This year, LAGERS is seeking to expand the options available for employer election to provide more flexibility in the employee contribution election. Currently, an employer can elect to be either contributory or non-contributory. This year’s bills (House Bill 1467 and Senate Bill 768) seek to expand the options to 0, 2, 4, and 6% employee contribution. Over the past two years, LAGERS staff has traveled the state visiting with our members and employers about this proposal. While the feedback has been overwhelming positive, as with any legislative change, there are always questions. Here are a few of the most common questions we’ve received regarding this year’s proposal.
1. If passed, how would my benefit be impacted?
If passed, this bill would have no impact on your benefit amounts. Keep in mind that your employer’s contribution election affects how the benefit is paid for, but does not impact your future benefit amounts. Your benefit amount is directly impacted by how long you work, how much you earn in salary, and the benefit multiplier elected at your employer – there are no changes to any of these three benefit calculation components proposed in this legislation.
2. Would this bill automatically change my employer’s current benefit elections?
As with all elections in LAGERS, they are permissive in nature and must be elected by your employer’s governing body. This bill would simply add two additional options for employer election if they desired to in the future, but would not automatically change or mandate anything.
3. Is this bill trying to fix anything?
No, the LAGERS system is fiscally sound at 95% pre-funded. This proposal is aimed at enhancing the flexibility of employer’s options at the local level. LAGERS recognizes that no two employers in our system are the same, and believe that their retirement benefits shouldn’t have to be either!
4. If given the option, won’t every employer immediately elect the 6% employee contribution amount?
While for some employers, a 6% employee contribution amount might make sense sometime in the future, we do not anticipate that the 6% option will be the right fit for every employer. In fact, currently 60% of our employers are non-contributory, meaning they require no employee contribution at all. LAGERS believes the 6% option may be an important tool in some cases, for example, a new employer wishing to cover employees’ prior service in the system, or a way for employees to share in the cost of a benefit enhancement in the future, or perhaps a way for an employer to weather a temporary economic downturn without having to reduce benefits. This additional option will have to be weighed by each local government- who is ultimately charged with selecting benefits in LAGERS that will attract and retain the best employees into service.
5. If my employer elects an employee contribution, am I required to contribute, or can I opt out?
If you are working the hours to be eligible for LAGERS, you must participate in the plan. Even if your employer requires you to contribute, just keep in mind that your future benefit is mainly funded by investment returns of the system and your employer’s contributions. Your employee contributions account for only a very small portion of what you will someday receive in retirement benefits. So while contributing a portion of you salary today may be challenging, be sure to weigh the benefits of a future secure income stream in retirement! Also keep in mind that should you terminate employment prior to retirement eligibility, you can always apply for a refund, plus interest, of what you paid in, so you will never lose your money!
If you still have questions about how this year’s legislation will affect your LAGERS retirement benefit, please let us know, or visit our Issues and Policy Page for more information!