Super blow hurts councils

Victorian councils, water authorities, libraries and other agencies have been told they must contribute more than half a billion dollars to top up a defined benefit superannuation scheme for current and former staff and to meet associated tax obligations. The hit arises because the Local Authorities Superannuation Fund Defined Benefit Plan must be "fully funded" under Commonwealth law, so employers must make top-up payments when assets fall short of liabilities.

The Local Authorities Superannuation Fund Defined Benefit Plan is a closed defined benefit scheme for local government staff (closed to new members in 1993). It provides guaranteed retirement benefits to current and former employees, and legislation requires the scheme to hold enough funds to pay those benefits now and into the future.

Under Commonwealth legislation the scheme must be fully funded. If current assets fall below what's needed to pay current and future benefits, employers — including councils and other state authorities — are legally required to make top-up payments to cover the shortfall.

According to the report, the total shortfall for Victorian councils is about $396.9 million and $453 million for all state authorities. When a 15% contributions tax is added, the impost rises beyond half a billion dollars. Individual council shortfalls range from about $20 million down to very low figures; for example, the City of Greater Bendigo faces a $10.3 million hit (including $1.5 million in contributions tax).

Councils warned the bill will put further pressure on rates and services. Mayors and council leaders have expressed concern that the cost could lead to higher rates for ratepayers or force cuts to local services if governments do not provide relief.

Rob Spence, chief executive of the Municipal Association of Victoria, has called for legislative change, arguing it is unfair that the local government scheme must be fully funded while the federal government has large unfunded defined benefit liabilities. Local leaders such as City of Greater Bendigo Mayor Alec Sandner have urged state and federal governments to shield ratepayers from the cost.

The 15% contributions tax is applied to superannuation top-up contributions, which increases the total bill councils must pay. The article notes that factoring in this tax pushes the overall impost beyond half a billion dollars and cites the City of Greater Bendigo's $1.5 million contributions tax as part of its $10.3 million total hit.

Keep an eye on council budget announcements and consultations, any council statements about rate changes or service adjustments, and responses from state and federal governments about possible relief. The article highlights councils' surprise and calls for legislative change, so follow local media and council updates to see how the shortfalls will be managed locally.