Jeff Kempker, CEBS, CRC
In LAGERS, you are not accumulating money in an account to grow your retirement nest egg but rather, you are earning service credits. Each month of work equals a month of service credit. The more service credits you have, the more monthly income you will receive from LAGERS during your retirement.
But what if you want to add more service credits without continuing to show up to work every day? Is this possible? It just may be, depending on your circumstances.
LAGERS allows some members to buy service credits. The process is like buying an annuity through an insurance company. You would pay an amount of money now to guarantee monthly payments back to you in the future. These service credits would be added on to your current service, which would ultimately increase the amount of monthly income you will receive during your retired years.
Let me give you an example:
|
Age of Member | Current Service | Benefit Program | Current Salary | Months to Buy | Cost to Buy 36 Months |
| 50 | 20 Years | L-6 (2.0%) | $54,000 | 36 |
$29,000 |
For this member, the cost to buy 36 months of service credits is approximately $29,000. That’s a lot of money. But, let’s see how this will impact his retirement income from LAGERS.
|
Estimated Annual Benefit Before Buying Service | Estimated Annual Benefit After Buying Service |
| $21,600 |
$24,840 |
This member would see an estimated annual increase of $3,240 by purchasing the extra 36 months of service credits. If this person lives only nine years in retirement, he will have recovered the money he paid for this extra service ($3,240 x 9 Years = $29,160).
Now, for the details on how this works.
Not every LAGERS member is eligible to buy service. Only people that are currently working for a LAGERS-participating employer and that have previous active duty U.S. military service or have previous non-Federal public employment within the State of Missouri may consider buying extra service credits. You do not need to be vested in LAGERS to buy military service, but you do need to be vested to buy other Missouri public employment. Also, you cannot be eligible for retirement benefits from your other Missouri public employment. For example, if your earlier employment was covered by some other local pension plan and you will be eligible in the future for benefits from that pension plan, you would not be able to buy service in LAGERS for that same period of time.
How much does it cost to buy service? The amount of money it takes to buy service is different for each individual. The cost is based on your age, current salary, current service, and the benefits that your current employer has chosen. Some people get sticker shock when they see the price to buy service. But keep in mind that you are adding to your guaranteed monthly retirement income.
What happens to the money I pay to buy service? LAGERS treats the money you pay to buy service like normal employee contributions. This means that you are guaranteed to receive back at least what you pay into the system. If you leave LAGERS-covered employment before you are eligible to draw a monthly benefit and decide you want that money back, you can choose to have it refunded to you and forgo the future monthly benefit related with those funds. If you die during retirement and LAGERS has not paid you at least what you paid in, and there are no other beneficiaries that should receive a monthly benefit, we will refund the difference to your beneficiary of record.
How much service can I buy? You may buy up to 48 months of military service provided you had served at least 48 months of active duty in the U.S. military. You can buy as many months of your earlier Missouri public employment that you actually worked full time. For example, if you previously worked for a city that did not have a pension plan for 10 years, you could buy up to 120 months of additional service.
How do I pay LAGERS for my service? LAGERS will accept personal checks or direct rollovers from other eligible retirement accounts to pay for service. You may also pay in installments over a 12 or 24 month time frame.
How do I get started? There is a purchase of service estimator on the myLAGERS portal that you may use to get a ballpark of the cost. To get an official estimate of the cost from LAGERS (which is required) you must complete either the Military Purchase of Service Form or the Application to Purchase Other Missouri Public Service Form. LAGERS will need a copy of any pertinent military discharge papers (DD 214) to verify honorable discharge and the period of service in the U.S. armed forces.
What if I was covered by another pension plan during my previous service and want to transfer that service to LAGERS? LAGERS has cooperative agreements with several other Missouri public pension plans that allow the transfer of service between the plans. You must be vested in both plans to transfer service. Keep in mind that since each plan has different benefits, the calculations may not be apples-to-apples. This process works a little differently. First your former pension plan lets LAGERS know the present value of your benefit with that plan. Then, LAGERS will enter the number of months you had worked in the earlier job into our cost calculator, based on LAGERS benefits. We then will send you a letter stating the amount of money that your former pension plan will transfer to LAGERS to pay for the purchase. If the funds the other plan is transferring are lower than the cost to buy all of the service in LAGERS, you may choose to buy the rest with your own funds.
Buying service credits is not for everyone. But if you are eligible and able, it may be a good way to increase your monthly income stream during retirement.
Jeff Kempker, Manager of Member Services