What is a Defined Benefit Plan?

LAGERS is a Defined Benefit retirement plan.  Retirees' benefits are permanent, protected, and based on formula.

Facts about Defined Benefit (DB) plans:

How are benefits determined?

• Retirement benefit amounts are not based on a participant's account balance, investment decisions, or market performance.

• Benefits are based on a formula that provides a monthly benefit that is a direct reflection of the participant's actual career.  Key components of the formula are length of service and salary.

How is a DB plan funded?

• Defined benefit plans like LAGERS are funded through three sources:  Employer contributions, employee contributions (if employer requires), and the investment return of the system.

• Investment return of the LAGERS system is the largest source of funding.

How does the cost of a defined benefit plan compare to that of deferred compensation plans like 401(k)s and 457s? 

• Recent research by the National Institute on Retirement Security proved that defined benefit plans are nearly half the cost of defined contribution plans to produce the same retiree benefit.  See details of this research here . . . 

• Investment programs such as 401s, 457s, and IRAs play a vital role in retirement savings.  LAGERS members are fortunate to have the traditional "Three-Legged Stool" of a secure retirement still available to them.  The three legs being a defined benefit plan (LAGERS), Social Security, and their own personal savings. All three are important to provide a stable retirement.

I've heard that defined benefit plans provide lucrative benefits to retirees at the cost of taxpyers.  Is that true?

• The average monthly benefit for a LAGERS retiree is about $750.  Hardly considered lucrative, but it is a permanent, protected, lifetime benefit.  LAGERS members must plan for their own personal savings, Social Security, as well as their LAGERS benefit to provide adequate retirement income.

• Every Missouri taxpayer dollar contributed to the state's public pension plans supported $6.92 in total economic activity within the state.  This reflects the fact that taxpayer contributions are not the major source of financing for retirement benefits - investment earnings of the plan finance the majority.