Jeff Kempker, CEBS, CRC
A few years ago, I was at a meeting where I was to give a presentation to a group of LAGERS retirees. Before I even started speaking at least three different people stopped me and asked, “So, when is the money going to run out?”
I was a bit surprised by this question and a little unsure how to respond, so came back with “what do you mean?”
“So when is the money going to run out?
He went on. “Well, I know LAGERS’ money is going to run out. I mean, LAGERS doesn’t print money and it’s like Social Security, so I know you all are going to run out of money, I just want to make sure I’m dead before then.”
Wow. This was somewhat of a revelation for me. it hit me that LAGERS retirees are concerned about their financial futures and need some peace of mind about how their benefits have been funded. The statement, “it’s like Social Security,” made me realize that LAGERS needs to do a better job of educating our members and retirees about the security of their benefits. Bottom line, LAGERS IS NOT like Social Security.
First, let’s get the bad news out of the way. It’s not really news, we have known for a long time that Social Security is in trouble. If Congress doesn’t take action, Social Security is projected to be insolvent in 2034. Here’s a good article that outlines the entire situation.
If you don’t want to read the whole article, here is the Cliff’s Notes version. Social Security is a “pay-as-you-go” system. This means that the money coming into Social Security from the current workers’ payroll taxes are being used to pay the current retirees’ benefits. It’s not as if the money we’re paying in is being saved for us, it’s being used to pay for other peoples’ benefits and, in turn, when we retire, our benefits will be paid by the people who are still working. Seems like a fine was to fund a pension, right?
A pay-as-you-go system doesn’t seem like such as bad idea, until the system is paying out more that it is taking in – which is where Social Security is now – and it’s just going to get worse. As the Baby Boomers continue to move into retirement. the birth rate continues to decline, and Congress continues to ignore the problem, the numbers will continue to get further apart.
And now for the good news!
LAGERS is one of the most financially sound pension plans in the United States.
LAGERS IS NOT FUNDED LIKE SOCIAL SECURITY.
LAGERS is not a pay-as-you-go system.
LAGERS is not projected to run out of money.
Feel better? Good. Now here’s how we are different than Social Security.
LAGERS IS NOT FUNDED LIKE SOCIAL SECURITY.
LAGERS is what’s known as a pre-funded system. This means that we aim to have your benefit fully paid BEFORE you retire. Your employer (and maybe you as well) pay into LAGERS throughout your career. Those funds are invested and grow until you’re ready to begin receiving benefits. At that time, LAGERS will set aside, in a pooled trust fund within the system, the amount of money we need to pay you for the rest of your life. So at the time you retire, you know that your benefit is fully funded and not dependent upon the current workers that are still paying into the system.
LAGERS currently still has more active members in the system than people drawing benefits, but those numbers are getting closer together. Someday, we will reach the point where we have more retirees than active workers in the plan. But because LAGERS is a pre-funded system, this is not a problem. In fact, it is planned for and anticipated.
Not all benefit plans are created equal. LAGERS has the right approach to funding secure benefits that will last for your lifetime and beyond. We will continue to ensure that all of our members’ benefits are fully funded so that you can have peace of mind knowing that benefits you have earned will be there when you need them.
