Monthly Archives: May 2016

4 Things Every New LAGERS Member Should Know About LAGERS

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Vesting is Important

For a new LAGERS member, vesting is the single most important thing to understand about your new benefit. To become vested simply means you become eligible for this benefit.  In LAGERS, vesting happens once you have earned 60 months (5 years) of service in LAGERS.  If you leave your employer before you have five years of service, you will not be eligible for any monthly benefit at retirement.  However, vesting doesn’t have to be with just one employer.  You could work 2 years for one employer and 3 years for a second LAGERS employer, and because you have a total of 60 months between the two, you are vested!

Vesting is a really important benchmark because once you reach your vesting date, it does not matter whether you work with your employer until you retire, or if you change jobs down the road, you are guaranteed a monthly benefit at retirement. Your LAGERS monthly retirement benefit will be based upon how long you work, so the longer you work, the better your benefit will be, but regardless of how long you stay with your LAGERS employer, once you are vested, you will be eligible for a monthly benefit when you reach your retirement age (which is age 60 for general employees and 55 for police officers and firefighters).

Benefits are Forever

If you have worked for an employer in the past with retirement benefits, chances are those benefits were substantially different than LAGERS. Retirement plans come in all shapes and sizes, and LAGERS is what you call a defined benefit or pension.  Pensions work differently that your 401(k) or your 457(b) or your IRA.  In these types of plans, your benefit is based on how much you pay into the plan, plus or minus any investment gains or losses.  You may also have been individually deciding how to invest your money, or paying someone a fee to do that for you.

In LAGERS, your benefit is not tied to an account balance, but rather to how long you work. The longer you work for a LAGERS employer, the better your retirement benefit will be.  When you are ready to retire, LAGERS will use a formula to calculate your benefit.  The formula looks at how long you worked, how much you earned in salary, and what benefit program your employer elected.  Based on the formula, LAGERS will determine a monthly amount that will be payable at retirement every month for the rest of your life.  Your monthly benefit will never stop (even if you live 50 plus years into retirement), and your benefit will never go down (even if the markets aren’t performing well).  Retirement benefits in LAGERS are lifelong and guaranteed!

As a new employee, it may be difficult to quantify the value of a benefit like this, especially since you can’t look at an account balance, but just remember that employees who devote their careers to a LAGERS employer are also earning service that will make your future pension benefit better and better with every passing year.

Member Contributions Pay Off Big

It’s not uncommon for a new member to not be in love with the idea of a mandatory 4% employee contribution. At LAGERS we certainly recognize that every paycheck, down to the last dollar is important to our local government workers, but we also recognize that creating retirement security for our members should be a priority.  If your employer has elected to require employees to contribute 4% toward funding your benefit, keep in mind that what you receive back in terms of a monthly lifetime benefit will far outweigh how much you yourself paid in.  In fact, over 90% of your benefit will be funded through investment return of the system and your employer’s contributions to LAGERS.

Should you, however, ever decided to leave your employer before retirement, your money is always guaranteed to be returned back to you either through are refund or through a monthly retirement benefit, so rest assured that your member contributions are as secure as they can be in LAGERS.

Disability and Survivor Benefits are Included!

One last thing to always remember about your LAGERS benefit is that you also receive Disability and Survivor benefits as part of the deal.  This means that should you pass away or become permanently disabled from your job, there may be additional lifetime benefits payable to either you or a beneficiary.  If today is your first day on the job, you are already eligible for disability or survivor benefits should your job cause your death or disability and these benefits are calculated using service as if you would have worked until age 60!  Once you’re vested, you also become eligible for disability and survivor benefits for deaths and disabilities that happen off the clock.

These extra benefits can really add up if you ever needed them, and the best part is, they don’t cost you anything extra!

Working in public service is a noble calling, and LAGERS is honored to be able to help our local government workers prepare for a bright retirement future.   As with any benefit, taking time to understand that your compensation goes well beyond your take –home pay is key to understanding the true lifetime financial value that you receive as a LAGERS member!

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

 

Three Misconceptions About Local Government Workers that Just Aren’t True

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We have probably all been in a conversation at one point or another where someone takes a jab at local government workers. Let’s face it, governments are usually easy targets, but in reality, much of what is poked fun at is simply not true.  Here are three of the most common misconceptions about local government workers and the why they are simply not true.

