Monthly Archives: April 2016

Why I (Probably) Won’t Choose Option A

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My wife and I recently had a conversation about retirement and what payment option I would choose when I retire. At first, she was shocked to find out that I may not pick the option that pays the largest monthly benefit to her. It’s not that I am just being mean and don’t want to provide as much for her when I pass away. Instead, it’s about the two of us enjoying retirement together while still providing her with a benefit when I pass away.

As you may know, there are several different payment options to choose from when you retire. Some options pay for two lifetimes, while another pays for only your lifetime, and another that pays for your lifetime and guarantees 120 payments to be made in total between you and your beneficiary if you pass away within 10 years of retirement. Also, you can add a Partial Lump Sum to any of the previously mentioned options. Click Here for more information about payment options.

The options I am most interested in are the joint survivor options, Option A and Option B.  Each of these options will pay a portion of my monthly benefit to my wife for the remainder of her life once I pass away. Option A, though, pays the beneficiary more than Option B. Option A, of course, is the payment option my wife wants me to choose.

However, my wife is a public school teacher and she participates in Missouri’s Public School Retirement System. When she retires, she will be receiving a guaranteed monthly benefit from her retirement system for the rest of her life. So, she will already have a secure retirement income source and she may not need as much of a benefit from me after I pass away, since she already has her own.

My plan is to choose Option B. This way, she can still count on a portion of my benefit for life, but it won’t be as large as Option A. That’s my plan for now, but you never know and my plans may change as retirement approaches. . In exchange for her smaller benefit, I will receive a larger monthly benefit. Now you’re thinking I’m just selfish But, by receiving a larger benefit, it may allow us to do more things together in retirement before I pass away. That’s all part of the plan for our retirement. While I want to provide my wife with the ability to continue to live the same lifestyle we were living before I pass away, we also want to do as many things on our bucket list together in retirement. So, by choosing Option B, I provide myself with a little bit more monthly retirement income that will allow us to go on more adventures in retirement. Also, it will still provide a small monthly benefit once I’m gone. Coupled with her pension, it will keep her financially comfortable until she passes away.

So, as you can see, it really isn’t about me being selfish and not wanting to provide for my wife. It’s more about what we want to do in retirement and keeping her financially secure once I pass away. Option A may seem like the best bet for your spouse because it is a largest amount they could receive, but it may not be the best option for you.

Click Here to read my other payment options blog.

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Jeff Pabst, CRC Communications Specialist

Some Good News About Roller Coaster Markets

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Investing in the markets is unpredictable.  None of us has a crystal ball or any other super power that allows us to know, in advance, all of the factors that influence particular investments to rise or fall.  There are risks when we invest our money.  We can make extremely well-educated decisions, hire the best and brightest people to help us to diversify our assets, but we can’t completely remove the risks.  Manage the risks, absolutely. Remove the risks, not a chance.

As a member of LAGERS, you don’t have any investment or market risk related to your LAGERS retirement.  Even if you contribute a portion of your paycheck to LAGERS, you are always guaranteed to receive back at least the amount you paid in.  In other words, you cannot lose money by contributing to LAGERS.  This, very basically, means that your retirement benefit is not affected by the ups and downs of the market.  Your benefit is based on a formula, not an account balance that ebbs and flows based on economic forces beyond your control.

So, who takes on the investment risk?  I mean, LAGERS does invest every dime we collect from our members and employers.  And we know that we cannot remove the risks of investing.  The risk has to be attributable to someone, or something.

The answer is that LAGERS participating employers take on the investment risk for their employees.  They are trusting LAGERS to invest prudently and to earn the highest possible returns for members.  When LAGERS’ investments perform better than expected, your employer’s cost for benefits may be lowered.  If the markets aren’t so kind, your employer may have to pay a little more into LAGERS to make up for lackluster investment performance.  That’s how it works.

LAGERS takes the investment of our members’ and employers’ money very seriously.  For us, the main financing goal is for all benefits to 100% funded.  This means that we must collect the appropriate level of contributions year after year.  Costs for benefits are designed to remain level for decades, and they do, for the most part.  During challenging market cycles, costs can and will increase.  However, LAGERS rules provide some protections for employers so costs can stabilize.

For one, any investment gain or loss by LAGERS in a given year is smoothed out over the next five years.  This helps soften the blow during down market years and keeps costs more level during the good years.  Second, costs are limited to no more than a 1% annual increase.  For example, if an employer is paying 10% of payroll for LAGERS benefits in 2016, they know their costs will not be more than 11% in 2017 unless they choose to make a benefit enhancement.  This doesn’t mean that costs automatically increase 1% each year, this just means that they cannot increase more than that.  These rules make budgeting for LAGERS much easier while ensuring your retirement benefit will be properly funded.

Risks are everywhere.  As a LAGERS member, it should give you great comfort knowing that your retirement income is protected from market swings and that your employer is insulating you from investment risk related to your LAGERS benefit.

 

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

 

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Top 4 Topics Attendees to a Pre-Retirement Seminar Were Suprised to Learn

DeathtoStock_Creative Community9Your LAGERS retirement system annually holds more than 25 pre-retirement seminars across the state of Missouri and I get the opportunity to speak at 15 or more of those seminars every year. It never fails that several people in the crowd are surprised to learn one thing or another about their LAGERS system. I believe this shows how incredibly beneficial attending a pre-retirement seminar can be for you. Here are my top 4 topics that attendees to a pre-retirement seminar were surprised to find out.

