2010 - 2012 Contribution Rate Announcement
July 23, 2009
On July 17, 2009 the LAPP Board of Trustees voted to increase contribution rates for members and employers, effective January 1. 2010. The Board also agreed to spread the rate increase over a three-year period.
The rates for 2010 are as follows: To see the 2011 and 2012 rates, click here.
Members' Current Rate: 7.46% up to YMPE* / 10.66% over YMPE
Members' Rate Jan. 1, 2010: 8.06% up to YMPE / 11.53% over YMPE
Employers' Current Rate: 8.46% up to YMPE / 11.66% over YMPE
Employers' Rate: Jan.1, 2010: 9.06% up to YMPE / 12.53% over YMPE
* YMPE refers to the Year's Maximum Pensionable Earnings level determined by the Canada Pension Plan. In 2010, the YMPE is $47,200.
In 2010, members will pay an additional 60 cents on every hundred dollars of salary up to the first $47,200 they earn. On salary beyond that point, the additional contribution is 87 cents on every hundred dollars of salary. Rates will increase by similar amounts in 2011 and 2012. Note that contribution rates are divided between employees and employers, with employers paying 1% more.
Every year the Board conducts an actuarial valuation of the plan, to get an overall assessment of the plan's financial health and an accurate picture of its assets and liabilities. This year's actuarial valuation showed the following:
- The plan suffered significant investment losses ($2.1 billion dollars) as a result of the 2008 global financial crisis. Through a process called smoothing, one third of these losses will be recorded on LAPP's balance sheet every year for the next three years.
- Low interest rates continue to keep the plan's liabilities high, in relation to its assets. Liabilities grew in 2008 to $19.2 billion - an increase of $1.5 billion from the previous year.
- Increases in salary rates were higher than expected. While the Board anticipated that salaries would increase by 6.3% (including normal "step" increases) the average actual increase was 8.4%. Higher salaries mean that LAPP pays out higher pensions to members upon retirement.
The contribution rate increase is a direct response to the investment losses suffered by the plan in 2008 and the rise in the plan's liabilities as a result of continuing low interest rates.
The Board consulted with employers, unions and associations on how best to handle contribution rate increases. As the preferred approach is for moderate, incremental increases instead of large "one-time" increases, the rate increase will be introduced over the next three years.
Click here for Contribution Rate Increase Questions and Answers.
