LAGERS Defined Benefit Plan
NOTICE OF PROPOSED PENSION CHANGE
The City of Creve Coeur City Council is considering a "substantial proposed change" in pension benefits as defined by Section 105.660 RSMo, by closing its defined contribution plan and electing to cause the participants thereof become members in the Missouri Local Government Employees' Retirement System (LAGERS) under Sections 70.600 et
Posted on City Website April 26, 2017
- Memo - Summary of Proposed Retirement Plan Changes
- LAGERS Actuarial Valuation Report (6/30/16)
- LAGERS supplement to Actuarial Valuation Report (6/30/16)
- LAGERS Cost - Police General Total
- LAGERS vs DC Cost Estimate
- DC vs LAGERS Cost Estimate Summary (4/13/17)
- DC vs LAGERS with Contribution Rate Increase Cost Estimate (4/13/17)
- Estimated Costs Current DC vs LAGERS LT-8 vs L-1 (5/18/17)
City Considers LAGERS for Retirement Plan
The City Council is currently considering a change in the City’s retirement plan. This is in response to concerns regarding higher-than-normal turnover in the Police Department. Dissatisfaction with the city’s current retirement plan has been cited as a major factor by employees who have left the organization and accepted positions with other agencies or cities offering defined benefit plans.
Employees hired since 2006 participate in a defined contribution (DC) plan, whereby the city makes a specified contribution toward retirement each month, and the employee bears the investment risk. Employees hired before 2006 participate in the city’s defined benefit (DB) pension plan, under which employees are guaranteed a specific benefit in retirement, and the employer bears the investment risk.
The City Council is considering replacing the City’s DC plan with Missouri Local Government Employees Retirement System (LAGERS), a statewide defined benefit plan. City staff reviewed alternative retirement plans and determined that if the City desires to move to a DB Pension Plan, LAGERS provides the best option based on their past performance, structure and history. The City can choose from several benefit levels. The City initially considered the L-12 plan but is now considering LT-8, which is a lower cost yet still competitive plan. The LT-8 plan would provide or 2.0 % of salary for each year of service until age 65, and then 1.5% of salary for each year of service thereafter. A further explanation of how LAGERS benefits are calculated can be found at www.molagers.org.
In considering the decision to replace the current DC Plan with LAGERS, the City Council is weighing several factors:
The city’s cost for LAGERS (LT-8) is projected to be 8.11% of salary, which is actually slightly less than the existing DC plan cost projection of $323,468 annually, assuming the LAGERS rate remains steady. By year 30, the LAGERS cost is estimated to be $108,639 less than the DC plan annually, also assuming a consistent LAGERS rate.
If the LAGERS rate rises by 0.75% in 2020 due to a reduction in interest earnings assumption, then LAGERS is estimated to cost $28,301 more annually by year 30.
If the City stays with its current DC plan, the cost for funding the DC plan is projected to rise over 30 years from 8.37% to 8.75% of salary. A comparative cost chart can be found here.
Risk is the most important financial consideration for the city. Under a DC Plan, investment risk is absorbed by the employee. In a DB Plan, the investment risk is absorbed by the city. Therefore, if LAGERS does not meet its current investment earnings assumption of 7.25%, the city’s required contribution would increase. In addition, if LAGERS decides to lower its investment assumption at some point in the future, this would also cause the city’s costs to increase as described above. Finally, as employees live longer, a future change in mortality tables could increase the contribution rate.
LAGERS has historically been a very stable pension plan, based in part on the Statute requiring members to make their full contributions annually.
3. Recruitment and Employee Retention
There is concern that the current DC retirement plan is not competitive against the majority of other cities offering a DB Plan. In fact, several area cities have converted their plans from DC to DB over the last several years. High turnover is costly and could lead to a general decline in the quality of employees being recruited by the City. This is particularly important in the Police Department due to the challenges that all law enforcement agencies are facing in recruiting and retaining the best officers. Of the city’s 25 police officers in the defined contribution plan, 6 of them have left the City in the past year, citing the lack of a defined benefit pension as a major reason for their decision.
4. Finality of Decision
Under Missouri State Statutes, there is no express provision for the city to withdraw from LAGERS once it becomes a member. However, the city would have the ability to periodically change its benefit offering to reduce costs.
The City Council continues to consider this issue and has received input from the Finance Committee, Employee Pension Board, and Police and Safety Committee. The three committees will meet with the City Council in a Work Session on May 8. The City Council may consider an ordinance to join LAGERS on May 22. For more information, contact Mark Perkins, City Administrator, at firstname.lastname@example.org or (314) 872-2511.
- LAGERS Valuation Report for Current DC Employees (6/30/16)
- Memo - Feasibility of Moving to DB Plan for Current Employees and New Hires (11/23/16)
- Finance Committee Recommendation to Council (12/8/16)
- Police Staff Memo: Response to the Finance Committee (1/20/17)
- Resident Newsletter Article (February 2017)
- Various Plan Options and Benefit Illustrations (2/23/17)
- Finance Committee Recommendation to Council (3/10/17)
- Letter from the Police and Safety Committe to the City Council (4/12/17)
- Defined Benefit Memo- Officer Mueller 960 (4/26/2017)
- Draft Ordinance - DC plan to Lagers (5/2/2017)