Monthly Archives: August 2015

Pension Reform Jeopardy: “I’ll take The Real Truth for $1,000, Alex!”

the word "reform" in lead letters written. symbolic photo for quick correspondence

These days you can’t turn around without hearing the phrase ‘pension reform’ and the great horrors pension systems and retirees are unleashing on society.  Everyone has an opinion and some are quite rabid about it.  The soundbites, inflammatory and many times downright false statements would be laughable – if these were not real peoples’ lives we were talking about.  We hear time and again that ‘defined benefit plans don’t work’ and there must be massive pension reform to solve this catastrophic crisis, right?  Wrong.

So here’s the truth.  Pension systems, when designed properly (like LAGERS) are an effective strategic tool used by employers to make communities better, safer and more efficient.  Defined benefit plans are designed to attract skilled, quality workers and give them incentive to dedicate their service and skills to improve their communities.    Then after a career of work, when the employee can no longer function at maximum level, a pension provides a mechanism for exiting the workforce with dignity and security through modest, protected monthly benefits. This workforce movement also provides incentive for younger workers to follow that same path.  Defined benefit plans create loyalty and partnerships between employees, employers and communities.

Some of the pension reform discussion has focused on eliminating defined benefit pensions altogether and transitioning public workers into 401(k)-type defined contribution plans.  While it is always good to look into ways to be more efficient and improve the financial condition of pension systems, switching government workers from a defined benefit pension plan to a defined contribution plan will ultimately hurt the retirement security of workers and be more costly to governments.

In fact, a study from the National Institute on Retirement Security found that converting from defined benefit to defined contribution plans actually increased costs and pension under funding.  Case Studies of State Pension Plans that Switched to Defined Contribution Plans summarizes the impact of switching from a defined benefit pension to a defined contribution in three states – Alaska, Michigan, and West Virginia.

One state, West Virginia, who moved to a defined contribution plan in 1991 actually switched back to a defined benefit plan 14 years later.  After studying the costs of going back to a defined benefit plan in 2003, the state found that the normal cost (the cost of benefits accrued in a single year) for its defined benefit retirement system was nearly half of the required employer contribution to the defined contribution plan.  This is why the state decided in 2005 to put all new hires into a defined benefit plan.

Even more, in the last 5 years 70 employers have joined LAGERS and we found some interesting news:  two out of three employers were switching from some type of DC/investment type plan into the LAGERS defined benefit structure.  Why?  Because LAGERS works well, for everyone. 

And there’s more!  Do you want to know the ‘secret sauce’ to making a pension plan work?  Requiring contributions be made.  As simple as it sounds, that’s why LAGERS works so well.  As a system we are 670 employers strong, all of which make their required contributions each and every month to ensure the earned benefits are prefunded.  To date the system as a whole is 94.4% prefunded, even including the employers recently joining – who have not yet had a chance to fully fund all of their benefits.  Our system ensures benefits will be funded, and secure.

If you want to join the debate, I urge you to take a close look at the state of worker pensions and security – or insecurity – across the country, both public and private.  Everyone should have the chance to earn some type of modest, secure defined benefit that they know will be there when they can no longer work.

 

Robert Wilson, Asst. Executive Secretary

Robert Wilson, Asst. Executive Secretary

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Upgrading LAGERS Benefits: The BIG Picture

photo-1438109491414-7198515b166b

 

When LAGERS employers were notified in July of their 2016 contribution rates, most received good news.  Seven out of ten employer contribution rates are either decreasing or remaining the same in the upcoming year.  This marks the fourth straight year that the majority of employer rates are going down or staying level.

The fact that rates are trending in a favorable direction is mainly due to the great investment returns the LAGERS portfolio has enjoyed over the last few years.  LAGERS is a non-profit system, so when the returns of the portfolio are more than we expect, the excess funds are credited back to employers.  This helps to put downward pressure on rates.  So, many LAGERS employers will be paying less for the same benefits in 2016.

