The LAPP Fund holds the Plan assets. Out of the fund, we pay the monthly pensions promised to all retired members and what we have committed to pay all LAPP members in the future. The fund is a combination of the contributions that have been paid by employers and employees and the investment returns earned on the money in the fund.
The money we owe, often called our “liabilities” or “pension obligation”, is the estimated amount of money we need to pay pensions today and 70+ years into the future. The pension obligation is estimated because we have no way of knowing for sure how long each member in the Plan will live, when they will retire and how long they or their partner will collect a pension after retiring. LAPP's pension obligation is calculated by using mathematical estimations called actuarial assumptions that predict life expectancies for members and their spouse or partner.
We also have no way of knowing how much money the fund will earn in investments or whether our membership will grow, and by how much or for how long. Moreover, we do not know what salary our members will earn over the coming decades or what interest rates and inflation rates will be.
But what we do know, for sure, is that we have to put money aside today to pay for these pensions tomorrow. That means we need to estimate what all those factors will be so we can set a price today to cover the costs of tomorrow’s pensions.
That is what we do each year to ensure the Plan is adequately funded.