Misconception #1: Local government workers have the easiest work schedules in the world.

I will never forget one of my most profound experiences working at LAGERS was during a visit at a small fire protection district in southern Missouri to meet with local fire fighters about their retirement benefits. During the meeting, I was honored to be given a tour of their firehouse; and when we reached the kitchen, something unexpected happened.  The chief stopped and asked me if I would count the chairs at the dining table.  It was a bit of an odd request, especially since the table didn’t seem like anything special to me.  But still I counted and answered “18 chairs.”  “That’s right,” he said, “and do you know why 18 is important?”  I smiled and shrugged my shoulders. “It’s because we wanted to make sure that every firefighter had room at this table to have his or her family join them on holidays when they are on duty, even if it’s over a meal that’s gone cold because they were out on a call.”

I had never really given it much thought. I always get to spend Christmas and Thanksgiving and Easter, and every other ‘family’ holiday at home with my husband and children, and what a luxury that truly is.  Countless public workers spend long hours at their jobs when most of us are enjoying the comfort of being at home.

And as I reflect on that, it reminds me of another instance last summer in my small, rural community, when a sewage line broke and flooded several homes on the street where I own a home. While I was fortunate enough that my property wasn’t affected, it was an awful mess for the three homes that were, and not only was every public works employee in town there until the wee hours of the morning, but the mayor showed up too, and stood on the curb until 2 a.m. in his night coat with residences until arrangements were made for hotels and emergency cleanup crews arrived.

We all have stories like this, and even though it’s easy to take for granted, firefighters, police officers, hospital workers, public works crews, and other public servants of all shapes and sizes are there for us, no matter the hour of day or day of week.

Misconception #2: There are way too many local government workers.

The notion that local governments exponentially expand their workforce at the expense of local taxpayers is simply not the case, at least here in Missouri. In fact, over the past decade, the number of active LAGERS members has remained quite stable; somewhere around 33,000 local government workers.  And when we talk about what is an appropriate number of employees, I think we must at the same time consider what level of service we, as taxpayers, expect from our local governments.  When it snows, do I want to wait a few hours or a few days for the snow plow to clear my routes to work; when it storms and I lose power, do I expect my electricity to be resorted quickly; when I’m sick and need to go to the hospital or clinic, do I want to wait three hours to be seen, or do I expect a quick, competent diagnosis; if I were to experience a home invasion, do I want a 3 minute response time, or a 25 minute response time; if my home is on fire, do I want a handful of fresh-out-of-the-academy greenhorns, or a battalion of experienced, well-trained firefighters showing up at my doorstep. I’ll stop there, but the point is, a lot goes into training these very specialized, and skilled individuals who perform many of the most essential tasks within our communities.  And while it may not snow or storm every day, or I may not need a doctor or a firefighter, or a police officer often; when I do need to call on a local government worker, I want to know that someone will always be there to answer my call.

It has been my experience when working with local governments here in Missouri that they are, in fact, very mindful of being responsible with their hiring decisions and budgets while at the same time finding the right balance of having well-staffed services for their citizens.

Misconception #3: Local government workers receive overly generous benefits, especially when it comes to retirement.

We have a joke we always make at our pre-retirement seminars when we talk about the spousal payout options. A spouse must have been married to a LAGERS member for at least two years to be eligible to be listed as a beneficiary; it’s to prevent someone from marrying you for your LAGERS benefit we always say, at which point the entire room laughs at the thought of anyone going to that much effort for such a small amount of money.  The reality is, that the average benefit in LAGERS is somewhere around $1000 a month for a 20 year employee, hardly enough to retire on alone and certainly not overly generous.   When it comes to LAGERS, there is no get rich quick scheme.  Members have to work to earn their retirement benefit, the longer they serve their communities, the better their benefit will be at retirement.  And the end of the day, even a long-tenured employee is most likely going to have to supplement his or her LAGERS benefit with individual savings to be able to maintain their current standard of living into retirement.

I have been honored to serve our local government workers here at LAGERS and hope that the next time you hear someone cracking a remark, you’ll help remind everyone of how important these amazing people are to our everyday lives.

