LAGERS BLOGGERS

Three Things You Need to Know About Changing LAGERS Benefits

Jeff Pabst, CRC

Three Things

Many of you are currently in your budget season and may be considering a change to your LAGERS benefits. Your LAGERS system is designed to be flexible to meet your subdivision’s recruitment goals and budgetary constraints. Here are the 3 things you need to be thinking about when making a change in benefits.

1. Upgrades are retroactive.

Upgrades

When you make an upgrade to your benefits, all active employees’ service prior to the upgrade will be increased along with their service in the future. From an employee perspective, a retroactive upgrade is extremely beneficial because all of their past and future service will now produce a larger benefit.

From an employer perspective, upgrades are a great way to increase your subdivision’s ability to recruit and retain workers because of your now enhanced benefit package. However, with this enhancement comes increased ongoing cost and an additional liability that must be funded. Since a benefit upgrade is retroactive, a new liability is created and amortized over a 20 year closed period. This liability is incorporated into your total employer contribution rate and paid as part of your monthly reporting process. Once an employer creates this liability, is must be funded and a downgrade of benefits will not reduce the established liability. 

2. Downgrades are NOT retroactive.

Downgrades

On the other hand, you may be trying to lower costs through a downgrade to your LAGERS benefits. Downgrades to LAGERS benefits only reduce employees’ benefits going forward from the date of the downgrade. The service credit accumulated prior to the downgrade is guaranteed to remain at the employee’s current level of benefits or higher.

As an employer, downgrades will likely decrease your ability to recruit and retain employees. Sometimes downgrades in benefits do not result in as much cost savings as you might expect due to previous liabilities and other factors. Another option for reducing your subdivision’s cost while not reducing benefits is to require employees to contribute to LAGERS. You subdivision may require employees to contribute 0%, 2%, 4%, 6% of their gross pay as a condition of employment. The amounts the employees contribute will have a direct impact on the amount the employer contributes. Read more about employee contributions.

3. There is a process for changing benefits.

Benefit CHange Process(1)

Unfortunately, these changes don’t happen overnight. There is a process that must be completed for a change to occur. The first step in the process is requesting cost information from LAGERS. If you are curious about the increased cost for multiple levels of benefits, we have an internal estimate tool we can use to help you estimate what level of benefits fits best in your budget. From there, an official valuation must be completed by LAGERS’ actuary. Each LAGERS subdivision may receive one free official supplemental valuation per LAGERS fiscal year (July-June). The official valuation will take approximately 4-6 weeks to process.

After you receive the official supplemental valuation, it must be made public information for 45 calendar days. This can be accomplished through your board minutes, public notices, or any other means where the public is notified of the availability of LAGERS benefit change cost information. After the 45 day period has passed, your board may then take official action by passage of a resolution / ordinance adopting the change.

Benefit changes can be a significant undertaking, but the good news is that we are here to help you through the process! As you begin the process, a LAGERS representative will be there with you until the process is complete. So, if you are thinking about making some changes, please don’t hesitate to contact us!