Tag Archives: Security

Pension Reform Should Not Focus On All-Or-None Solutions

Remember the good ole’ days when retirement planning for most Americans involved income being illustrated as a three-legged stool where the legs of the stool represented 1) income from a pension, 2) Social Security, and 3) personal savings? The thought was that as long as the stool has three legs it will be strong enough to support the person sitting on it. Take one of those legs away, and the stool becomes much less stable. Take two of the legs away and you end up on your back.

So why is it that every time I read about pension reform the proposed solution is always an all-or-none scenario where the pension will be shut down in favor of individual 401(k) accounts? This solution completely removes one leg of the stool (the pension) and reduces the retirement readiness for everyone affected. At LAGERS, we believe everyone who works hard and plays by the rules deserves a secure retirement and that this is best achieved by the three-legged stool approach.

When 401(k)s were first conceived in the late 1970’s, they were never intended to replace pensions, but to supplement the pension plan while allowing employees to defer taxable income. This was originally a great concept – one that furthered the notion of the three-legged stool. But over time, employers have eliminated their pensions and gone completely to the 401(k). The supplement has now become the main retirement income vehicle for many Americans. And it isn’t working. Even if their employer offers a 401(k), two-thirds of Americans aren’t using it to save for retirement.

One of the reasons Americans aren’t saving more is because investing as an individual is hard. Nearly seven of ten Americans cannot pass a basic financial literacy test. The average American worker is just not equipped to know how much to invest, what to invest in, when to re-allocate, and then how to turn their savings into a lifetime stream of income. Also, many Americans simply don’t have the means to go-it-alone in 401(k) accounts. The recommended retirement savings rate for an individual without a pension plan is north of 10% of income. For low-to-middle income workers, this is a daunting, if not impossible task. Pension funds, on the other hand, are invested by professionals and benefit from pooling so that one individual is not taking on all of the market risks.

Watch: Pension vs. 401(k), What’s the Difference?

One argument for moving away from pension plans in favor of 401(k)s is that the individual accounts cannot create unfunded liabilities. This couldn’t be further from the truth. Both pension plans and 401(k)s can create unfunded liabilities. An unfunded liability is established when liabilities exceed assets. In other words, the money you owe is more than the money you have on hand. The presence of an unfunded liability is not necessarily a problem so long as there is a steady, predictable, and disciplined approach to making the required contributions. Individual savers create unfunded liabilities when they fail to save enough for their retirement. When more and more individuals enter into retirement without adequate savings and huge personal unfunded liabilities their only option to sustain themselves in retirement will be to seek public assistance.

The bottom line is this: we need pensions and we need 401(k)s (and similar programs). We should not be seeking solutions that eliminate any one leg of the stool, but rather, to make those legs work together to provide a more stable base for all Americans.

 

Jeff Kempker
Manager of Member Services

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Decoding your Member Annual Statement

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Very soon, you will be receiving your Member Annual Statement. While this piece of paper may not seem like much, it is a beneficial tool in your retirement planning arsenal. As you may know, your LAGERS retirement benefit will provide you with a secure stream of income when you retire. Coupled with your own personal savings, Social Security, and other sources of income, your LAGERS benefit will help you achieve financial independence when you decide to retire in the future. So, one of the first things that your annual statement may help you do is plan your retirement saving efforts by you knowing how much to expect from your LAGERS benefit.

Your annual statement gives you a wide range of information to interpret. So, I thought I would discuss some of the terminology on your annual statement

  • Personal Information will include your hire date, your date of birth, your vested status and your total years of service credit.
  • What you’ve earned as of December 31, 2016 will show how much you have earned as of the end of the year. In other words, if you were to terminate employment in the near future, this is approximately what your benefit would be at normal retirement age. Keep in mind, this amount is based on your service to December 31, 2016 and as you continue to work, you continue to earn months of service credit that will increase your future benefit.
  • What you could earn if you keep working will show you a projection of your LAGERS benefit if you work until your retirement age. This section shows you how remaining with your current employer under LAGERS will assist you in becoming financially independent in retirement.
  • Beneficiaries this is your current beneficiary(s) listed with LAGERS. If you need to update your beneficiaries, you can do so online through the myLAGERS portal or submit a Change of Beneficiary Form from our website.
  • Your LAGERS Account Balance will show your employee contribution balance including any contributions for purchasing service credit. If you do not make any employee contributions or have not made contributions at any time in your career, the balance will not be listed. This account balance does not have an effect on your benefit amount as your benefit is determined using a formula.
  • Your last 10 years of Salary Reported to LAGERS will show the last 10 years of wages reported to LAGERS. If you do not have 10 years of service under LAGERS, it will show what wages have been reported for the service you have earned.

