a LAGERS retiree is around $900.  It provides a nice base, but certainly cannot be the only source of retirement income.

 

Common Misconception:    As a taxpayer, I’m paying for pensions that are much better than what I get from my employer.  Government workers should have the same benefits as I do.

Response:  I believe that everyone who works hard should have a retirement benefit that provides a little security and peace of mind, whether they work in the private or public sector.  Many government workers are required to help pay for their retirement benefits and the investment return of my LAGERS system will pay for about 65% of my benefit.  So, the taxpayer is not picking up the entire tab.

 

Common Misconception:  Pensions are good for the people who receive them, but the government employers and taxpayers don’t see any benefit from these plans.

Response:  I want the best people serving my community. Pensions help attract and retain quality workers.  These are the police officers, fire fighters, teachers, emergency medical technicians, and city planners.  Pensions provide incentive for high quality workers to stay in these government positions during their most productive years.  Then, they allow them to retire at an appropriate age so younger, talented workers can fill those open positions. And, 94% of local government retirees stay in the communities they served, spending their pension checks on goods and services in their hometown.  These pensions are a great economic stabilizer for Missouri!

 

Don’t be ashamed to speak positively about the benefit that you have earned through years of public service.  Friends and neighbors should understand that building strong communities is vital to the economic growth and overall well-being of Missouri.  Pensions help attract and retain high quality workers and provide a nice economic boost to local municipalities.

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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Yes, Some Can Purchase Extra Service in LAGERS. Are You One of Them?

DSCF4077One of the most brow-raising topics regarding members’ benefits is that of purchasing service.  Yes, some members may be eligible to purchase additional service in LAGERS.  And while not every member will have purchase-eligible time, for those that do, it can be a great way to add to your future retirement security.

Here are the top three questions I typically get when discussing purchasing service:

  1. What service can I purchase?
  2. How do I do begin the purchase process?
  3. How do I know if purchasing service is right for me?

Here’s my crash course on purchasing service in LAGERS.  To begin, there are two different types of service that a member may be eligible to purchase.  The first is military service, in which a member may purchase up to four years of active military duty to count towards service in their LAGERS benefit calculation.  The second type is other Missouri public employment in which a vested member had previously worked for a non-Federal public employer in the state and either did not have a retirement plan with their employer, or did not become vested in the plan.  A member may purchase up to the number of uncovered, full-time months they worked at that previous employer.

If you believe that you have service that meets one of these two definitions, the process to initiate a purchase is fairly simple.  Complete the correct purchase form which requests cost information from LAGERS (Click here to find your form). The cost is unique to each member since it is based on factors such as your accrued credited service, salary, age, benefit program elected at your current employer, etc.  After submitting this form, LAGERS will send you your specific cost information, and you will then have 60 days to decide if you would like to move forward (or not).

Now, I have to warn anyone looking into purchasing service.  Many members experience ‘sticker shock’ when they receive their cost information.  While the cost is different for everyone, it’s most likely going to be more than a couple hundred or even thousand dollars. Even with a steep price tag, however, the purchase may be a worthwhile investment.

Remember that purchasing service is converting a lump sum of money into guaranteed lifetime payments.  So while the upfront cost may seem large, you have to think about the lifetime payoff of that investment when you are trying to figure out whether purchasing service is right for you.  One way to estimate your payoff is to compare your annual benefit without the purchase to your annual benefit including the purchase.  How do you do this?  Log on to your myLAGERS account and use the “Benefit Calculator.”  You can run two separate estimates, one normal estimate based on your desired date of retirement, and a second one with the added service you want to purchase.

For example:  Let’s say you run your two estimates, one with and one without the additional purchased service, and find that by purchasing service, your benefit would increase by $3,000 each year. And  let’s say for this example the cost is going to be $30,000 to purchase those additional three years.  That’s a big number, but remember that the purchase is going to increase the annual benefit by $3,000.

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If you lived 20 years into retirement, that’s roughly an additional $60,000 (plus cost of living) that you’ve just added to your benefit.  Think you’re going to make it 30 years?  That’s an additional $90,000 over your retirement!  On the other hand, remember that it’s important to be realistic about your expectations for retirement.  If you are not sure you will enjoy as long of a life expectancy in retirement, you may find there would be better alternatives for your money.  Keep in mind that the cost and the impact to your annual benefit will be unique, so it’s important to get on myLAGERS and create your own estimates to see what’s best for you!

There is no right or wrong answer when it comes to purchasing service, but if you are eligible, it certainly is worth a serious look to see if it makes sense for you and your future!

Other quick facts about purchasing service in LAGERS:

  • You have to complete your purchase PRIOR to leaving LAGERS-covered employment.
  • You may pay for the purchase with funds you roll from another retirement account or by monthly installments.
  • The purchase amount is your money and is, along with any member contributions, always guaranteed to be returned back to you or a beneficiary.
Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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