Defined benefit plans have a long track record of success in the public sector and continue to be the plan of choice for state and local government workers.
A defined benefit retirement plan is a traditional pension that provides a retiree with a pre-determined benefit after meeting certain criteria. The main purpose of a defined benefit plan is to provide income during the retiree’s remaining years. Benefits are paid on a monthly basis and extend until the retiree’s death. Benefit amounts are often based on a retiree’s average working salary and the length of the retiree’s employment.
A defined benefit plan is “pre-funded.” This means that a retiree’s benefit is paid for before he or she reaches retirement. There are three sources of income to the plan,
employer contributions, employee contributions, and the return of the plan’s investments. Contributions to the plan begin when a worker is hired and continue until the worker leaves employment. It is common in the public sector for both the employer
and the employee to contribute to the plan. The returns that are generated from the plan’s investment portfolio provide the majority of the funding. In LAGERS, investment returns account for about 62% of the plan’s funding.
LAGERS administers a defined benefit plan available to all of Missouri’s political subdivisions, except school districts. LAGERS is a voluntary system that adds about 15 new political subdivisions to its membership each year. There are approximately 3,000 political subdivisions in Missouri, nearly 700 of which are currently participating in
It is very important that the required contributions are made to the plan each year. Failing to collect the full contributions puts the plan at risk of higher future required contributions, a higher unfunded liability, and may affect the plan’s ability to make benefit payments. RSMo 70.730 and 70.735 requires that all of LAGERS participating
political subdivisions fund 100% of their required contributions. Because each subdivision is required to make their full contribution each month, every employer is working toward and will eventually be 100% funded.
LAGERS’ funding policy requires we strive to promote intergenerational equity and continue progress in reducing unfunded liabilities. Each generation of members and employers should incur the cost of benefits for the employees who provide services to their communities, rather than deferring those costs to future members and employers.