 

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

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2016 Legislative Session Wrap Up

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Although legally and fiscally separate from the State of Missouri, the LAGERS system is a creature of statute.   This means that anytime there is a desire to make a change to the plan’s structure, it must be done through a change in the law.  Over LAGERS’ nearly 50 year history, the LAGERS staff, at the direction of the Board of Trustees, has pursued a handful of legislative initiatives which have molded the system into what it is today.  For the past three years, LAGERS has been working on two primary legislative goals:  Local Plan Administration and Updating of the Public Safety Officer Definition.

The desire for the Local Plans Administration bill arose years ago from employer requests.  Many of these local employers operate closed pension plans that they no longer wish to administer.  LAGERS, being a solution to help relieve the administrative and financial burden of closing these olds plans over the lifetime of the plan’s participants and beneficiaries, worked with interested parties, the legislative advisory committee and Board of Trustees to draft and file a bill that would help these local subdivisions transfer the administration of their closed plans into LAGERS without any adverse impact to the LAGERS system.  In its first year filed, the bill made it all the way to the governor’s desk with no opposing testimony.  But, in a twist at the end, the governor vetoed the bill after a group voiced concerns to his office about plan participants not having enough say in the transfer.

LAGERS sought to address these concerns the following session and filed slightly modified language emphasizing the voluntary nature of the bill.  And while again, the bill moved quickly, the 2015 legislative session, wrought with scandal, PQs, and Right to Work, proved a nearly impossible path for even the best of good-governance bills.

In 2016, LAGERS retooled our legislative strategy with a focus on getting our membership and other interested parties more involved.  LAGERS filed our Local Plans Administration bill early in both the House and Senate with the hopes that it could be passed prior to the final days of session.  While the Senate version seemed to fly through early on, it slowed in the House and became bogged down with amendments.  Its companion bill in the House, which was slower moving, eventually made it to the Senate with no amendments.  As other interests saw this bill as an uncontested good-governance vehicle, proposed amendments again quickly came to the table.  Thanks to the hard work of our legislators and efforts of many LAGERS members, House Bill 1443 was kept clean as it passed the Senate early in the final week of session.  This bill now awaits the governor’s signature to be signed into law!

LAGERS’ second legislative item has proven to be a more arduous journey.  The Updating of the Definition of Public Safety Officer bill would give member employers the option to update their definition of ‘police officer’ or ‘firefighter’ to  employees.  When filed in years past, challenges quickly arose as legislators view this bill as a ‘benefit enhancement’ for certain groups of employees.  Although this year’s bill was whittled down to include only EMS and jailors, and while this legislation was not met with any major dissent, there still remains a tenor that this is a benefit enhancement.  Like other bills that were viewed similarly, none received high priority from Senate or House leadership.  LAGERS was able to amend this language on to several other bills in hopes of passing it through as an amendment, but none ever gained enough traction in the final days of session as legislators shifted their focus to some of the ‘hot’ issues the year including paycheck protection, ethics reform, and voter photo ID.

While the Public Safety bill will continue to present unique challenges into the future, LAGERS recognizes there is also a unique opportunity to help educate our legislators on the value and skills of the individuals who work in these capacities.  We can’t do it without your help, and are excited to continue to work more closely with our membership on these and future issues.

 

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

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Response to Forbes Opinion: 401(k)s Are Not the Solution

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The May 2, 2016 article on Forbes.com, A Solution To Our Public Pension Problem, left me scratching my head.  The overall theme of the article is, that because ALL public pensions are doing poorly, we should completely abandon pensions so all Americans are covered under 401(k)-type plans.  I will admit that some public pensions have great challenges and may be in need of reform, but these are the minority and many plans across the nation have already made adjustments so they are more sustainable. I will also fully admit that I am not an economist, and would never claim to be.  I’m just a guy that believes retirement security is for everyone and it can be achieved without an all-or-none solution.  With that being said, let’s discuss the article’s main points.

There is a public pension crisis.

The authors of this article talk about a public pension crisis in America and make the reader believe that there is a wide-spread problem.  This is not true.  The truth is there is a retirement crisis in America, not a public pension crisis. In fact, most public pension plans in the U.S. are working well to promote retirement security while at the same time, many Americans do not have enough money saved to support themselves during retirement. If public pension plans are abolished in favor of defined contribution accounts, e.g. 401(k)s, this will only hurt retirement security and further exasperate the retirement savings crisis.