 

Member Annual Statement vs. Benefit Estimate. The annual statement is an excellent way to understand what your LAGERS benefit will pay you in the future and a great tool to help you plan your retirement savings. However, another tool at your disposal when you near retirement is a benefit estimate. The benefit estimate has some similar functions to your annual statement, but it is a benefit projection based on an estimated retirement date you provide. Additionally, benefit estimates illustrate each of your available payment options, including the partial lump sum and what your potential beneficiary would receive with each option. You can generate and save benefit estimates on the myLAGERS portal 24/7. If you’re not signed up for a myLAGERS account, simply click this link and click “Enroll Now.” However, if you do not wish to have a myLAGERS account, you can have an estimate mailed to you by calling the LAGERS office at 1-800-447-4334.

So, the next time you look at your retirement savings plan, be sure to look at your annual statement to help you know what to plan on from your LAGERS retirement benefit. As always, if you have any questions regarding your statement or any other aspect of your LAGERS benefit, feel free to contact the LAGERS office!

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Jeff Pabst, CRC Senior Communications Specialist

 

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The Significance of Your LAGERS COLA Benefit is Larger Than You Think . . .

This year LAGERS retirees will receive a COLA (Cost of Living Adjustment) of around 1%. This increase will be reflected on October 1st and it means much more than just a slight increase to your monthly benefit. It shows the strength and overall financial security of your LAGERS pension system.

By now you know you’re rather fortunate to have a defined benefit pension plan as the foundation of your financial future. As a retired local government employee, LAGERS provides you with an exceptionally strong and secure pension plan. However, the added stability of your COLA is also something to be thankful for. More and more, we find other pension plans are not able to provide this to their retirees, ever, much less on a yearly basis, as LAGERS has historically been able to do. This means as time goes on; your benefit keeps pace with the economy and spending levels on goods and services, and won’t lose value every year.

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Source:NRTA Pension Education Toolkit

“LAGERS cost of living adjustments are granted annually based upon the retirees date of retirement and applicable changes in the ‘consumer price index’ (CPI). Though this process may seem unnecessarily complex, I am extremely proud to share that 100% of LAGERS retirees have received increases equal to the CPI thereby maintaining 100% purchasing power in retirement,” says Keith Hughes, Executive Secretary.

Below are some things to understand about the benefit of having a COLA with your LAGERS benefit:

  •  It is based on inflation and the consumer price index and is designed to keep your benefit at 100% purchasing power.
  • The LAGERS board meets annually to determine the COLA adjustment based on the financial solvency of the system. The COLA is not an automatic benefit, but don’t worry, LAGERS is fiscally sound and even though it isn’t automatic every year, LAGERS has historically been able to provide this to retirees consistently. In order to continue to keep benefits at a high level of strength and security for years to come the COLA will never be over 4% in a year. However, if the CPI is higher than 4% in any given year, this will be considered and additional increases will be given in future years to “catch up”.
  •  The LAGERS plan is exceedingly stronger than other plans of similar nature – Without going into the weeds on the specifics, just know that the fund we use only for paying our retirees’ benefits is slightly over 100% funded. Yes, you read that right. Overall, LAGERS is around 94% funded when the industry average for similar plans is around 73%. This means LAGERS is in a better position to meet all of our obligations to retirees for decades to come.
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Source: NRTA Pension Education Toolkit

To give you a real life example of the power of having a COLA, the oldest of our members currently receiving a retirement benefit is 107. She retired in 1979 at the age of 70 and is currently receiving more than three times her original base benefit with accumulated COLA’s applied.
While this is obviously an extreme case, as we won’t all live to 107, it does show the significance of your COLA and how it affects your purchasing power in a positive fashion.

