Monthly Archives: June 2016

This Month’s Top Retirement Story Picks

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Every month, we see hundreds of retirement articles hit the news ranging from pension issues, to retirement plan design, to personal finance. Here are a few of my favorite headlines from this past month.

5 Financial Concepts To Teach Your Teen Before High School Graduation

I can’t remember how many times I listened to my parents lecture about financial responsibility when I was in high school, and now looking back, I am so grateful for their wisdom. As an adult, having the ability to understand and manage my personal finances, limit unnecessary debt, and make smart savings and investment choices not only allows me a more stress-free outlook on my family’s finances, but also gives me the ability to plan for my future retirement security in ways I may have otherwise not been able to. This article captures five great concepts that every young American should master in order to improve their future financial outlook.

http://www.forbes.com/sites/markavallone/2016/06/07/five-financial-concepts-your-teens-should-understand-before-high-school-graduation/#3281347c69c2

 

Employees Willing to Pay More for Retirement Benefits

With many Americans feeling unsure or unprepared for their retirement future, nearly 62% of employees in this survey said that they would be willing to pay more out their paychecks for more generous employer-sponsored retirement benefits. I hear very similar comments from many of our LAGERS members who say they would be willing to go from a 0% to a 4% personal contribution to LAGERS in exchange for a higher benefit multiplier.  The good news here is that employees are recognizing the need to save often and early.  Employers can use these conversations to help tailor a retirement plan that helps their employees feel like they are able to achieve their retirement goals.

http://www.plansponsor.com/Employees-Willing-to-Pay-More-for-Retirement-Benefits/

 

401(k)s ‘Not Suitable’ Retirement Income Vehicles

I recently read a survey that found many retirees prefer a guaranteed retirement income option over spending down assets. The great news when it comes to LAGERS is that all benefits at retirement provide a guaranteed lifetime income stream.  This article talks about some of the challenges traditional DC account holders face when trying to figure out their de-cumulation stagey while ensuring they don’t outlive their retirement savings.

http://www.plansponsor.com/401ks-Not-Suitable-Retirement-Income-Vehicles/

 

Teamster Retirees Win Surprise Victory, Force Government Not To Slash Their Pensions

This is a story that I have personally been following for some time now, as I’m sure many of our members have as well. It is scary to think that someone could work their entire career with the promise of pension income at the end, only to get there and have the terms of that agreement changed on you.  I believe that every hard working employee who dedicates their career to an employer should be able to retire with the peace of mind in knowing that their retirement benefit will always be there for them.  I am proud to work for LAGERS where our members and retirees know that their benefits are safeguarded by great plan design and strong funding policies.  I will continue to watch this story with interest and certainly hope for retirement security for every hardworking American today and into the future.

http://inthesetimes.com/working/entry/19179/teamster_retirees_win_surprise_victory_force_government_not_to_slash_their

 

10 Expensive Habits You Can, And Should, Break Today

I guarantee that you will find at least one habit on this fun list that you probably are guilty of. I think I found four or five that I know I should be better about.  I love these little reality checks because it helps me to hold myself accountable for every single financial choice that I make each day…often ones that I otherwise make without thinking, and certainly choices that can add up big over time.

http://www.forbes.com/sites/nancyanderson/2016/06/22/10-money-habits-you-need-to-break-today/2/#4c1261001ef6

 

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

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100 Blog Posts and Counting!

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This marks LAGERS Bloggers 100th blog post which means we have been blogging for almost two years!  We sincerely appreciate every person who views our posts and we REALLY appreciate those who share our posts with others.

When we started LAGERS Bloggers our overall goal was to talk about LAGERS topics in an easy-to-understand, conservational way.  We strive to make the complicated simple, and I think we are doing that.  Ultimately, we want this blog to assist our members in earning a deeper understanding of their pension benefits. LAGERS Bloggers is an extension of our statutes, handbooks and website and is a truly great resource for retirement planning.

One blog post per week was, and still is, our goal and I am proud to say we have achieved that goal!  LAGERS Bloggers has received over 16,000 views since its humble beginnings and we hope to increase that number by continuing to produce engaging and educational content.

If you are new to our blog, thanks for giving us a chance!  Below is some suggested reading to get started.  These are our most popular blog posts.  Other people thought they were good, maybe you will too!

The Extra LAGERS Benefits That You May Not Know You Have

Taxes and Your LAGERS Retirement

Your LAGERS Benefit Will Not Be Enough

5 Common Mistakes You Want to Avoid as You Approach Retirement

What a Great Retirement Planning Tool!

The best way to enjoy our blog is to subscribe so that you will get mind-blowing content delivered to your inbox each week.  If you’re not a subscription-type person, then simply follow us on Facebook and Twitter to get our blog posts and so much more.

Again, thanks for reading and let us know if there are topics that you would like to hear more about!