The authors of the Forbes article talk in length about the unfunded liabilities of public pensions but fail to mention the underfunding of individual retirement savings accounts.  Bottom line, people with only a 401(k) are not saving enough.  According to a report by Monique Morrissey of the Economic Policy Institute, the average retirement savings for working age Americans is $95,776 and for those on the cusp of retirement, ages 56-61, the average account balance is $163,577.  These amounts are hardly enough for someone to sustain an adequate standard of living during retirement.  And, these amounts only include workers that have retirement savings, which is only around 50% of the workforce, the other half has nothing.  So, if you include ALL families, the average retirement savings for Americans age 56-61 is $17,000.

Unfunded Liabilities

The authors mention the unfunded liabilities of public pensions as an enormous problem. The truth is that most states and localities are doing a good job in funding their pensions for sustainability.  For example, Missouri LAGERS has 682 participating employers who diligently make their required contributions each and every month and move toward being fully funded over decades of time.  While each LAGERS employer has their own funded level, LAGERS as a whole is 94% funded (80% is considered good).

Think about the purchase of a home.  The belief is that buying a home is a long-term investment.  No one would say that taking out a 30-year mortgage is irresponsible so long as you diligently make your required monthly payment and you are living within your means.  That is how we should view public pensions, as a long-term investment in our communities to attract and retain the best public servants possible.  Then, after those workers have helped make their communities better over a career, pensions provide a dignified means for exit from the workforce at an appropriate age.  Often when we look at unfunded liabilities all we can see is the dollars.  But those dollars represent time worked protecting, maintaining, and building strong communities.

A Fundamentally Flawed System

The authors of the Forbes article say that defined benefit plans are a flawed system pointing to “generational accounting and excessive expected rates of return.”  First, the authors describe a pay-as-you-go pension funding model, like Social Security.  This is a model where the people who are working now are paying for the benefits being paid now.  So, over time, costs have to increase because there are more retirees.

What the authors fail to mention is that most public pensions don’t use a pay-as-you-go funding model.  Pensions, including LAGERS, typically use a pre-funding method of payment so benefits are funded before an individual retires.  This method requires a higher contribution in the beginning so that the funds can be invested and contributions don’t need to increase as the retiree pool grows.  Contribution rates are designed to remain level over decades of time.

Expected Rates of Return

This is referring to the return that pension plans assume they will make on their investments. The Forbes article authors infer that all public pensions use unrealistic investment projections to calculate their liabilities.  This, again, is not true.

Investment income matters, as investment earnings account for a majority of pension funding. A shortfall in long-term expected investment earnings must be made up by higher contributions or reduced benefits.

Funding a pension benefit requires the use of projections, known as actuarial assumptions, about future events. One actuarial assumption is the investment experience. This must be a realistic figure to ensure that members and taxpayers (the other sources of funding) are not being undercharged or overcharged. If the assumption is too low, member and employer contributions must increase, if the assumption is too high, shortfalls in the investment performance would have to be made up by higher contributions or reduced benefits.

LAGERS investment return assumption is 7.25% and the average investment return assumption for public pensions is 7.85%. LAGERS’ assumption is based on historical returns as well as a recent asset liability study projecting returns 20 years into the future. LAGERS’ 20-year return is 8.70% and its return since inception is 8.92%.  We believe our assumption is realistic, prudent and sustainable.  We are in this for the long haul.

Take a cue from the private sector.

I could write a series of responses on the flaws of this section of the Forbes article.  Here the authors contend that all people, public and private, should be placed into 401(k) type plans.  They say that this puts “the power of an individual’s future in their own hands instead of depending on the good fortune of government-directed DB-style plans” and “retirees will finally have the opportunity to determine how much risk they are willing to take.”  While these are great soundbites, here are the facts.

The retirement system in the private sector is in shambles and the 401(k) experiment has failed.  People are not saving enough, don’t understand the investment landscape, are being forced to work longer, and have no security because their nest eggs are subject to the whims of volatile markets.  While the 401(k) may be a great vehicle for higher paid workers to generate wealth, it has not been a sufficient vehicle for all workers to generate secure, dependable retirement income, especially those with lower or more modest wages.

