Jason Simpson, Fire Captain at Webster Groves Fire Department, describes the process of going from a defined contribution plan to LAGERS defined benefit plan.
Around 20 years ago, a group of investors sold a retirement plan to our city, a “sure thing plan”, in a stable, somewhat predictable and lucrative market, to give up a 2% per year of service defined benefit plan for a defined contribution 401(k)-type plan that would earn a “million dollars per firefighter” by the time of retirement.
At that time, several retirement ready personnel took a chunk of money and ran, and the rest were left to deal with the repercussions of the oil crisis, horrible terrorist acts, war, and a housing bubble that had burst, leaving the world market in vast fluctuation, generally in a downward spiral. Many watched their retirement dreams become more and more like nightmares. But that was the trend for many corporations and government entities of the time.
Defined benefit pensions had become expensive, and defined contribution pensions were the “remedy”.
“Defined benefit pensions had become expensive, and defined contribution pensions were the “remedy”.”
But there wasn’t adequate guidance on how absolutely necessary it was to put away the maximum possible contribution PLUS additional money into another fund such as a ROTH or 457(b), especially since we don’t pay into Social Security. Let’s face it, most of us are firefighter/paramedics, not investors, and we entrusted our financial future to our employers. Many of us did not realize that a minimum contribution into a 401(k) alone would inevitably lead to working towards age 65 and living near poverty with a part time job into retirement. Some realized this later because their retirement funds had fallen behind, but there was no safe way to catch up. Those that tried to play riskier investments later in their careers, and especially before 9/11, witnessed worldwide, and personal financial catastrophe along with the devastating loss of life that came with the terrorist attacks.
So that’s the history. Now looking back it didn’t work out so well.
THE CHANGE OF HEART
Now I have some good news.
At a meeting in the summer of 2011, I was strongly encouraged to explore the possibility of doing a financial and actuarial analysis for switching to LAGERS defined benefit pension. Some cities had recently converted, and others were exploring the option. This was news to me, and I was excited that we may have an option for significant change in our retirement structure.
The City council approved the order of the analysis with zero resistance. In January of 2012 LAGERS completed the analysis, and would soon be coming to meet with the city, and then with personnel, to discuss our options. We evaluated costs for different plans, our existing 401(k) cost versus the proposed LAGERS plan, and determining efforts for getting our shop the best level of benefits that our city could consider. We also had help from our finance department in acquiring the actuarial analysis prepared by LAGERS, and additional information for meetings that we arranged with our City Manager. We approached every angle to quickly educate ourselves, and prepare for the vast array of questions we would receive from our shop.
After a heavily favored city wide personnel vote, the LAGERS plan was moved to the City Council for resolution, and on May 21st 2013, the City Council unanimously approved the “Resolution Discontinuing the Contributions to Non-Uniformed Employees Money Purchase Plan and Police and Firefighters Money Purchase Plan and Adoption of the Missouri Local Government Employee Retirement System (LAGERS)”. This was a monumental event in my career, and I know that with this change comes an instant and permanent improvement over our career quality for generations to come. From everyday morale, predictable career goals, peace of mind, reward for longevity and retirement with pride and dignity; to immeasurable improvement in death and disability benefits. We can all have a little comfort knowing what our defined benefit will be here for us, and even if something horrible does happen, our families will be covered, as LAGERS pays our families as if we had worked to age 60 in the event of line of duty death.
“…with this change comes an instant and permanent improvement over our career quality for generations to come. From everyday morale, predictable career goals, peace of mind, reward for longevity and retirement with pride and dignity; to immeasurable improvement in death and disability benefits. “
We went against the grain in a day where 401(k) plans are continuously replacing defined benefit pensions.. There is obvious improvement in morale amongst my brothers and sisters since this pension change, and I’m proud that some of our senior firefighters are once again forecasting the retirement they deserve. For the rest of us, the light at the end of tunnel has transitioned into a road we can proudly follow with certainty and stability.
Jason Simpson, Fire Captain
Webster Groves Fire Department
(Blog has been edited for length and clarity)