With the cost of LAGERS benefits trending down for employers, this has led many organizations to look into upgrading LAGERS benefits for their employees.  This is a great thing to consider since better benefits help to attract and retain good workers, who in turn provide high-level service to citizens.  However, it is important for local policy makers to take a long term perspective when thinking about upgrading LAGERS benefits.  Here are a few items to consider:

The markets have provided great returns the last few years, but that won’t always be the case.  Just as the markets provide good investment returns that drive down employer contribution rates, the opposite can happen as well.  For example, in 2008 and 2009, LAGERS portfolio had losses of -2.3% and -18%, respectively.  Because of these investment losses, the majority of employer contribution rates increased in 2010 and 2011, and some increases extended longer. LAGERS plan design does include a couple features that provide protection so employer rates don’t skyrocket from one year to the next, but rates can and will fluctuate with the markets.  LAGERS’ portfolio has fully recovered and then some, which is why it is important to focus on the long term returns of LAGERS. Over a 20-year period LAGERS’ portfolio has earned a return of 9.4%.

Benefit upgrades increase an employer’s liabilities.  Switching to a higher benefit program (multiplier) is a retro-active upgrade.  This means that not only will the employees’ service going forward be upgraded to the higher level, but also the service they have already earned.  This creates an additional liability for the employer because it now must pay for the current employees’ past and future years at the higher program.  The good news is that LAGERS does not require an employer to fund this all at once, but rather, amortizes the additional liability over a future 20 year period and a portion of the regular, monthly contribution goes toward paying off the upgrade.  LAGERS fully discloses this increase in liability to the employer along with the new monthly contribution rates and 10 year cost projections before an employer can make a benefit change.  And keep in mind that new pension accounting and reporting standards may make and employer’s liabilities more visible than before since they will be reflected on an employer’s balance sheets.

Focus on what you are trying to accomplish with your LAGERS benefits related to your organization’s overall compensation philosophy.  All organizations have a philosophy on how they will compensate their employees.  Some offer lower salaries with higher benefits, others pay more money to their workers and provide less benefits, and a few employers provide both good pay and benefits.  LAGERS benefits are part of an overall compensation package for employees.  It is important to focus on the goals of the benefits programs before making the leap to upgrade your LAGERS plan.  Keep in mind that the main purpose of LAGERS is to provide steady monthly income during the member’s retirement years.  Does increasing that income make sense for the employees, employer, and taxpayer?

Here is the case for upgrading to a higher LAGERS plan.  Retirement benefits are a vital tool in attracting and retaining a quality workforce and the better your plan is, the more likely employees will be to stay through their most productive years and then be able to retire at an appropriate age.  This keeps the lines of promotion open so the younger workers are encourage to stay as well which ultimately makes our communities better because we have experienced, well-trained, and motivated public servants.

Overall, upgrading LAGERS benefits will provide more income during retirement and can have a positive impact for the workforce, the employer, and the taxpayer.  It is important to take a long term perspective when considering any benefit change, and your LAGERS plan is no different.  Make sure the change makes sense in terms of your organization’s overall compensation philosophy and contact me for any questions or concerns.

 

Jeff Kempker, Manager of Member Services

Jeff Kempker, Manager of Member Services

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How to Increase Your LAGERS Benefit Without Working Longer

DeathtoStock_CreativeSpace7 11.45.06 AM

 

In LAGERS, you are not accumulating money in an account to grow your retirement nest egg but rather, you are earning service credits.  Each month of work equals a month of service credit.  The more service credits you have, the more monthly income you will receive from LAGERS during your retirement.

But what if you want to add more service credits without continuing to show up to work every day?  Is this possible?  It just may be, depending on your circumstances.

LAGERS allows some members to buy service credits. The process is like buying an annuity through an insurance company.  You would pay an amount of money now to guarantee monthly payments back to you in the future.  These service credits would be added on to your current service, which would ultimately increase the amount of monthly income you will receive during your retired years.

Let me give you an example:

Age of Member

Current Service Benefit Program Current Salary Months to Buy Cost to Buy 36 Months
50 20 Years L-6 (2.0%) $54,000 36

$29,000

 

For this member, the cost to buy 36 months of service credits is approximately $29,000.  That’s a lot of money.  But, let’s see how this will impact his retirement income from LAGERS.

