Dennise Schaben
Update: Effective August 28, 2020, Missouri state law has been amended to expand employers’ options for the employee contribution election from a 0% or 4% employee contribution amount to a 0%, 2%, 4% or 6% employee contribution amount. Click here to learn more.
If you have recently logged in to your myLAGERS account or reviewed your Member Annual Statement, you might notice that you have an account balance. What is the account balance exactly? In short, it is the 4% in member contributions that you have paid into the LAGERS system. Don’t have an account balance? Not to worry. This simply means that your employer pays in the entire cost of your LAGERS benefit.
LAGERS employers elect to pay for your benefits in one of two ways:
Contributory: If your employer is contributory, you are required to contribute 4% of your gross wages to help fund your retirement benefit. Your contributions are protected, meaning that, at the very least, you will receive back your contributions plus interest when you leave employment. In other words, you cannot lose a dime by contributing to LAGERS.
Non-Contributory: If your employer is non-contributory, you are not required to make contributions. Your employer has chosen to pay all necessary expenses for your retirement benefit.
So is the the account balance how much your retirement is worth? It is not. Your LAGERS retirement benefit is based on a formula, not an account balance. All LAGERS benefits are calculated using the formula below:
Benefit Program X Final Average Salary X Credited Service = Monthly Benefit for Life
Benefit Program is a percent elected by your employer that ranges from 1% to 2.5%.
Final Average Salary is an average, also elected by your employer, of either your highest consecutive 60 or 36 months of wages within your last 120 months of LAGERS credited service.
Credited Service is the years and months you worked in a LAGERS covered position. This may also include service prior to your employer joining LAGERS.
Monthly Benefit for Life is a protected benefit that is payable every month for your lifetime.
For example, if you work for an employer with an L-7 benefit program (1.50% multiplier), your final average salary is $3,000 and you have worked there for 25 years your benefit calculation would look like this:
0.015 x $3,000 x 25 = $1,125
You would be receiving a monthly benefit of $1,125 for life!
That sums it up! Remember, employee contributions do not affect the amount of your retirement benefit, but only help the employer fund the benefit.
If you have more questions on member contributions, give us a call!
Dennise Schaben, Accounts Analyst