LAGERS can be either a mutually contributory retirement system where both the employee and the employer make monthly contributions or a non-contributory system where the employees contribute nothing. Each employer may elect once every two years whether they will be contributory or non-contributory.
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Member contributions are mandated by state law if you are a full time employee in a LAGERS covered department and your employer has elected to be contributory.
Member contributions are deposited into an individual member account.
4% member contributions are made on an after tax basis – they are NOT tax deferred.
A portion of the member's benefit will not be taxable when received back as a benefit.
Member contributions earn interest that is set by LAGERS Board each year.
The interest portion of an account will be taxable when received back, either through a refund or a retirement benefit.
If a member terminates LAGERS covered employment before any benefit is payable, his or her accumulated contributions, plus interest, are payable upon request.
As long as a member is employed in a LAGERS covered position, he or she may not withdraw or borrow against accumulated contributions.
When a member terminates LAGERS covered employment, there is no possible scenario in which a member, or their beneficiary, would receive less than what the he or she had contributed to the system.
If an employer elects to be contributory, every full time employee that is eligible for LAGERS coverage must contribute 4% of their gross wages (in addition to the required employer contributions) each month after completion of six months of service within the LAGERS system. Employee contributions do not change the amount of the retirement benefit, but help the employer fund the benefit.
A few things to know about employee contributions:
If an employer elects to be non-contributory, they agree to pay the full amount of the required cost of LAGERS benefits and the employees do not contribute. If such an election is made, it must apply all covered employees so that no member is contributing to the system.
All contributions made solely by an employer are deposited to the credit of the employer's assets and cannot be distributed to a member who is not vested upon termination prior to retirement.
The election to be either contributory or non-contributory may be changed by an employer’s governing body once every two years. Switching from contributory to non-contributory or vice versa has no impact on the amount of an employee’s benefit; it only affects how the benefit is funded.
If an employer elects a non-contributory refund, LAGERS will refund to all active employees their accumulated contributions for any time they were contributory at that employer. An employer’s governing body may elect this option after two years of participation under the non-contributory option. This refund does not result in a forfeiture of any service credit with the system, and the full cost of this option is paid by the employer.
To be eligible for the non-contributory refund, a member must be actively employed by the subdivision on or after the date that it elects this option. By law, retirees are not eligible for this refund.
While the 4% member contribution is set by state statute, the employer percentage is not. State law requires that every LAGERS employer contribute actuarially-computed amounts which, together with employee contributions and LAGERS investment income, cover the costs for the political subdivision's participation in LAGERS.
When a new employer joins LAGERS, they receive a unique cost calculation based upon information provided by the employer regarding the characteristics of their employee pool (age, salary, length of service, etc). From this actuarial calculation, the employer is assigned a unique initial contribution rate that is adjusted each year.
Some of the important factors for determining an employer's contribution rate are:
The job classifications of the covered employees. For example, general, police officers, and/or fire fighters.
The level of benefits elected by the employer.
The amount of prior service covered by the employer.
Whether or not employee contributions are required.
Investment return of the LAGERS system.
Employee group demographics.
Employers’ contribution rates are adjusted annually in order to reflect the changes in the composition of each employer’s employee pool and assumptions of the system. This is accomplished by annual actuarial valuations.
Curious about your account?
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Still have questions? Check out our blog: Everything you need to know about your member contributions!
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