Estimated Annual Benefit Before Buying Service

Estimated Annual Benefit After Buying Service
$21,600

$24,840

 

This member would see an estimated annual increase of $3,240 by purchasing the extra 36 months of service credits.  If this person lives only nine years in retirement, he will have recovered the money he paid for this extra service ($3,240 x 9 Years = $29,160).

Now, for the details on how this works.

Not every LAGERS member is eligible to buy service.  Only people that are currently working for a LAGERS-participating employer and that have previous active duty U.S. military service or have previous non-Federal public employment within the State of Missouri may consider buying extra service credits.  You do not need to be vested in LAGERS to buy military service, but you do need to be vested to buy other Missouri public employment.  Also, you cannot be eligible for retirement benefits from your other Missouri public employment.  For example, if your earlier employment was covered by some other local pension plan and you will be eligible in the future for benefits from that pension plan, you would not be able to buy service in LAGERS for that same period of time.

How much does it cost to buy service?  The amount of money it takes to buy service is different for each individual.  The cost is based on your age, current salary, current service, and the benefits that your current employer has chosen.  Some people get sticker shock when they see the price to buy service. But keep in mind that you are adding to your guaranteed monthly retirement income.

What happens to the money I pay to buy service?  LAGERS treats the money you pay to buy service like normal employee contributions.  This means that you are guaranteed to receive back at least what you pay into the system.  If you leave LAGERS-covered employment before you are eligible to draw a monthly benefit and decide you want that money back, you can choose to have it refunded to you and forgo the future monthly benefit related with those funds.  If you die during retirement and LAGERS has not paid you at least what you paid in, and there are no other beneficiaries that should receive a monthly benefit, we will refund the difference to your beneficiary of record.

How much service can I buy?  You may buy up to 48 months of military service provided you had served at least 48 months of active duty in the U.S. military.  You can buy as many months of your earlier Missouri public employment that you actually worked full time.  For example, if you previously worked for a city that did not have a pension plan for 10 years, you could buy up to 120 months of additional service.

How do I pay LAGERS for my service?  LAGERS will accept personal checks or direct rollovers from other eligible retirement accounts to pay for service.  You may also pay in installments over a 12 or 24 month time frame.

How do I get started?  There is a purchase of service estimator on the myLAGERS portal that you may use to get a ballpark of the cost.  To get an official estimate of the cost from LAGERS (which is required) you must complete either the Military Purchase of Service Form or the Application to Purchase Other Missouri Public Service Form.  LAGERS will need a copy of any pertinent military discharge papers (DD 214) to verify honorable discharge and the period of service in the U.S. armed forces.

What if I was covered by another pension plan during my previous service and want to transfer that service to LAGERS?  LAGERS has cooperative agreements with several other Missouri public pension plans that allow the transfer of service between the plans.  You must be vested in both plans to transfer service.  Keep in mind that since each plan has different benefits, the calculations may not be apples-to-apples.  This process works a little differently.  First your former pension plan lets LAGERS know the present value of your benefit with that plan.  Then, LAGERS will enter the number of months you had worked in the earlier job into our cost calculator, based on LAGERS benefits.  We then will send you a letter stating the amount of money that your former pension plan will transfer to LAGERS to pay for the purchase.  If the funds the other plan is transferring are lower than the cost to buy all of the service in LAGERS, you may choose to buy the rest with your own funds.

 

Buying service credits is not for everyone.  But if you are eligible and able, it may be a good way to increase your monthly income stream during retirement.

 

 

Jeff Kempker, Manager of Member Services

Jeff Kempker, Manager of Member Services

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The Results are In! LAGERS Shares Communication Survey Results

DeathtoStock_CreativeSpace4 11.45.06 AMLAGERS recently asked our members to participate in a Communications survey to help us ensure that we are providing the best information possible in the formats that our members wish to receive it. LAGERS appreciates the participants who took time to complete the survey; we read every comment and hope that the results will help us provide even better communication for our members in the future! Here are a few excerpts from the results and comments!

Survey1

 

Survey2

 

Survey 3

Below are some of the comments we received on the survey and our responses:

For the past several years I have looked for a simple explanation of what that years COLA is. There is always some vague explanation and no number. I would like to have the number posted where it is easy to find and understand.

