Local Pension Plan Administration
In pursuit of LAGERS’ vision of a secure retirement for all, Missouri House Bill 1443 was enacted in 2016 to give local governments with frozen pension plans the option to choose LAGERS as their plan administrator and trustee. This important legislation allows government units to take advantage of LAGERS’ size and expertise to ensure these local plans will be sustainable until the last beneficiary is paid.
How it Works
LAGERS can provide professional pension plan administration for Missouri’s local governments that are currently running their own plans. How we can help:
- Provide an alternative solution for the administration of a frozen pension plan
- Allow employers to reduce administrative costs by taking advantage of LAGERS’ expertise and economies of scale
- Enable employers, who wish to do so, to get out of the pension administration business
- Continue retiree benefits under the frozen plan in accordance with the plan’s current governing documents
For an employer to become eligible to transfer their plan administration, they must first have frozen their pension plan and elected to cover future employee service in the LAGERS system. A vote of the active employees (if any) of the frozen plan must, by a simple majority, approve the transfer of the plan’s administration, followed by a concurring resolution from the pension plan’s board of trustees and governing body (e.g., city council). In short, all stakeholders must agree that this is a win-win before moving forward.
LAGERS Role in Local Plan Administration
In choosing to affiliate a local pension plan with LAGERS, you would be getting more than a third party administrator. LAGERS staff would not only administer the plan, but LAGERS Board of Trustees would become the trustees of the local plan and fiduciary responsibility would be passed to LAGERS.
As plan administrator LAGERS would:
- Administer the benefits of the local plan as defined in the final plan document. The local plan document cannot be amended after LAGERS assumes administrative duties.
- Process and distribute retirement benefit payments and all other distributions.
- Interpret the plan document and make decisions about how the provisions apply to members, retirees, and beneficiaries of the local plan.
- Process employer and employee contributions for funding of the plan.
- Provide all actuarial, legal, and compliance services.
As plan trustee LAGERS would:
- Assume fiduciary responsibility to act in the best interest of the members and beneficiaries of the local plan.
- Invest the local plan assets according to LAGERS’ investment policy.
- Ensure the local plan is trending toward 100% funding by requiring the contributions be paid in full.
In order for a local government to choose LAGERS as its plan administrator, the local pension plan must be frozen, meaning no further plan provisions changes can be made, no new employees will be enrolled in the local plan and employee benefits within that plan are frozen. All new employees would be enrolled into LAGERS.
More on Eligibility
- The employer sponsor of the local plan must be a political subdivision of the state of Missouri with the authority to tax.
- The local plan must be a frozen defined benefit pension plan where no new members are being enrolled into the plan (new hires would be enrolled in LAGERS) and/or benefit accruals have been frozen as of a specific date.
- The employer sponsor of the local plan must have LAGERS-covered employees. If the employer is not currently participating in LAGERS, or if the employee group that is covered by the local plan is not currently participating in LAGERS, the employer must begin LAGERS participation for this group of employees prior to LAGERS accepting administration of the local plan.
- The employer sponsor of the local plan must demonstrate a commitment to fully funding the required contributions determined by LAGERS.
- The local plan must make changes to its plan document as prescribed by LAGERS.
- The LAGERS Board of Trustees may deny affiliation with any local plan for any reason.
Each local pension plan is unique and will require special care and attention. LAGERS anticipates each plan conversion process to take several months to complete.
- LAGERS’ staff will complete an in-depth review of the local pension plan provisions, financial information, actuarial reports, and information from the Joint Committee on Public Employee Retirement to ensure the local plan is a good fit for LAGERS.
- LAGERS Staff will identify any possible changes that will need to be made to the local plan document before moving forward.
- The local plan must receive an actuarial valuation from LAGERS’ actuary showing what the the annual required contribution and unfunded liability would be under LAGERS. These figures would be produced using LAGERS’ actuarial assumptions.
- The local pension board will recommend LAGERS administration of its pension plan to the governing body (e.g., city council) of the political subdivision.
- The local governing body will pass a resolution to transfer administration of its pension plan to LAGERS.
How Much Will it Cost?
- The local government will know all of the costs up-front before a decision is made to transfer administration of its pension plan to LAGERS.
- There will be up-front fees for actuarial studies and for changes to LAGERS’ software.
- The full, monthly employer contribution would be required to ensure funding of the local plan stays on-track in trending toward 100% funding.
- Unfunded liabilities of the local plan will be amortized over a period of years and will be paid via the required monthly contribution.