More good news, right? Keeping your benefit at pace with inflation is significant, especially when looked at over the lifetime of a retirement. So while the annual number may look insignificant, now you know that over time it matters much more than at first glance.
ALL retirees will receive a paystub in October showing your individual increase.

 

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Grandpa’s Advice: “Find an Employer with a Good Retirement.”

Diner, Senior, Coffee

 

When I was in college, my grandpa would tell me, “make sure you work somewhere with a good retirement.”  Those words didn’t mean much to me then.  I just wanted a job (preferably in my area of study) that paid well.

I was hired to work at a public pension plan right out of college at the age of 23.  It was a job, so I was happy.  My grandpa asked me, “does this place have a good retirement?”  Yes, grandpa it does.  “Good.”  he said, “That’s worth a lot.”

Twelve years later I am still working with the same public pension plan and my grandpa’s words ring as true as ever.  He worked for the state highway department for about 20 years, a job he got after driving a bus for the city.  Grandpa was able to retire in his 60s, living off his modest state pension check, social security, and savings, the traditional three-legged stool of retirement security.  A man with only an eighth grade education, he is grateful for his monthly pension income.  It has enabled him to transition from a middle class worker to a middle class retiree and allowed him to enjoy the same standard of living he had while working.  Now in his late 80s, grandpa still lives in his home with my grandma and is financially independent.

Now days it’s getting harder and harder to find a place to work that offers a “good retirement.”  About half of workers in the private sector do not even have access to an employer-sponsored retirement plan and if they do, it is likely an unreliable 401(k)-type plan that depends on market returns to build a nest egg.  I often think about how my grandpa’s retirement would have been different if he would have had to decide how much to save, when to save, where to invest, when to re-allocate his assets, and when and how much to withdraw so he didn’t outlive his savings.  Not to mention trying to endure the ups and downs of the markets throughout his working life.

Everyone who works hard and plays by the rules should be able to retire with dignity.  Defined benefit pensions are still the most efficient way to attract quality workers, retain those workers during their most productive years and then allow them to retire at a reasonable age.

Despite all of the good defined benefit pensions can accomplish, they are under constant attack.  Wall Street millionaires want to put an end to pensions and switch everyone to a 401(k)-type plan.  Why?  Not because it will increase Americans’ retirement security, but so they can collect more money in fees by managing individual accounts.

Today, not only do my grandpa’s words mean a lot to me because of my personal financial future, but also the financial futures of 60,000 current and former local government workers that have a defined benefit pension with my employer, the Missouri Local Government Employees Retirement System (LAGERS).  We at LAGERS believe strongly in the defined benefit model and the positive effect pensions have on workers, workplaces and the economy.  We will continue to work to protect defined benefit pensions in Missouri.  How about you?

 

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

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The Top 5 Questions on LAGERS Retirees’ Minds

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LAGERS retirees are an inquisitive and engaged group.  They ask wonderful questions to better understand their LAGERS benefits.  I have compiled a short list here of some of the most frequent questions we get from our retired crowd.  Let me know if we need to add some more to this list!

Can I retire and then come back to work for another employer?

Absolutely!  I once talked to a member who said his dream was to retire and then become a greeter at Wal-Mart because he assumed that was truly a job with zero stress.  While I’m not qualified to speak about the stress levels of Wally World employees, I can tell you that this would be allowed under LAGERS’ rules.  A person who retires from a LAGERS employer can go back to work either part-time or full-time for any employer that is not in LAGERS and the monthly benefit will not be affected.  A LAGERS retiree can also go back to work part-time for a LAGERS employer, even one from which she is receiving a benefit, and the amount of the benefit will not be affected.  Be careful here, however, as LAGERS defines part-time differently than a simple 40-hour work week.  If you plan to re-employ after you retire with another LAGERS employer, check with our office first about how many hours you are allowed to work how this may impact your monthly retirement income.

