Monthly Archives: November 2015

Something You Might Not Know About Funding Your Retirement

Savings

You may know how your benefit is calculated and you may even know how your employer pays for the benefit. However, you may not know how the LAGERS system is structured to ensure your monthly benefit will be sustainable for you and generations to come.

The system is structured in such a way that you have the peace of mind knowing you will receive a monthly benefit for the remainder of your life. To understand how this works, we need to discuss how the employer funds your benefit throughout your career. There is a portion of an employer’s contribution rate that is pre-funding your benefit. So that, by the time you retire, the funds necessary to pay for your benefit are in place.

While you are working, your employer makes monthly contributions to the system based on your gross wages. The contributions are then invested to generate a return; therefore making the prefunding affordable for the employer. Historically, LAGERS investments have paid for approximately 60 cents of every dollar needed to pay for your monthly benefit. What this means for you is that the investments made having a defined benefit pension more feasible for your employer. In fact, it may have allowed your employer to increase benefit level(s) to provide you with a larger benefit.

When you retire, a transfer of the expected amount needed to pay for your lifetime benefit occurs from your employer’s assets to LAGERS’ Benefit Reserve Fund (BRF). The purpose of this fund is to pay all LAGERS retirees’ monthly benefits. So, in essence, LAGERS pools all of the assets needed to pay for all of the retirees’ monthly benefits. This is a strong plan design feature because it then pools the life expectancy of the retirees.

Let me explain, when the asset transfer occurs LAGERS assumes that a person is going to live until a certain age and calculates the funds needed to pay the benefit until the member passes away. However, there are times when the retiree passes away before or after the system expects them to. This is where pooling all of the retirees’ funds into the BRF is such a strength of the system. For example, when retirees pass away later than the system projected, the funds are available because there are some retirees who did not live as long as the system projected.

Strong system design, consistent contributions, and sound investment policy are what make a pension system prosperous and able to provide you and the generations to come a dependable, modest retirement benefit. The LAGERS system is designed to accomplish all of these and is constantly striving serve you in the best manner possible.

JP headshot

Jeff Pabst, CRC Communications Specialist

 

 

 

Everything you need to know about your member contributions…

DeathtoStock_SlowDown4 

If your employer has elected to be employee-contributory in LAGERS, you’ve probably noticed that 4% of pay coming out of your paychecks each month.

In LAGERS, all full time employees who work for a Contributory employer are required to contribute 4% of their gross pay each month to help pay for their future retirement benefit.  These member contributions are treated differently than any other contributions your employer makes to LAGERS on your behalf because that 4% is your money!  Here’s a quick summary of what you need to know when it comes to your member contributions.

Are My Contributions Guaranteed?

It’s your money, and so you (or your beneficiary) are always guaranteed to receive back at minimum, what you individually paid into LAGERS, plus interest. Every month, your contributions are placed into an account with your name on it, and those funds earn interest (currently at 0.5%).  Keep in mind, that unlike a defined contribution plan, such as a 457(b),  your contribution balance in LAGERS does not affect how much your monthly benefit will be at retirement because your LAGERS benefit is based on how long you worked, not how much you or your employer paid in.  Your member contributions are simply helping to fund your future benefit and most members will receive far more during retirement than what they themselves paid in.

When Can I Withdraw my Contributions?

Although you cannot withdraw or borrow against your contribution balance while working, if you leave employment prior to reaching your early retirement age, you always have the option to apply for a refund of your contributions. However, taking a refund forfeits any service associated with those contributions.  If you leave your employer, take a refund of your contributions, and later re-employ somewhere in the LAGERS system; you start over with no credited service (unless you repay your contributions, plus all applicable interest).  Members who leave LAGERS covered employment prior to retirement always have the option to leave their contribution balance in LAGERS to preserve their service and future monthly benefit.

How Are My Contributions Taxed?

Your member contributions are made after-tax. This means that you are paying tax on the 4% as it goes into LAGERS, and a portion of your monthly benefit will not be taxable when you receive in back through a monthly benefit.

The non-taxable portion of your monthly benefit at retirement is determined by the IRS’ Special Rule method: your total employee contribution balance (excluding interest) divided by a projected number of total payments. The total number of payments is determined using the following tables and is based on your age at retirement and Payout option elected.

special rule

For example, if I paid in $25,000 of my own money, retired at age 61, and elected the Life Option, I could estimate my non-taxable monthly amount by taking $25,000/260 payments = $96.15 each month.

