LAPP Renewal - In Search of Improved Governance

Another strategic priority of the Board is for the Plan to be successfully transitioned to self-governance.  Concerns with the existing LAPP governance framework have been consistently identified by the Board for many years in its annual strategy and risk report to various Ministers of Finance.

Over the past 20 years there have been several attempts by the Government of Alberta and LAPP stakeholders to reform the Plan’s governance.  Some reform attempts were initiated by LAPP and some by government, but to date no mutually satisfactory agreement on change has been reached.

The Board is hopeful that any new process on pension reform will be collaborative in nature and provide an opportunity for the sponsors of the Plan to renew the LAPP pension deal and renew their working relationship under a mutually agreed-upon governance framework.  With this end in mind, the Board has adopted the term LAPP Renewal, to describe the process of working with all stakeholders to look at the governance structure of the Plan and collaborate on an improved model.

Why is self-governance important?

Although it is the largest pension plan in Alberta and the 7th largest plan in Canada, LAPP continues to exist in a sub-optimal governance system that lacks clarity in the authorities and accountabilities of the various parties charged with properly managing the Plan for its 250,000 beneficiaries.

The Board and its governing sponsors have long held the view that those who bear the risk should govern the Plan. That view is a basic tenet of pension governance and is a characteristic of most pension governance structures in Canada.  LAPP employers and members contribute monthly through payroll deductions and share the burden of the risk of funding shortfalls, but they lack direct power to make decisions about the future of the Plan.

The Board believes employers and members need to be granted a formal role as Plan sponsors and be granted an independent governance structure that allows them to decide what pension benefits they want and what they are willing to pay for them.

The Board has adopted five principles for the effective governance of LAPP which it has shared with members, government and our stakeholders.  The principles are:

  1. Sponsor and trustee functions should be separate;
  2. Parties exposed to significant risk must have authority and capacity to manage their risk;
  3. Parties exposed to significant risk must have direct and active involvement in establishing the pension deal;
  4. The pension deal must align interests among affected parties; and
  5. Mechanisms must exist for transparent accountability.

One development LAPP can build on, which came out of a previous attempt at governance reform, is the establishment in 2005 of a corporation for LAPP, being the Alberta Local Authorities Pension Plan Corp. (ALAPP Corp.)  The result is that a strong corporate structure already exists, supported by experienced, professional staff, to work with key stakeholders and aid in ensuring a successful transition out of statute.

As LAPP waits for direction from government on the possibilities for LAPP Renewal, ALAPP Corp. continues to support the Board of Trustees and the Board of Directors in ensuring prudent risk management of the Plan.