What about working full time for a different LAGERS employer than one you retired from?  This is allowed too, but you must have at least one-month break between your last day of work or your retirement effective date (whichever is later) and your re-employment date.  If you don’t have that one month break, we would have to suspend the monthly benefit you are currently receiving.  So, take a month off, you deserve it!  If you do this, you would again be covered under LAGERS at your new employer and eligible for a second benefit after 12 months of employment; all the while, receiving your full, uninterrupted benefit from your first employer.

All of this can get a bit tricky, so if you are planning to go back to work for a LAGERS participating employer, either part-time or full-time, please contact us so we can walk you through it!

Who guarantees that my LAGERS benefit is secure?

People want certainty these days and a constant question we get from active members and retirees alike is, “how do I know my benefit will continue being paid, in full, for my lifetime?”  The good news is that receiving a retirement benefit from LAGERS is about as certain as one can get.  One reason for this is because your monthly payment is not affected by benefit changes your employer may make after you retire, nor is it affected by the economy or market swings.  Another reason is because your retirement benefit is pre-paid.  This means that at the time you retire, LAGERS sets aside, in a separate fund designated only for retirees, enough money to pay you for the rest of your life.  This protected trust is solely for the benefit of LAGERS retirees and beneficiaries.   And, that fund, as of June 30, 2015 is slightly above 100% funded, meaning we have all the money we need on hand today to pay the protected lifetime benefits for our 18,000+ current retirees.

When will I receive my tax forms from LAGERS? 

LAGERS mails the 1099-R form (which is basically a W-2 for retired people) annually to each of our retirees.  The IRS requires the 1099-Rs be mailed no later than January 31st each year so retirees can expect this form in their mailbox in early February.  You may be able to get a copy about one week sooner by logging onto the myLAGERS web portal and printing it from there.

Can I waive the 20% tax withholding on the Partial Lump Sum?

If a retiree chooses the Partial Lump Sum (PLUS) and decides not to directly roll it into another retirement account, LAGERS withholds 20% of the PLUS and forwards it onto the IRS.  LAGERS is required to withhold this amount, in all circumstances, even if the retiree is disabled.  However, if your tax liability ends up being less than what was withheld, you can apply for a refund at the end of the year.

I need a pension award (income verification) letter, how do I get that?

A pension award letter is basically proof that you are receiving monthly income from a retirement plan.  This may also be called an income verification letter which may be needed if you are applying for a loan or some other type of credit.  There are a couple ways you can get this letter.  One is online through the myLAGERS web portal.  After logging into your account, click on the “Income Verification” link on the menu and then select “Download Income Verification.”  Another way is to simply call our office.  We will need to verify your identity over the phone, and then we will send the letter to you in the mail.

This has been a small sample of the questions we frequently receive from retirees.  Please comment on this blog if you believe we have missed some.  We always love to write about the topics you care about most!

 

Jeff Kempker Manager of Member Services

Jeff Kempker
Manager of Member Services

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LAGERS Funding Level Speaks to Something More

photo-1433838552652-f9a46b332c40The numbers are in. LAGERS updated funded level for the year has risen to 94.4% pre-funded, on an actuarial basis. That’s great news for members and employers, but what does that really tell us?

If you are a weekly subscriber to this blog, you may remember a post I wrote last year explaining funded statuses. I wrote about how funded status represents the measurement of LAGERS’ assets versus liabilities, and how the closer to 100% pre-funded, the better off the financial position of the plan.   That’s all well and good, we certainly hear enough in the media about pension funding, and it’s great to know that LAGERS is in such great shape; but as LAGERS’ funding has continued to rise for five straight years since the 2008-2009 market downturn, maybe there’s an even more important take away about the LAGERS system.

If we look back prior to the market downturns of the last decade, LAGERS was historically 100% pre-funded. (Let’s be honest, the 90’s were pretty good to most investors.) And while it is great to be at 100%, I think what happened in ’08-09 speaks to a very important underlying philosophy of defined benefit plans: we are stronger as a whole.

