CUPE has been sounding the alarm about proposed changes to the plan that would reduce retirement benefits available to members of the Local Authorities Pension Plan (LAPP). The LAPP has begun discussions to reduce benefits arguing that the plan needs changes to be sustainable. It is CUPE’s position that the plan is sustainable, and a reduction in benefits (compromising the ability of retirees to live with dignity), is not necessary.
Is the pension plan facing a funding crisis?
LAPP is not facing a crisis. The plan’s going-concern funding ratio is just under 80%. Given the conservative assumptions underpinning the plan’s valuation and the state of global markets, that figure indicates a robust pension plan.
The real cause for concern is the rising cost of the plan, as reflected in increases in combined employer and employee contributions.
Over 30% of these contribution costs consist of temporary special payments to cover under performance in investment returns and unforeseen growth in liabilities. These special payments will disappear over time.
Benefits paid to retirees by this plan are not rich. Compared to similar plans in other jurisdictions, LAPP benefits are fairly average. Cutting these benefits further will only lead to hardship on the part of pensioners, many of whom will be relying on very small entitlements.
The union sponsors of the LAPP accept the need to address sustainability issues but in a way that is consistent with the following principles:
- Addressing rising contribution levels is a reasonable goal, but we reject the idea of a “hard cap” on contributions. If contributions had to rise for a period in order to save the plan, we believe the temporary sacrifice to be worth it.
- A meaningful definition of sustainability must address plan governance – the process by which crucial decisions are made. Workers deserve a greater say over pension decisions. Reformed governance is an essential part of any sustainability plan for LAPP.
CUPE is not convinced that the current situation requires drastic changes to LAPP benefits.
We are prepared to engage employers in dialogue about the plan, but we consider many of the changes proposed harmful and unnecessary. Moreover, in the absence of any ability to control how our recommendations will be used once they are submitted to the LAPP Board and given the stakeholders’ extremely limited role in decision-making, we simply cannot sign off on proposed changes we know will have a negative effect on our plan. In particular, we do not support: replacing the 85 points rule with 90 points, ad hoc cost of living adjustments, and increasing the normal retirement age.
Future discussion of changes to LAPP must include a process which addresses the limitations of the consultation and the unrealistic time lines. The Labour Coalition will work with all stakeholders and the LAPP Board to develop an effective framework for future discussions.
Contact: Lou Arab