                –The reason LAGERS does not publish the COLA number is because COLAs are not given as a blanket increase. LAGERS retirees receive cost of living adjustments that are cumulative and based on their retirement date. Since your retirement date is unique, your increase may be different than someone who retired the year before. Calculating COLAs this way helps ensure that every LAGERS retiree maintains 100% purchasing power with their benefit. Each October, LAGERS does mail retirees a check stub that will indicate the specific amount of your adjustment, if any.

 

I have always had a positive experience with LAGERS the thirty four years I have been a member.

 

The more information available on the LAGERS’ website, sent or e-mailed to employees is the best way of communication. Our employer does not offer assistance and lack up-to-date knowledge on this vital benefit.

We understand that with over 670 different employers in our system, there will be varying degrees of communication between employers and their employees. LAGERS places a high priority on ensuring our website has the most current and relevant information possible. We have also been exploring ways to provide more direct communication with members, so that we are landing directly in your mailbox or inbox!

 

All is good – you all do a very good job with communicating with members. I enjoy the Webinars also.

LAGERS webinars are a great way to get information from LAGERS, especially for those who are audio or visual learners! We hope to work in the next year to improve member and retiree awareness of these events!

 

My experiences with the LAGERS Staff when I have a question or need something, they have been outstanding and timely in providing me with information. Great and professional group of individuals – others could learn from you!

 

Would like to know how to set up an account with password(s). The latter to make any changes to my account such as changing to another bank or how much I am receiving and a letter supporting I do receive an annuity.

                myLAGERS is a great resource for members and retirees alike. You may set up an account by clicking myLAGERS link from our homepage, www.molagers.org, and simply clicking the “Enroll Now” button. If you have any issues setting up or accessing your account, give our office a call, and we would be happy to assist you.

 

Thank you for making it possible for me to transition from a local government employee to a happy new retiree! I couldn’t have done it without you!

-LAGERS believes that retirement security should be for everyone. We are happy to hear you are enjoying the security of your hard earned benefit!

 

The ECLIPSE portal is difficult to move through when reporting wages or searching for employees.

                -We appreciate the feedback and are always looking for ways to improve both the myLAGERS and ECLIPSE system so that they are as easy as possible for our members and employers to use. One of the greatest challenges we faced when designing these systems was how vastly different the reporting needs of a Special Road District with 1 employee are to those of a County with 800 employees. While there may never be a ‘perfect’ system for all our employers, we did share the comments about ECLISPE and myLAGERS with the management team and will be looking for ways to improve this service in the future.

 

The newsletter does not go in-depth enough sometimes. Web site and staff members are great help!!

                -We are pleased that you find our staff and website as great resources! We are also currently exploring options for expanding our newsletters so that we can provide more information to our members through this channel. Retirees can expect to see their newsletters, which have been mailed twice per year to become a quarterly publication. We are still currently discussing changes to the frequency and/or depth of our member’s newsletter as well.

 

Apparently LAGERS believes that all its members are tied into social media. Not everyone wishes to conduct their business on social media!

                -Although a large portion of LAGERS’ members and retirees are engaged social media users, LAGERS certainly understands that not everyone uses these channels. LAGERS has not eliminated any of our traditional communication formats, but is always looking for ways to provide the best information in the formats our members and retirees wish to receive them in. One new resource you may find interesting is our weekly blog, no social media account required! Visit www.lagersbloggers.org and learn a lot of great information about your LAGERS benefit.

 

I think all important information should be mailed and not e-mailed. Sorry I am old.

-No apologies necessary! We understand everyone has different communication preferences. In fact, LAGERS default communication preference is paper. We have simply added the option for those who wish to receive electronic communication to do so.

 

BEST RETIREMENT SYSTEM IN THE COUNTRY!

-Thank you, we think so too!

 

The staff has taken great care of my retirement LAGERS needs. I never thought about LAGERS as a post-retirement resource before.

-LAGERS has recently ramped up our effort to connect with our retirees! Have you heard about our new Retiree Link Meetings? These retiree-focused events are free and provide an opportunity for retirees to meet with LAGERS staff, hear updates about your system, and enjoy other education programing related to your retirement. Plus, breakfast on us!

 

If you would like the complete results of this survey sent to you, please contact the LAGERS office.

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