As an individual investor in ’08, I watched my 401(k) balance dwindle. I can’t even imagine how I would have felt had I been on the verge of retirement age with nothing but my 401(k), but I’m guessing some degree of panic would have ensued. The downturn was hard on everyone, LAGERS included. The once 100% pre-funded levels we had so long enjoyed dropped, quickly, from 100% to 81%. But did LAGERS panic? There was no need. Because employers had diligently been making their required contributions each month, and benefits were funded, LAGERS was well positioned to weather the storm. Employees kept on retiring, benefits continued to be paid on time as usual, and LAGERS great plan design took care of the rest.  Even at the lowest point, LAGERS’ funding never dropped below 80%, which is generally considered the benchmark for a healthy plan.   Fast forward almost 6 years, and LAGERS is diligently working back to 100%, from 86.5% in 2013 to 91.7% in 2014, now up to 94.4% today.

The markets can be a wild ride (last week, case in point), but that doesn’t mean retirement security should be. Great plan design built on the philosophy of diligent funding and pooled risk helps today’s public servants know that they can continue to work hard without fear of the future. As LAGERS funding continues to rise, members and retirees can feel confident about their retirement security, and can take comfort that even with market turbulence in the future, their hard-earned benefit will always be there.

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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5 Reasons to Love Your LAGERS

bigstock-Love-Birds-on-a-branch-56002589It’s an easy thing to do: forget about your LAGERS benefit. With all the hustle and bustle of our busy lives, your LAGERS benefit may be something you don’t think about very often; maybe it’s no more than a glance at your member statement once a year. With all the love in the air this week, I thought we’d talk about some of the reasons why your LAGERS benefit is worth thinking about a little more often. So whether or not you’re cuddled up with your sweetheart this Valentine’s day, don’t forget to give your LAGERS benefit a little love too! Here are my top five reasons on why you should love your LAGERS!

1. Your hard work is rewarded.

It’s the most basic principle by which your benefit is calculated: the longer you work, the greater your benefit is going to be when you retire. It seems simple enough, but have you ever really thought about how cool that is? Having LAGERS means knowing that if you work hard you entire career, you will have a protected, secure retirement benefit that will always be there for you when you retire.

 2. You don’t have to worry about ‘rebalancing’ your portfolio.

I’ve read studies that found over 50% of Americans cannot pass a basic financial literacy test. That’s a pretty staggering statistic considering those same folks are still responsible for financially managing their retirement…and there’s no consolation prize for getting your retirement plan wrong (unless you really like to work). Fortunately, your LAGERS benefit eliminates the need for every individual LAGERS member to be an expert investor. LAGERS members and employers make their monthly contributions to LAGERS and our team of professional investors do the rest, no rebalancing required!

3. Protection from market fluctuations means more now than ever before.

I’ll be the first to admit it; I work in the retirement industry and am surrounded by some great investment minds, but managing my own retirement portfolio sometimes still feels a bit scary. For me, it’s the fear of the unknown; not knowing how long I’m going to live, not knowing what the markets are going to look like in twenty years, not knowing how much I will actually need in retirement. With your LAGERS benefit, you have the peace of mind of knowing that you can count on a guaranteed monthly payment no matter what happens, no matter what the markets do (or don’t do), no matter if you live longer that you expected, or die sooner and leave a spouse behind. Knowing you’re insulated from some of these market and longevity risks should definitely help you sleep better at night.

 4. Inflation won’t threaten your LAGERS retirement.

Here’s another one of those risks that you have to plan for in retirement. Things get more expensive all the time, and as the cost of goods and services increase, your income has to keep pace. For LAGERS retirees, Cost of Living Adjustments (COLAs) help insure that inflation isn’t eating into the purchasing power of their monthly benefit. In fact, 100% of LAGERS retirees and beneficiaries have 100% purchasing power with their benefits today! It’s one less thing to worry about.