 

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

Why Your 4% Member Contributions Pay Off Big

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Saving for retirement is hard. Whether you’re saving for kids’ college, paying for health insurance, making daycare payments or just keeping up with monthly bills, it often feels like by the time your paycheck hits the bank, there’s not much left.   It’s easy to understand why for many LAGERS members it’s hard to see another 4% going towards your LAGERS benefit.  Although it can feel like a lot of money, keep in mind that your 4% contributions could pay off big some day when it comes to your retirement security.  Here’s why:

For many employers, providing a retirement benefit, like LAGERS, is financially not possible without the help of employee contributions to offset some of the cost. For other employers, they may have their employees contribute so that they can provide higher levels of benefits than they otherwise could have.   Whatever the reason an employer chooses to have employees contribute to LAGERS, the important thing for members to remember is that their 4% is helping to fund a guaranteed lifetime benefit that will never run out and can never be less than what members pay in: a benefit that you may otherwise not have.

Some financial experts recommend that employees without pension benefits should be saving anywhere between 10%-15% of their salary. And that you should be saving that much consistently every month from the start to end of your career.  And on top of that, you should never take any withdrawals from that account until retirement. That’s a pretty tall order for many working Americans, and then forget about trying to figure out how to invest that money wisely so that your nest egg won’t run out in retirement.

So not only are member contributions a small price to pay in order to have access to a plan, like LAGERS, but better yet, what most members receive back in benefits is tenfold what they themselves paid in. In the following example, we consider an employee who worked for his employer with a middle of the road, L-7, plan for 25 years, and received modest salary increases over that time which produced a final average salary at retirement of just over $55,000 per year.  Over that 25 year period, he contributed his 4% to LAGERS each and every month for a total member contribution balance of $46,124 at the end of his career.  He retires and begins drawing a modest $1,740 monthly retirement benefit.

While his monthly payment may not feel like a winning lottery ticket, it’s enough along with social security and a little personal savings to help him live comfortably in retirement. But what’s hard to see when we just look at the monthly benefit is how much that benefit is going to add up over the next few decades.  Remember that LAGERS is going to pay him every single month for the rest of his life, no matter how long he lives, and no matter what the markets do (or don’t do).   If our member retired at age 60, by the time he turns 80, his modest monthly benefit has added up to more than $400,000!  That’s a lot of money to come up if you were saving for retirement on your own!  Let’s say he lived until 90 years old, the total payout then would be well over $600,000.

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When we look at his total lifetime payout, that $46,000 in member contributions now looks like a pretty smart financial investment! And don’t forget on top of that, he could potentially receive cost of living adjustments each year throughout retirement which ensures that his benefit never loses purchasing power over time.

LAGERS benefits provide our members with tremendous security and protection from many of the risks (such as inflation and investment risk) that many retirees will face throughout their retirement. Our members have the peace of mind of knowing that a small investment every month is going to pay off in big ways in the future.  And don’t forget that if you ever decide to leave your employer prior to retirement, you are always guaranteed to receive back at least what you paid in, plus interest.  If you would like to check out your current contribution balance, visit your myLAGERS account today!

Elizabeth Althoff Communications Specialist

Elizabeth Althoff
Communications Specialist

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Reasons Why Employers Elect Less than 100% Prior Service

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When a LAGERS employer joins the LAGERS system, they make a one-time choice to cover all or a portion of the employees’ prior service. This is the service the employees’ have worked for the employer prior to it joining the LAGERS system. When an employer covers a portion of the service, this immediately reduces the employer’s contribution rate. However, it also permanently reduces the employees’ benefits. When an employer elects less than 100% of prior service, I have found that it is usually one of these two primary reasons:

They can’t afford 100%. Prior service cost is a portion of an employer’s contribution rate. The prior service portion of the employer’s rate is representing the employer’s unfunded actuarial accrued liability. This is the total present value dollar amount it costs to fund the employees’ prior service. When an employer covers less than 100% of prior service, this lowers the prior service portion of the employer’s contribution rate and therefore, lowers the unfunded actuarial accrued liability.

In these cases, the employer wants to do what’s best for their current and future employees, but they just cannot afford to provide 100% of prior service. They either can’t afford to pay the monthly contribution rate at 100% of prior service or they don’t want to take on a larger unfunded liability.  So, these employers join the LAGERS system at less than 100% prior service to ensure they are providing a secure benefit that they can afford now and into the future.

The employer already had a retirement plan they believe was sufficient. When an employer joins the system and they have a plan that is similar in purpose to LAGERS, they cannot grant prior service for as long as the previous plan was in place at its current levels. However, not all plans are determined to be similar to LAGERS and an employer must then grant all or a portion of the employees’ prior service. In this case, some employers believe that the plan they had in place before joining LAGERS was somewhat adequate and they believe that they don’t need to cover all of the employees’ prior service. Therefore, they elect to have a lesser portion of prior service covered because they have been paying into the previous retirement plan.

It may come as a surprise to most, but I have found that when employers elect lesser prior service, employees usually have very few issues with it. Their reasoning is that they are just happy that their employer is generously providing them with this benefit that will provide them with secure monthly retirement income.

So, employers have the flexibility to lower their financial commitment with a lesser prior service election and still provide the secure monthly income. Monthly retirement benefits, no matter how much, create a way for hard working individuals to leave the workplace with a little dignity and self-respect.

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Jeff Pabst, CRC Communications Specialist

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