Super Liability

Case study findings

Defined Benefits Crash 3Last July 2012, the actuarial investigation of the Local Authority Superannuation Fund (LASF) Defined Benefit Plan (The Plan) identified a unfunded liability valued at $453M (net of contributions tax). Monash Council’s share is $12.32M (includes tax)  payable on 1 July 2013.

At 30 June 2012 Council recognised the $12.32M as an employee expense in the Income Statement and as a non-current liability in the Balance Sheet. Council is planning to pay off the debt in the short term and making larger provisions for covering future calls.

The series of milestone events to date are:

(MRI) Solutions Assessment

Assessment 2

(MAV & Council) Solutions Development events

Solutions Dev 2

MAV’s explanations of the causes and ramifications:

Cause Analysis 5

  • MAV’s  Fact Sheet about the Defined Benefit Superannuation Shortfall – click here for a pdf copy
  • MAV’s brief to Members, showing the super liability performance history, which is summarized as follows

Enough is enough. Time for some super action (30 Aug)
30/08/2012
The Municipal Association of Victoria (MAV) has called for time out on the unbearable cumulative impacts of government reforms and funding cuts, and wants the Australian and Victorian governments to give back.
​ Cr Bill McArthur, MAV President said councils simply didn’t have massive pockets to keep taking on additional responsibilities and funding one shortfall after another.
 
“There seems to be a view from governments that our ratepayers can sustain one blow after another.
 
“In the past two months, local government has been hit with a $396.9 million superannuation shortfall, a $24.4 million cut to financial assistance grants following a technical correction, a $17 million reduction in funding for home and community care programs, and new collection responsibilities for the State fire levy.
 
“This comes on top of the carbon price, increased landfill levies, higher costs to address illegal dumping, stricter environment protection standards for landfill management, expanding emergency management roles, national kindergarten reforms, changed electric line clearance regulations and the list goes on…and on.
 
“The time has come for governments to stop and take a look at how they can assist councils and reduce the burden on communities who bear these costs. The cumulative impacts are simply unsustainable.
“As a matter of urgency we seek reforms that will protect councils from future superannuation shortfalls.
 
“To repeal the federal legislation and introduce state legislation is cost neutral to the Victorian Government’s budget bottom line and will mean the Australian Government must forgo $68 million in contribution taxes.
“We sincerely hope that reducing the burden on Victorian ratepayers takes precedence over protecting a line of revenue that should never be collected in the first place.
 
“Local government deserves to be shielded from unfair superannuation costs and treated in the same way as other exempt public sector defined benefit schemes,” he said.
 
The Local Authorities Superannuation Fund (LASF) Defined Benefit Plan was a compulsory State scheme for council employees that closed in 1993. In 1998 all councils were required to sign legally binding agreements to continue funding defined benefits for members of the closed fund.
 
While state and federal governments’ unfunded liabilities collectively exceed $100 billion, councils must keep their defined benefits ‘fully funded’. This means that the assets held by LASF must be enough to cover all current and future entitlements, rather than allowing councils to pay defined benefits as they fall due.
 
Cr McArthur said governments know there is no risk of councils going broke so we should operate under the same rules that apply to state and federal superannuation schemes.
 
“The assumption that councils can prop up endless community programs, and take on more and more responsibilities is wrong. Governments need to give genuine consideration to the snowballing impacts of their decisions.
 
“As a first step, the Australian and Victorian governments should seize upon low cost legislative reforms to exempt councils’ superannuation scheme and reduce the growing burden on Victorian communities,” he said.
 – Ends –
 
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