Monthly Archives: July 2015

Changes are Coming, But Your Benefit is as Secure as Ever

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If you haven’t already, you may begin to hear about new accounting standards required of employers that participate in LAGERS.  These standards may make some LAGERS employers look worse off when it comes to their LAGERS pensions – even if they’re not. The important thing to remember is the only thing that is changing is the reporting and measurement of pension costs, not how much a pension costs.

As these new standards take effect, here are four important facts to remember:

  1. Neither actual pension costs nor obligations have changed, only the way in which they are measured and reported. The Governmental Accounting Standards Board (GASB) is the entity that sets such standards.  Historically, GASB standards have always held a close link between accounting and funding measures. As the new standards are implemented, accounting and funding measures will become disconnected.

 

  1. Some LAGERS employers may appear to be more under-funded as a result of these new standards, even if they’re not. One reason for this is that LAGERS-participating employers will now have to publish future pension obligations on their balance sheets.  For some employers, this will show up as a liability.  Pension liabilities have always been fully reported and transparent, but placing them on the balance sheets will make them more visible than before.  In addition, GASB now says that some employers may have to use a different discount rate to determine pension liabilities in today’s dollars.   In the past, pensions have calculated liabilities using the long-term expected rate of return on pension plan investments.  While most LAGERS employers will not be in this position, a few may have to discount at least a portion of liabilities using the municipal bond rate.  Since the municipal bond rate is lower than the long-term expected rate of return, this could make some participating employer pensions appear more underfunded than before.

 

  1. Benefits for employees and retirees are still as secure as they have ever been. LAGERS has a 50 year history of sound, structured, stable funding procedures.  These new GASB accounting standards will not affect any of that.  Retirees will continue to be paid on-time, each month and members can expect their earned benefits to be fully paid for without interruption.

 

  1. LAGERS employers will not have to pay more for their benefits. LAGERS participating employers diligently pay their full bill each and every month.  This will continue, as normal, with no changes whatsoever in this process.  LAGERS will be providing new reports for employers to comply with the GASB standards in the Fall of each year and employers will work with their auditors to comply, but the month-to-month funding mechanisms and calculation of employer contributions will remain in place.

Initially the new GASB standards may cause some headaches for participating employers.  But we will be here every step of the way to help.  LAGERS has set up a page dedicated to GASB on our web site. Employers can refer to this page for updated information on resources that are available regarding these changes.

 

Jeff Kempker, RPA, CRC

Jeff Kempker
Manager of Member Services

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4 Most Common Questions about Monthly Reporting

Woman working online on a laptop computer at home

In a recent conversation with LAGERS Senior Account Analyst, Mya Bernskoetter, we discussed some of the more common questions she receives from payroll and human resources personnel who administer benefits for LAGERS employers..  So, I thought it would be a great opportunity to share some of the topics we discussed to help you with your LAGERS monthly reporting.

How do I report paid vacation or sick leave?  “When reporting someone on vacation or sick leave, the employee is reported as normal, because it is paid leave,” said Mya.  However, when an employee is not working and on unpaid leave or continues to miss work and runs out of leave, they need to be reported as “Leave of Absence.”  The Member Status Date to be entered for Leave of Absence should be the date they ran out of paid leave or the first day of unpaid leave.

What is considered full time for LAGERS purposes and how does that affect coverage of employees? When an employer joins the LAGERS system, it must define a full-time employee as one that works either 1,500, 1,250 or 1,000 hours on a rolling annual basis.  “LAGERS coverage is mandatory for full-time employees and if an employee is working the annual hours elected by their employer, they must be covered by LAGERS,” said Mya. Employees may not individually elect to have LAGERS coverage.

This also applies to making the required employee contributions.  “If the employer chooses this option, four percent will be withheld from each full time employee’s monthly pay to help pay for their benefits,” Mya said. No one ever likes having money withheld from their paycheck, especially when it’s mandatory. But, the value of a LAGERS retirement benefit can be significant. Click here for a blog discussing ways to show employees the value of their benefit.

When do I report terminations? “When someone terminates employment, we need the termination and date reported on the most current statement,” Mya said. You do not need to wait until there are no remaining wages to report this. Also, if there were any wages not reported on the wage report on which you reported the termination, report those wages the next month.

How do I report Military Leave and Workers’ Compensation? Military Leave or Workers’ Compensation can also be a source of confusion for some of our agencies.  “That’s probably because it is confusing!” exclaimed Mya.  When an employee is out on workers’ compensation or military leave for one working day of the month, a zero wage must be reported on that month’s report. This one day could include the month a person goes on military leave / worker’s compensation, the month the person returns from leave and any month(s) in between.

While an employee is on military leave or workers compensation, they continue to earn service credit under LAGERS. However, the reduced monthly wages are not included in their final average salary calculation. In other words, an employee’s benefit will not be penalized because he or she went on military leave or worker’s compensation.

These are just a few of the components that may stump you while completing your monthly wage report for LAGERS. Hopefully this blog helps clear up some of these common issues for you. However, you can reference your administrative handbook or contact the LAGERS office for any additional questions you may have!

Jeff Pabst, CRC Communication Specialist

Jeff Pabst, CRC
Communication Specialist

Your LAGERS Beneficiaries: Who Gets What?

DeathtoStock_NotStock3If you remember your first day on the job, you might remember being asked to complete a LAGERS enrollment form.  On that piece of paper, you designated beneficiaries for your LAGERS benefit.  Do you remember who you put down?  Do you know what that person might get?  Or even more importantly, did you know that the person you designated might not be eligible for anything? Who gets what when it comes to your LAGERS benefit can be confusing especially since the person you designate as your beneficiary may not always be the first payable on your account in the event of your death.

