Funding for LAGERS benefits come from three sources: Employee contributions, employer contributions, and investment return of 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 which helps fund the benefit. Employee contributions do not change the amount of the retirement benefit, just how the benefit is paid for.
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.
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.
While the 4% member contribution is set by state statute, the employer contribution is not. State law requires that every LAGERS employer contribute an actuarially-determined amount which, together with employee contributions and LAGERS investment income, cover the costs for the political subdivision's participation in LAGERS.
Some of the important factors for determining an employer's contribution rate are:
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.
LAGERS pools all employee and employer contributions and professionally manages the assets allowing members to focus on their jobs. LAGERS is typically able to achieve a higher rate of return than an individual investment account because of LAGERS' economies of scale, perpetual investment time horizon, and dedicated investment staff.
While investment returns do not directly impact individual member benefits, they can impact an employer's contribution rate.