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!