What’s with the AIMCO news regarding our pension?

Many are asking questions about the news, in the Globe and Mail and other media outlets, that AIMCo has suffered a disproportionate loss. Many LAPP members are wondering, rightly, if their pensions are safe. The news was that AIMCo lost a bundle ($4B) on a questionable investment strategy. Here’s AIMCo’s response:

“AIMCo is invested across a broadly diversified portfolio of asset classes and strategies – so far in 2020 some have performed well, while others have not. As a long-term investor, AIMCo is well-positioned to withstand, and not over-react to, short-term market fluctuations, further mitigating against having to crystalize underperformance when it does occur.

Over longer-term, four- and ten- year time horizons, we continue to add value to client portfolios. AIMCo has a long track record of outperforming market benchmarks on behalf of our clients, including through challenging market conditions.”

My interpretation? “Don’t think about that – think about this instead.”

Here is the response from LAPP Administration:

LAPP is hearing from members who are concerned with reports in the media that LAPP’s investment manager, Alberta Investment Management Corporation (AIMCo), is experiencing investment losses.

LAPP Corporation wants members and retirees of LAPP to know their pensions are safe and will not fluctuate based on short-term investment returns.

LAPP is in a very strong financial position, having ended 2019 with a $7.8-billion surplus and a healthy cushion for withstanding fluctuations in investment earnings. For example, by way of comparison, LAPP had $50.5 billion in its pension fund at the end of 2019 and during the year the amount paid out in pensions was $1.7-billion.

LAPP is a well-managed defined benefit pension plan, which means your lifetime pension is calculated based on your salary and years of pensionable service. Your pension is not based on the amount you and your employer contribute to LAPP. In other words, your pension does not change when the market takes a downturn.

All pension plans in Canada and elsewhere have suffered investment losses due to the current high volatility of markets. However, LAPP is in a good starting position financially to deal with the uncertainty of COVID-19 and remain sustainable for many years to come. In fact, unlike some pension plans, LAPP may be well poised to deal with the losses without needing to increase contribution rates.

LAPP has heard from its investment manager that investment returns will be down considerably as a result of the recent downturn in the markets and the economy. We are confident AIMCo will continue to keep us updated on how LAPP investments are doing.

The final numbers for the first quarter of 2020 will be reported to LAPP very soon and we will post those results to the website as soon as we receive them from AIMCo.

My Interpretation? “We’re on it, but in the meantime, your Pension is safe, we’re in good condition, please don’t worry.”

Here is a response from me:

Protocols for LAPP Board members are that the Board speaks with one voice through the Chair. I am not the Chair, therefore, I speak only for myself.

LAPP administration has it right, but it’s not the whole story. Your pension IS safe, for now.

  • AIMCo devised an investment strategy (VOLT) aiming to take advantage of volatile markets. The strategy was well outside the risk tolerance of most pension plans and particularly LAPP and AIMCo was told so.
  • AIMCo’s VOLT strategy went down in flames. It was really only a small part of the much larger equities portfolio (which is taking a bigger hit due to the market slump) so for VOLT to take a $4B beating WAS significant.
  • Separately, LAPP Administration saw that it was time to take a protective position in view of the likelihood of a market downturn. AIMCo advised LAPP against such a position, but LAPP decided to go ahead with it anyway and ordered AIMCo to implement the strategy. The strategy is referred to as a “Collar”
  • LAPP’s collar has paid off brilliantly and continues to protect LAPP against further market losses and will do so throughout the remainder of this year.
  • LAPP took a hit with all the rest of AIMCo’s clients because of the failure of AIMCo’s VOLT strategy, but because of LAPP’s skilled and professional staff, we remain in a significant surplus position.

The end result? Your Pension is Safe , for now. The “for now” bit is about the politics of pensions. Stay tuned.

Stay Safe,
Steve Bradshaw,
President/Business Agent
ATU Local 569.