5. Survivor and disability benefits are part of the deal.

This is an easy one to forget about, but I can’t overstate how cool it is that these benefits are part of the deal. LAGERS benefits are designed to insure that you and those who are financially dependent on you will have a guaranteed source of income, not just when you retire, but also in the event that you were to become permanently disabled or pass away before you retire. I’m reminded of a member who had worked for his employer for years prior to them joining LAGERS. The day after his employer added LAGERS benefits, he tragically passed away in an accident. What a difference a day can make; since he was a LAGERS member, his spouse is now receiving a lifetime benefit based on her husband’s earned service; a benefit that she would otherwise not had. And while we hope you never have to use these benefits, it sure is nice to know they’re there.

There are a lot of great reasons to love your LAGERS, and although it’s easy for forget about your retirement benefits, especially the further away from retirement you are, try to keep in mind what an awesome thing it is to have!

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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Is My LAGERS Benefit Secure?

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You’ve probably been hearing chatter in the media about the recent Congressional Spending Bill, which includes provisions that may allow certain multiemployer pension benefits to be cut.  Many of the articles in the news are unclear about which plans are affected by this particular bill and have raised further questions from our members about the security of their LAGERS benefit.

First and foremost, the current Congressional debate would not apply to public sector pension plans, like LAGERS.  The federal government maintains greater oversight of private sector plans, and this legislation, in particular, targets private, multi-employer plans that are ‘severely underfunded.’  Fortunately for LAGERS members, the control of LAGERS remains with the State, and member benefits are governed by the state statutes under which they were created.  There are currently no proposals to make any changes to current or future benefits or to LAGERS structure before the Missouri General Assembly.

Regardless of whether or not the current national debate will impact LAGERS benefits, the natural follow up question is, how secure is my benefit in the future?  While there always remains the possibility that Congressional changes could set a precedent that eventually trickles down through state legislation, here are a few important thoughts to keep in mind about LAGERS:

LAGERS benefits are statutorily and constitutionally protected in Missouri.

LAGERS benefit guarantees can be found both within LAGERS’ governing statutes as well as Missouri’s constitution, providing multiple levels of protection to your accrued benefit.  Any changes in benefits or plan design would require a change in the law, initiated by Missouri’s general assembly.  Currently, those change made by an employer or through a change in Missouri’s statute, could only impact a member’s service prospectively, meaning that any benefits earned prior to the change are guaranteed at the highest earned level.

LAGERS is an extremely well-funded plan.

Even if Missouri’s general assembly someday decided to follow Congress’ lead and look at allowing Trustees of our public plans in Missouri to make benefit reductions to prevent full termination of a plan in the event of financial insolvency, LAGERS would most likely still not be affected by that legislation.  Here’s why:  If you read about what is going on at a national level, the plans targeted are those few which are nearing financial insolvency, most likely due to that fact that the fund has not consistently been making their actuarially required contributions.  LAGERS has extremely sound plan design and 100%  of our over 650 employers across the state are required to make their full actuarially required contributions each and every month…no exceptions.

The results of great plan design is ultimately stable funding and benefit security not just today, but tomorrow, 50 years from now, and beyond.  When employers make their full contribution each month, benefits can be pre-funded.  This means that when a LAGERS member is ready to retire, 100% of the benefit that they will receive for the rest of their life has already been paid for and set aside in a Trust that can be used solely for the purpose of paying retirement benefits.  How’s that for security?

LAGERS staff monitors all legislative action, both at the state and federal level.

LAGERS staff takes the security of our members’ benefits and future benefits very seriously.  People who work hard their entire life should be able to retire with a little security, a little dignity, and plenty of peace of mind that their benefit will always be there for them.  Our staff constantly monitors these debates and works tirelessly to ensure that we are educating our legislators on this important issue.

Wondering if there is anything you can do to help?  Retirement security isn’t just an issue for the already retired.  A 20-something will eventually be just as impacted by changes to current retirement benefits.  So regardless of whether you are just starting your career, or you’re already enjoying your hard-earned benefit, make sure you are staying connected with LAGERS and engaged with your legislators.  Follow us on Social Media to ensure that you are getting the latest updates from LAGERS staff, and as always, we love to hear from you; whether it’s with a question, or if you just want to let everyone know how much you LOVE your LAGERS!!

 

Elizabeth Althoff Public Relations Specialist

Elizabeth Althoff
Public Relations Specialist

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