Thinking about taking the Partial Lump Sum? Because the PLUS is equivalent to 24 months’ worth of payments, the non-taxable portion of a PLUS distribution would be 24 x your monthly non-taxable amount.  If you are rolling your PLUS into a pre-tax retirement account, the non-taxable portion of the benefit will still be paid directly to you.

Your Contributions in Retirement

When you reach retirement and begin drawing a monthly benefit, you receive your contributions back through your monthly benefit payments. Should you pass away in retirement before receiving back at least what you paid in, and if  there is no further monthly benefit is payable, LAGERS will refund the remaining contribution balance to your beneficiary.  For example, say you have a contribution balance of $25,000, retire electing the Life option, and draw a monthly benefit with payments totaling $12,000 at your death.   Since under the Life Option, no further monthly benefit is payable to a beneficiary, LAGERS would refund $13,000 to your beneficiary.

There is a lot to think about when it comes to your member contributions, but most importantly, keep in mind that you are always guaranteed to receive back at least what you paid into LAGERS and those contributions are helping to fund a future guaranteed lifetime benefit! You can view your contribution balance on your Annual Statement that you receive from LAGERS each year or 24/7 on your myLAGERS account.

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

Tagged

Thinking About Taking a Job After Retirement? Read This First!

DeathtoStock_NotStock

 

Americans are embracing a new view of retirement that includes staying active, volunteering, or even taking on a part time or full time job.  And while the #1 reason people take a job after retiring is because they need the money, the #2 reason is boredom.  If you are thinking about accepting a job after you retire, there are several things you should know before jumping back into the workforce.

Non-LAGERS Employment

I have talked to several LAGERS members who have said their dream is to retire and then become greeters at Wal-Mart.  I’m not really sure of the attraction to this occupation, but I can tell you that this would be allowed under LAGERS’ rules.   Your retirement benefit will not be affected if you go back to work either part-time or full-time for any employer that is not in LAGERS.

Part Time LAGERS Employment

You can go back to work part-time for a LAGERS employer, even one from which you are receiving a benefit, and the current benefit will not be affected.  Be careful here, however, as LAGERS defines part-time differently than a simple 40-hour work week.  Each LAGERS employer has chosen a full time definition of either 1,500, 1,250, or 1,000 hours per year.  Check with our office about how many hours you can to work if you plan to work for another LAGERS employer after retirement.

Full Time LAGERS Employment

What about working full time for a different LAGERS employer than the one from which you retired?  This is allowed too, but you must have at least one-month break between your last day of work or your retirement effective date (whichever is later) and the date you start work at the new employer.  For example, if your last day of work is December 23rd and your retirement effective date is January 1st, you could not start working full time with a different LAGERS employer until after February 1st.  If you don’t have that one month break, we would have to suspend the monthly benefit you are currently receiving.  So take a month off, you deserve it!

You would again be covered under LAGERS at your new employer after you complete the one month break.  You would then be eligible for a second benefit after 12 consecutive months of employment.  All the while, receiving your full, uninterrupted benefit from your first employer.  The benefit from your second retirement would be calculated independently from your first retirement and would simply be added atop the first benefit when you retire the second time.  All of this can get a bit tricky, so if you are planning to go back to work for a LAGERS employer, either part-time or full-time, please contact us so we can walk you through it!

There may be a situation where you must go back to work full time for the employer that you retired from.  The current monthly benefit from this employer would be suspended, you would again become an active member of LAGERS, and would be eligible for a second benefit, calculated independently of the first benefit, after 12 consecutive months of employment.

What about contract or consulting work?  I am asked frequently about going back to work for the same employer on a contract basis since true contract workers are not covered under LAGERS.  This is OK too, so long as the nature of the position is truly contractual.  This means that your former employer is contracting with a company you work for and you are then providing services to your former employer.  In this case, your employer is the company, not your former local government employer.  Simply signing a contract with your former employer does not make you a ‘contractual’ employee in LAGERS’ eyes.  You are likely eligible for LAGERS coverage and not able to continue receiving your monthly retirement benefit if you are on the payroll of your former employer and working the right number of hours.