  1. You may be able to purchase service under the LAGERS system before you retire. That’s right. Eligible members can purchase up to 4 years of military service and / or any amount of non-federal public employment for a political subdivision within the State of Missouri where you are not eligible to receive a benefit from another retirement plan similar to LAGERS. One question that always seems to come up when I discuss this at the seminars is, “how much does it cost?” The answer is not as clear cut, but you can get an estimate through the myLAGERS portal or by calling our office. Click Here for a recent blog about purchasing service.
  2. You can work part-time or full time after you retire and still receive your LAGERS benefit. In fact, you can work full-time for a different LAGERS employer and continue to receive your monthly benefit while also accruing a separate benefit with the new employer. Let me explain your options:
    • You can work full-time for any non- LAGERS employer. There are no limitations on how much you can make or how many hours you can work.
    • You can work part-time for any employer. This includes the employer from which you may be drawing a benefit. If you’re employing with the same employer, the position must be below the annual hours the employer elected as full-time to continue to receive your benefit.
    • You may work full-time for a different LAGERS employer.
      • You must have a one calendar month break between when you receive your first benefit payment or your termination date, whichever is later.
      • You will begin accruing a separate LAGERS benefit.
      • You will become vested on your second retirement after 12 consecutive months of employment with the different LAGERS employer.
      • Upon second retirement, you will be eligible for an additional benefit to be added to what you are currently receiving.
    • Check out this recent blog about re-employment after retirement.
  3. Your pension benefit may be tax exempt in the State of Missouri. I don’t claim to be an accountant by any means, but this is something we talk about at our seminars. It is called the Missouri Public Pension Exemption and depending on your marital status, adjusted gross income and the amount of public pension income you are receiving, you may qualify for 100% of your public pension benefits being tax exempt for your State of Missouri income taxes. Check out my taxes blog regarding the Missouri Public Pension Exemption.
  4. The ‘retire on October 1st or you’ll lose out on a COLA’ is a lie. This is something that we hear about quite a bit. We hear that if you don’t retire before or on October 1st that you are going to get gipped out of a Cost of Living Adjustment (COLA) and that simply isn’t true. Before you can receive your first COLA, you must be retired 12 full months including an October 1st. So, that sounds like if you retire after October 1st that you will miss out on that adjustment. Not true. Your cost of living adjustments are cumulative based on your retirement date. So, no matter when you retire, we are going to ensure that your retirement benefit is keeping pace with inflation. Click Here to see a blog about why retiring on October 1st is as important as you think.

 

These are just a few of the many revelations LAGERS members come away with after attending a Pre-Retirement Seminar. There are many more, but do yourself the favor and attend at least one Pre-Retirement Seminar before retiring. It will certainly help you through the retirement process and possibly reveal things you didn’t know. Click Here for a full list of our seminars!

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Jeff Pabst, CRC Communications Specialist

This is What Employers Were Thinking When They Added LAGERS Benefits

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Have you ever wondered why so many employers provide retirement benefits to their employees, or perhaps wondered how LAGERS adds 10-15 brand new employers every year to our system? Well, I could write an entire blog about that, or probably even several blogs about the value of a good retirement plan like LAGERS. I could go on and on about how these benefits provide valuable tools for local governments to attract and retain high quality workers into public service and about how these benefits ensure that employees can actually retire someday with dignity and true retirement security.  But I thought instead this week, in celebration of National Employees Benefits day, I’d look back at what some of our newest employers told us about why they chose to add or switch to LAGERS for their employee’s retirement benefit.

One of our newest members couldn’t have put it any better. Bill Florea with Nodaway County Ambulance says when talking about why they looked to add LAGERS, “as a governmental body, retirement options [are] very limited for us. We wanted a better retirement plan for employees, one that offered more financial security that was not directly tied to the market. One that prevented employees from getting into their funds before they retire. We want something there for them when they retire!”

It is easy to forget that often the greatest threat to our own retirement security is ourselves! Whether employees are simply not saving enough, or making withdrawals too early from their retirement accounts, the results can be devastating and often result in employees not having enough money set aside when they need to retire.  A good retirement plan, like LAGERS protects benefits so that when a member is ready to retire, they know their benefit will always be there for them!  Bill follows with, “Providing a great retirement plan should [also] improve the district’s employee recruitment and retention goals and possibly provide some added financial comfort in light of the increasing uncertainty in the Social Security system and its increasing retirement ages.”  Well said, Bill!

It always amazes me that regardless of how diverse our members are, their reasons for adding LAGERS are often similar, whether they are in a small rural area looking for ways to entice folks into public service or a larger urban area competing with many surrounding municipalities for employees, or any size and shape in between looking to provide a little security for their employees down the road.

“It was something the employees had asked the City to look into and the Board also been discussing ways to keep employees” says Karen Girondo from Wright City.

We were looking for a way “to provide a benefit to help retain and recruit employees and to give our employees a benefit that will help protect their future,” adds Barb Shupe from Grand River Ambulance.

“We were unhappy with the fees associated with the retirement plan with which we were participating. In looking at other retirement plan options, several employees asked that we look into LAGERS. 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” recalls Mary Beth Revels of St. Joseph Public Library.

Steve Roth with the City of New Haven adds “I think it will aid in retention and recruitment. Likely it will be a particular selling point as we recruit new police officers. I think it gives employees a clear retirement goal to shoot for and a greater stake and interest in the total employee package. Finally the disability benefit is a new coverage that we were not able to offer previously.”

We couldn’t agree more with Bill and Karen and Barb and Mary Beth and Steve, and are so proud of the fact that regardless of an individual employer’s goals when they look at adding LAGERS to their benefit package, LAGERS employers understand the value of having the best, most dedicated employees work in their communities.  Our employers believe that LAGERS is a great tool to help them attract those servants and keep them serving through their most productive years.  And the best part is, when those dedicated public servants are ready to retire, they actually can, and they can do it with the peace of mind in knowing their benefit is secure.

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

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