Monthly Archives: July 2017

Back By Popular Demand – LAGERS Beneficiaries

bigstock--169117169YOUR LAGERS BENEFICIARIES: WHO GETS WHAT?

If you remember your first day on the job, you might remember being asked to complete a LAGERS enrollment form. On that piece of paper, you designated beneficiaries for your LAGERS benefit. Do you remember who you put down?  Do you know what that person might get? Or even more importantly, did you know that the person you designated might not be eligible for anything? Who gets what when it comes to your LAGERS benefit can be confusing especially since the person you designate as your beneficiary may not always be the first payable on your account in the event of your death.

When it comes to benefits that are payable if you die while you are still working, here are a couple important things to remember. If you are a vested member, and you pass away while still working for a LAGERS employer, a monthly Survivor benefit is going to be the first benefit payable on your account.

Common Misconception: Whomever I list as a LAGERS beneficiary is who will receive a survivor benefit if I die before I retire.

Regardless of who you list as your beneficiary, state law determines who gets first dibs on this benefit. LAGERS looks first to pay survivor benefits to a spouse of at least two years (the two year requirement is waived if the death was accidental or caused by your job). Your eligible spouse would receive lifetime monthly payments as if you had retired and elected Option A (this is the highest monthly payment available for a spouse). If you don’t have an eligible spouse, LAGERS then looks to pay any dependent children. These monthly payments will continue equally to each of your dependents until each is no longer considered dependent.

If you don’t have a spouse or dependent children, here’s where that beneficiary designation you made becomes important. When no monthly survivor benefit is payable, LAGERS will then refund your accumulated member contributions, if any, to whomever you designated on your beneficiary form. They receive a one-time payout of this amount, and no further benefit is then payable.

Common Misconception: Since state law decides my beneficiaries, it’s really not important to keep my beneficiaries up to date.

You may be thinking that since you have a spouse who will be eligible for a survivor benefit or perhaps since you work for a non-contributory employer and won’t have anything to refund in the event of your death, that it is not necessary for you to keep your beneficiaries up to date. In fact, it is always a best practice to keep your beneficiaries current. Here’s why; an employer has the option to switch between contributory and non-contributory which means that even if you are not contributing anything out of your own paycheck now, you may have either paid in some time in the past, or could potentially in the future. Keeping those records current helps ensure that your money goes to who you want it to go to. Remember, that you may designate any individual, legal entity (such as a charity), trust, or your estate as a beneficiary, and may designate more than one primary and/or contingent beneficiary to share equally in your accumulated contributions, but contingent beneficiaries will only receive payment should all your primary beneficiaries predecease them.

Common Misconception: My beneficiary is always guaranteed to get something.

If you pass away prior to retirement and you do not have a spouse, dependent children, and have no member contributions, there will not be anything payable to your beneficiaries from LAGERS. Keep in mind that LAGERS is designed to provide predictable income for those who were financially dependent upon you, but isn’t intended to be life insurance. Many employers provide supplemental life insurance or provide the option to purchase supplemental life insurance as part of your overall benefits package, so be sure to check with your employer on what is available for you.

Common Misconception:  Payments will automatically begin to my beneficiary if I die.

When a member dies, it is the beneficiary’s responsibility to notify LAGERS and apply for the appropriate benefit. This is why it is important that whomever you list as a beneficiary and your spouse are aware of these benefits. I always encourage members to place a copy of their annual member statement or a LAGERS brochure with all of their other important documents such as life insurance policies, wills, etc. That way, you can rest assured that your loved ones don’t forget to apply for your hard earned LAGERS benefit.

Don’t forget that you can view and update your LAGERS beneficiary designation 24/7 on your myLAGERS account, or you can complete a change of beneficiary form, available on our website if you wish to update your designations by paper. These beneficiaries should be kept up to date until you retire, at which time, you will select a payout option and make new beneficiary designations for your retirement!

How Investment Smoothing Helps Employers Avoid a Contribution Rollercoaster

If there is one thing employers want when it comes to pension cost, its stability. Budget predictability is key in making LAGERS, or any retirement benefit for that matter, feasible.  And while many local government units across the state seek LAGERS out to help attract and retain quality public servants in their communities, they all first want assurance that the cost is something that they can reasonably budget for from year to year.

One of the great benefits for employees of Defined Benefit Plans, like LAGERS, is that the investment risk is shifted off of the backs of individual workers. Members of the LAGERS system don’t individually bear the same type of investment risk as someone who relies solely on an individual 401-k type retirement account for income in retirement.  That’s because LAGERS members receive protected payments based on how much of their career they devoted to serving their communities, not by how well they fared in the markets.

Ultimately, however, investment income is an important part of funding retirement benefits and because individual benefits are not affected by swings in the markets in LAGERS, employers must absorb that risk. So how does LAGERS  safeguard against this market risk to help prevent wild swings in contribution rates from year to year? Investment Smoothing.

If you were to look at the last five 1-year returns for LAGERS, you would see a great deal of fluctuation: anywhere from -0.2% to 19%.

2016 -0.2%
2015 2.2%
2014 19.0%
2013 14.5%
2012 3.6%

And if an employer had to realize -0.2% one year and then 19% the next, they could see great volatility in their contribution rate year over year making it near impossible to reasonably budget for such a benefit. That’s why LAGERS uses investment smoothing when realizing gains and losses in employer contribution rates.

So what exactly does that mean? Each year, LAGERS smooths the investment gain or loss over a five year period. In other words, only one fifth of the gain or loss is realized in the first year, and for the next four years an additional one fifth is realized.  In the above snapshot, the employer’s cost for benefits wouldn’t be based just on the most recent year’s investment experience, but rather on 1/5 of each of the five years gain/loss.  If we look at the past five years of returns in LAGERS, some were better than others, but because we smooth the gains and losses across all five years, this makes the market volatility that is felt from year to year less like the Grand Tee Tons and more like the rolling hills of Tuscany.

There is no way to completely eliminate market risk, but there are tools, such as market smoothing that we can use to help control and manage that risk from year to year. Smoothing helps to remove the high and low ‘bumps’ that the markets will inevitably experience, and to provide stability to pension cost so that employer can continue to provide security and peace of mind to the hardworking public servants of Missouri.

Elizabeth Althoff
Communications Specialist

LAGERS Begins Administration of First Legacy Plan

A first big step for LAGERS took place this week as the system officially took over administration of the City of Jefferson’s Fire Pension Plan – the first legacy pension plan as allowed under the Local Plans Legislation which was signed into law last June.

“This has been a culmination of effort by our local government leaders, state legislators, and LAGERS staff, and we are excited to see our first plan transfer administration into our system,” says outgoing director Keith Hughes. “The heart of this legislation was truly to provide an alternative solution to local governments who wanted to get out of the pension administration business.”

June Article Roundup

What To Do When You Haven’t Saved Enough For Retirement

The good news is that a portion of your retirement income will be covered by protected, monthly, lifetime payments you earned from your LAGERS service. The bad news is that your LAGERS benefit likely won’t be enough to produce the lifestyle you want in retirement. This article gives some helpful tips on catching up on retirement savings.

Read the article here.

 

Here’s how thieves use your data after a breach

Hearing LAGERS IT guy talk about all of the cyber security threats we face today is enough to make you never want to use the internet again. This article breaks down how cyber criminals use your information if they are able to hack into an online database and how to protect yourself against these threats.

Read the article here.

 

How to Spot the Lies Financial Advisors Tell

I am a huge proponent of seeking financial advice to help you navigate retirement savings and other investments. However, I am just as passionate about warning people to be very careful on who they choose as their financial advisor. This article will give you some ammo for selecting and advisor or to identify when you’re current advisor is not working in your best interest.

Read the article here.

 

Jeff Kempker
Asst. Director, Member Services

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