If there is one take away from this blog it would be to contact LAGERS BEFORE you re-employ either part time or full time with a LAGERS employer so that your benefit is not interrupted unexpectedly.

 

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

 

Tagged , ,

In Case You Missed It, A Recap of the 48th Annual Meeting

12191691_718773758252719_1183631956151207714_n

We had a great time at this year’s Annual Meeting in St. Louis! Special thanks to the 230 members, employers, and guests who attended this year!  In case you missed it, we wanted to share a few of the highlights from the sessions that stretched over the two-day event.  And don’t forget, all of the materials from the meeting are available on our website.

Generally, the Annual Meeting is held each year so that members and employers can come together to elect their Board of Trustees. Because there were no vacancies on the board this year, hence no elections, this year’s focus centered on member education, communication, and outreach.

We kicked off with sessions covering LAGERS basics as well as the Disability and Survivors benefits that all members are covered under. Attendees learned about how LAGERS benefits are calculated using a benefit formula, and also how to ballpark a benefit by calculating a replacement ratio.  For example, a member who believes he is going to work for 20 years for his employer and who is covered at the L-6, 2.0% plan, could ballpark a future benefit by taking 20 years x .02 = 40%.  This quick and simple calculation can tell you how much of your pre-retirement salary will be replaced by your LAGERS benefit at retirement (40% in this example) and can be an important tool to use when determining how much personal savings an individual should be accumulating.  After all, your LAGERS benefit was never designed to be your sole source of income!

Attendees also had the opportunity to learn more about disability and survivor benefits, which are often forgotten benefits in LAGERS. All members are covered by these lifetime benefits which can potentially be payable to a disabled member, or to a spouse (or dependent children) in the event of both duty related and non-duty related deaths or disability.  Remembering to include these benefits in your financial plan as well as future employment decisions is important!

We closed the first day with a presentation on communication from Tripp Frohlichstein. Tripp has traveled worldwide to train thousands of people in corporations, associations, government and non-profit organizations in message development, working with the media, handling a crisis, giving presentations and com­municating more effectively. Attendees learned about the importance of having a “home base,” or a core message.  LAGERS members shouldn’t be afraid to tell others that their pension system is getting it right and is working well for its members, employers and Missouri’s taxpayers!

The second day of the meeting focused on updating the membership on the state of the LAGERS system. LAGERS Executive Director, Keith Hughes, started off the day with a State of the System address.  The past year has been an outstanding year for LAGERS with a system funding status improving to 94.4% pre-funded, and a majority of employer rates decreasing or remaining level in 2016.  Keith attributes much of LAGERS success to strong plan design, good governance, and a dedicated staff that is focused solely on the membership.  LAGERS staff was truly humbled to be named Plansponsor of the Year for 2015 and continues to work every day to serve our members.

Brian Collett, LAGERS’ Chief Investment Officer, presented the investment performance report next. Brian discussed LAGERS’ returns, with a one year return of 2.2%, and discussed the importance and value of being long-term investors, noting LAGERS’ 10, 20, and 30 year returns of 7.7%, 8.7% and 9.5%, respectively.  Brian also discussed a few of LAGERS investment strategies that individual investors could also apply to their personal investments, which included increasing allocation into real assets.

Bob Wilson, LAGERS Assistant Executive Director, closed this year’s meeting by addressing the Legislative Report from 2015 as well as agenda for 2016. LAGERS pursued two pieces of legislation in 2015 with a focus on the ‘Local Plans’ bill which would allow employers to voluntarily pursue having LAGERS administer their existing frozen pension plan.  While 2015 proved to be a challenging year politically, LAGERS is refocused and ready to take on both the Local Plans bill and the widening of Public safety Retirement Age bill again.  Bob asked all members to help in any way they could to reach out to legislators to help get both pieces of legislation passed in 2016.  Anyone wishing to get involved in helping can contact Bob by email at bwilson@molagers.org

With another Annual Meeting behind us, LAGERS staff continues to be focused on ensuring that your retirement system is getting it right. As always, we are available as a resource for our membership and are more than happy to assist in any way possible.  We look forward to working with our members throughout this next year and to seeing everyone at the University Plaza Hotel in Springfield for the 2016 Annual Meeting!

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

%d bloggers like this: