New design for LCC pension plan announced

by James Morgan

Following lengthy discussions over the past year-and-a-half, Lutheran Church–Canada’s Worker Benefit Plans has implemented a series of design changes to the pension plan which take effect on January 1, 2013.

According to Dwayne Cleave, executive director of Worker Benefit Plans, the Board of Managers followed the lead of many other organizations and corporations to discontinue the current Defined Benefit (DB) Pension Plan . A DB pension plan guarantees an employee a set amount upon retirement. This will be replaced by a Defined Contribution (DC) Pension Plan going forward.

Employees and employers will both contribute to the DC plan. In a DC plan the ultimate pension an employee will receive is based on the value of their investment account when the employee retires. Like the current system, participation in the new plan is compulsory.

“Our biggest challenge was balancing the retirement needs of the employee with the ongoing funding pressures of employers, for the most part congregations and schools,” Mr. Cleave explained. He noted that funding the existing DB plan is unpredictable and has caused financial hardship for employers. “The change in plan design is expected to stabilize employer rates in the long-term, but major reductions in pension costs are not expected immediately.”

According to a newsletter sent to employees, less than expected returns on investments and historically low interest rates over the past three years weakened the sustainability of the DB plan. After the market free-fall in 2008 LCC’s pension plan, along with more than 80 percent of other plans, found itself in “solvency deficiency.” Pension legislation requires plan sponsors to make up the shortfall. Cleave explained that approximately 6.6 percent of the 16.6 percent of payroll deductions for pension goes toward this deficiency, which is amortized, like a mortgage, over a ten-year period.

The plan is registered with the provincial finance department in Alberta, and, along with many other pension funds, the Alberta agency allowed a solvency moratorium until 2013 with the hope markets will stabilize in that timeframe.

Under the defined contribution plan, employees will contribute four percent of salary and the employer will contribute six percent. Employees will also have the option of adding up to an additional four percent.

Depending on the length of service, some employees nearing retirement will not transition to the DC plan but rather remain in the DB Plan. These employees will be required to contribute four percent of pay towards funding the DB plan and will also have the option of adding an additional four percent of pay to the defined contribution plan.

Before arriving at the new pension plan design, the Board of Managers spent 18 months consulting with members, employers, consultants and LCC’s leadership both nationally and regionally.

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