Keith E. Hughes, executive director, Missouri Local Government Employees Retirement System (LAGERS). Photography by Whitney Curtis.
Total Plan Assets/Participants: $6.3 billion/58,276
Participation Rate (DC Plans): 100% of full-time employees
Average Deferral Rate: 100% of full-time employees
STARTING IN 1967, the Missouri Local Government Employees Retirement System (LAGERS) initially served 10 units of government; it has since grown to 665 voluntary employer members—cities, counties, fire protection districts, libraries and other public service branches across Missouri.
As for the state’s workers, Executive Director Keith Hughes, in Jefferson City, says, “If an employer makes an election for participation, then all full-time employees shall participate in the plan.” The system now covers more than 33,000 active employees; 19,000-plus retirees; and roughly 8,000 deferred annuitants, “meaning they’re vested employees eligible for a benefit when they attain retirement age,” Hughes says. Retirement age for Missouri workers is 60 for general employees and 55 for firefighters and police officers.
Member employers may select from among 176 customizable benefit options for their workers, which then determine how employees’ retirement benefits are calculated. On the lower end of this range, Hughes says, “we have a 1% multiplier, times a five-year final average salary, times years of service.” On the upper end of the spectrum is a “2% multiplier with a three-year final average salary, with a ‘rule of 80’ provision overlaid,” permitting employees in service who are 80 or older to retire with full benefits. Use of a multiplier means that if an employee works 30 years, for example, and has a final average salary of $40,000, his annual pension income will be $24,000—2.0% times $40,000 times 30—which translates to a pension income of $2,000 per month.
As a defined benefit (DB) plan, “we don’t do any kind of defined contribution [DC], so there’s no election there,” Hughes says. Still, about 40% of the state’s public employers require employee contributions. To fund their chosen benefits, employers must pay the amount necessary for each provision, as calculated by LAGERS’ actuary, Gabriel, Roeder, Smith & Co. (GRS).
GRS performs the annual valuations for Missouri LAGERS’ 665 participating employers, to produce “the actuarial contribution rates and liabilities for just over 1,000 participating groups,” says Senior Consultant Mita Drazilov, in Detroit, who serves as LAGERS’ actuarial contact. Within a particular governmental subdivision in Missouri that participates in the system, he explains, there may be different contribution rates for its police, fire and other departments.
For 2014, Missouri LAGERS reported assets of $6.3 billion, managed by an independent board of trustees made up of seven members, including six representatives elected by the LAGERS participants to serve staggered four-year terms. The LAGERS board focuses on governance issues, ensuring there are procedures in place that enable the staff to properly serve employer members.
The board interviewed all possible investment managers before hiring its current chief investment officer (CIO), Brian Collett, about 10 years ago. Since then, a selection process was put in place for Collett and his team to follow. Now, Hughes says, “Brian has the authority, within the broad investment guidelines, to make sure we have ‘X’ amount of different managers—e.g., 50% in equities.” Then, given the board’s established preferred process, a compliance officer/internal auditor on staff confirms that the investment team has followed the letter of the law.
“The purpose of a retirement plan is many times forgotten, and that is to ensure that people actually work their careers and then ultimately retire.”
Given LAGERS’ 7.25% assumed investment rate of return, its 46th Comprehensive Annual Financial Report shows one-, three- and five-year returns of 19.0%, 12.2% and 15.0%, respectively. The system’s prefunding levels are now 91.7% on an actuarial basis and 102% on a market basis. The LAGERS board of trustees recently worked with GRS to codify the system’s actuarial funding policy. “Similar to their investment policy,” Drazilov says, “they had a very good set of rules to begin with, but we just put it in an official policy.”
In the past 12 months, LAGERS has increased its social media presence as part of an effort to reach employees “where they come from,” says Hughes. The plan has branched into Facebook, Twitter and YouTube, but one endeavor has become especially popular: a weekly blog, LAGERS Bloggers, launched last July. The articles, written primarily by staff, address new and interesting developments for the plan, as well as day-to-day questions members might have.
Also popular are the system’s webinars for employers and its seminars, particularly about pre-retirement, for members. “There’s quite a bit of turnover,” Hughes says. “With 665 employers, you’ve always got new contacts coming in.” New or existing employer contacts can opt to attend relevant classes online. “There’s an ongoing educational requirement each and every month,” he notes. People can tune in, do the webinar and be back at work before they could even drive to an in-person meeting.
In July 2013, LAGERS incorporated a member portal for employees into its Web-based pension administration system. “We were told if we could get 5% to 10% of our members using that, we’d have done a really good job,” Hughes says. Today, more than one in five employees are signed up and participate in the portal at least once annually. Its retirement estimate program uses “the same live data when you log in that the LAGERS staff would use day to day to compute your retirement benefit.” The employees’ salary, years of service and the specific benefit program their employer has chosen is known by the system, “so you’re getting extremely accurate results,” he says. “There is no ‘guesstimate’ to it.”
Hughes argues that “the purpose of a retirement plan is many times forgotten, and that is to ensure that people actually work their careers and then ultimately retire.” Thus, LAGERS’ “Reframing the Debate” campaign came out of a discussion the board had with staff about being advocates for secure pensions. Part of that effort, Hughes says, is to reflect on what pensions do for communities; in rural America, the local school district and city government may be the largest employers in the county.
The vast majority (94%) of Missouri LAGERS retirees still reside within the state. “We went out and looked at some of these career employees and what they mean to the community,” Hughes says. Many state workers have given their whole lives to their work and then are staying there and investing locally, even in retirement, to become valuable assets, particularly in smaller communities.
To demonstrate this to Missouri’s 163 state representatives and 34 senators, LAGERS reports on how funds are distributed into each of their districts. Last November, LAGERS completed its “economic impact report,” which is used to show the general assembly how much money is in the members’ regions and being re-invested, and as a reminder to local boards and participating employers that even if the pension plan is an expense line item on their budgets, the monthly payments that come back out from the system often dwarf the cost going in. Being able to present the numbers in that way reminds them that “there are two sides of that financial equation,” Hughes says.
In one continuing development, LAGERS is looking to take on the responsibility of small public plans that are going out of business. Says Hughes: “We are offering to actually administer [those] plan[s] on their behalf, if they so elect.” Over the past year, LAGERS has pursued legislative authority to offer its services, scale and administrative size to assist local plans.
The key to plan success, Hughes says, is simply being focused on the membership and delivering the services outlined in your plan mission. “Anything and everything you do,” he advises, “stay focused on the membership, and you will always get the right results.”