When it comes to benefits that are payable if you die while you are still working, here are a couple important things to remember.  If you are a vested member, and you pass away while still working for a LAGERS employer, a monthly Survivor benefit is going to be the first benefit payable on your account.

Common Misconception: Whomever I list as a LAGERS beneficiary is who will receive a survivor benefit if I die before I retire.

Regardless of who you list as your beneficiary, state law determines who gets first dibs on this benefit.  LAGERS looks first to pay survivor benefits to a spouse of at least two years (the two year requirement is waived if the death was accidental or caused by your job).  Your eligible spouse would receive lifetime monthly payments as if you had retired and elected Option A (this is the highest monthly payment available for a spouse).  If you don’t have an eligible spouse, LAGERS then looks to pay any dependent children.  These monthly payments will continue equally to each of your dependents until each is no longer considered dependent.

If you don’t have a spouse or dependent children, here’s where that beneficiary designation you made becomes important.  When no monthly survivor benefit is payable, LAGERS will then refund your accumulated member contributions, if any, to whomever you designated on your beneficiary form.  They receive a one-time payout of this amount, and no further benefit is then payable.

Common Misconception: Since state law decides my beneficiaries, it’s really not important to keep my beneficiaries up to date.

You may be thinking that since you have a spouse who will be eligible for a survivor benefit or perhaps since you work for a non-contributory employer and won’t have anything to refund in the event of your death, that it is not necessary for you to keep your beneficiaries up to date.  In fact, it is always a best practice to keep your beneficiaries current.  Here’s why; an employer has the option to switch between contributory and non-contributory which means that even if you are not contributing anything out of your own paycheck now, you may have either paid in some time in the past, or could potentially in the future.  Keeping those records current helps ensure that your money goes to who you want it to go to.  Remember, that you may designate any individual, legal entity (such as a charity), trust, or your estate as a beneficiary, and may designate more than one primary and/or contingent beneficiary to share equally in your accumulated contributions, but contingent beneficiaries will only receive payment should all your primary beneficiaries predecease them.

Common Misconception: My beneficiary is always guaranteed to get something.

If you pass away prior to retirement and you do not have a spouse, dependent children, and have no member contributions, there will not be anything payable to your beneficiaries from LAGERS.  Keep in mind that LAGERS is designed to provide predictable income for those who were financially dependent upon you, but isn’t intended to be life insurance.  Many employers provide supplemental life insurance or provide the option to purchase supplemental life insurance as part of your overall benefits package, so be sure to check with your employer on what is available for you.

Common Misconception:  Payments will automatically begin to my beneficiary if I die.

When a member dies, it is the beneficiary’s responsibility to notify LAGERS and apply for the appropriate benefit.  This is why it is important that whomever you list as a beneficiary and your spouse are aware of these benefits.  I always encourage members to place a copy of their annual member statement or a LAGERS brochure with all of their other important documents such as life insurance policies, wills, etc.  That way, you can rest assured that your loved ones don’t forget to apply for your hard earned LAGERS benefit.

Don’t forget that you can view and update your LAGERS beneficiary designation 24/7 on your myLAGERS account, or you can complete a change of beneficiary form, available on our website if you wish to update your designations by paper.  These beneficiaries should be kept up to date until you retire, at which time, you will select a payout option and make new beneficiary designations for your retirement!

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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How is Your LAGERS Retirement Plan Funded?

Male Hand Putting Coin Into A Piggy Bank

So, you have been working for a political subdivision that has a LAGERS retirement plan. And you know that if you spend your career with your employer, you will receive a guaranteed lifetime benefit from LAGERS. But have you ever wondered how is this benefit paid for?

By design, LAGERS is a pre-funded pension plan. In general, this means that the money necessary to pay for a retiring member’s benefit has already been funded. Let’s break down LAGERS plan design and how an employer is able to pre-fund a member’s benefit over his or her career.

Your LAGERS employer pays monthly contributions into the LAGERS system and some of members also pay contributions into the system as well. Once the LAGERS system receives the contributions, they are set aside in a trust for the purpose of pre-funding the employee’s benefits. After they are set aside in the trust, we invest the monies in an attempt to earn a return on the money. This is done because without investment returns of the system, it would be unaffordable for any employer to pre-fund the entire amount needed for its group of employees.

Currently, investment return of the system provides approximately 65% of the funding needed for member and retiree benefits. In other words, for every dollar a retiree is receiving in a monthly benefit, .65¢ was paid for through the investment return of the system.

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So, contributions are made and then invested in the markets. What happens to the funds when you’re ready to retire? When a member retires, we calculate an amount that is needed to pay your lifetime benefit. The amount is then drawn from your employer’s assets and placed in to a pooled fund from which all monthly benefits are paid.

This pooled fund is one of the strong plan design features of the LAGERS retirement system. One of its key functions is that it provides protection for you if you live longer than we expected. Some will live longer than expected while others will die earlier. However, the pool ensures your benefits are protected no matter how long you live.

In a nutshell, LAGERS receives contributions, places them in a trust for your benefit, invests the money to make the benefit affordable for your employer and finally, when you retire, transfers the amount needed for your lifetime benefit into a fund entirely for the purpose of paying monthly benefits. As you can see, pre-funded systems, like LAGERS, that have a solid plan design are the best way to ensure members’ retirement security for generations.

Jeff Pabst, CRC Communications Specialist

Jeff Pabst, CRC
Communications
Specialist

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