The authors also say that private sector employers moved to the 401(k) system because of the plan’s “efficiency, simplicity and fully funded nature.”  This is also not true.  Private sector employers moved to 401(k) plans for two reasons, to reduce costs, and therefore, reduce retirement benefits and because of the over-regulation of private pension plans.  You see, the 401(k) was intended to be a supplement to pensions for those who could afford to save more and as a way for companies to pad executive compensation.  They were never intended to be THE retirement plan.  However, over the years, companies realized they could save money by reducing retirement security and doing away with pensions.  Further, the Federal government, in an effort to save pensions, actually has done more harm by enacting complex and expensive regulations that have forced private sector employers away from defined benefit plans.

Investing money is complicated.  Knowing how much to save, which products to purchase, when to re-allocate, and how to draw out an account so you don’t run out of money during retirement can be completely overwhelming.  The 401(k) system requires the individual to navigate the murky waters of the investment seas completely on their own. Sure, there are financial advisors willing to help (for a fee), but many people are hesitant to trust the advice of a stranger and don’t know how to find a qualified advisor.  For these reasons, the move to 401(k)s has further widened the gap between the haves and have-nots.  Those with higher incomes can afford to save more, have more access to financial help, and have increased capacity to make investment decisions.  For the rest of us, good luck.

Retirement security should be for all Americans who work hard and play by rules.  Defined benefit pension plans are worth fighting for because they are the most efficient way to promote retirement security, provide a dignified exit from the workforce and help middle-class workers transition into being middle-class retirees.

 

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

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Hook, Line and Sinker. How a Pension Keeps Employees Around Longer.

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This week is Local Government Week and Public Service Recognition Week. As I reflected on this week, I could only think about the dedicated LAGERS members that have been serving their communities for what seems like a lifetime. At every pre-retirement seminar, it seems like over half of the attendees have been at their employer for 25 or more years and there is at least a couple of folks that have been at their employer for 40 years or more. That is incredible! Let’s talk about the value of having an employee who dedicates her career to local service and how a pension plan, like LAGERS, can help incentivize an employee to stick around.

At a recent Annual Meeting, Rodney Bourne, the General Manager of Rolla Municipal Utilities, was asked about the importance of  long term employees. His response was, “It takes a long time for our crews to learn specifically where the water mains and power lines are. But it’s not just about where the water and power lines are, its which ones are more prone to a main breakage, which lines need new poles or trees trimmed, which water mains need to be replaced in the near future. It takes a long time to develop the skills to work the water mains or power lines in an energized manner while also being safe and prompt.” He then goes on to explain the value of their pension benefit, “Providing modest retirement income to provide our citizens with the services they need, I don’t think that’s too much to ask.”

Having experienced employees is incredibly important to the sustainability of an employer, especially local government. If a taxpayer demands superior service, the employees need to be dedicated and experienced. This requires that the employer take a long-term approach of recruiting and retaining quality employees. One of the most efficient ways to take a long term approach is through a defined benefit plan.

By design, a defined benefit retirement plan will attract quality employees to work at a particular employer. It does this simply based on the fact that the employer provides a pension. After that, the magic of the system kicks in. The employee continues to work for the employer and by design the employees defined benefit amount increases. The employee sees that the longer she works at the employer, the larger her benefit will be. So, the defined benefit retains this quality employee during her most productive years. Once she has worked her career at the employer, she is able to retire with a little dignity because her employer participated in a pension system like LAGERS. Not only that, but she has the security of knowing the benefit will always be there for her because her employer pre-funded the benefit during her working years. Once the employee retires, it then keeps the lines of promotion open and then attracts another quality employee.

So, a pension, like LAGERS, is certainly a driving force for employees to dedicate their career to their employer, but what amazes me about local government employees is they love to serve their communities. Not just because they have a pension, but because it truly gives them fulfillment. Karen Bailey from the City of Sikeston said, “We get to affect the lives of 20,000 people every day. We make the community safer. We make the community cleaner. It’s nice to be able to make that kind of impact.”

I think that says it perfectly.

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Jeff Pabst, CRC Communications Specialist

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