Follow due process to merge pension funds, says Lapfund

Lapfund Chief Executive David Koross says the process must be guided by the provisions of the law and upon proper due diligence. [PHOTO: GEORGE MULALA]

NAIROBI, KENYA: The Local Authorities Provident Fund (Lapfund) is ready to merge with the Local Authorities Pension Trust to offer retirement benefits to county government workers.

Lapfund Chief Executive Officer David Koross however said the process must be guided by “the provisions of the law and upon proper due diligence into governance, legal structure and establishment, financial and actuarial soundness of both entities”. Mr Koross’s assertion follows the Council of Governors’ (CoG) statement on October 2, indicating that Laptrust and Lapfund schemes should be closed to new members but continue to exist with their current membership as closed schemes.

CoG also stated that the policy to adopt Laptrust (Umbrella) Retirement Fund, now referred to as County Pension Fund (CPF), should be implemented and all new employees be enrolled as per terms and conditions of employment of CPF. The Council of Governors said the administration of the Lapfund and Laptrust should be merged “accordingly” to provide joint administration services to the umbrella scheme and the two closed schemes.

On Tuesday, the Senate Committee on Labour and Social Welfare opposed the CoG’s move over the form and structure of the proposed pension scheme for county workers. Instead, the Committee said it could amend Section 57 of the proposed County Retirement Scheme Bill which seeks to dissolve Lapfund and add a new clause that will usher in the merger by revoking a Legal Notice which set up Laptrust.

Industry analysts, legal experts and county government workers (about 100,000), are also opposed to CoG’s move. “Lapfund has an internal administration established under its statute, which cannot be merged with a private administrator, more so one that has been de-registered by the Retirement Benefits Authority and the ensuing dispute pending before the High Court of Kenya,” said Mr Koross.

Besides, industry sources say the major barrier to the proposed merger is the complex existence of CPF and the actuarial deficits the two schemes face.

A source at RBA, speaking to The Standard, said the process must be in tandem with the dissolution laws governing Laptrust’s triple existence: The Legal Notice No. 50 of 2007, the Local Authority Pension Trust rules, Companies Act, Chapter 486 and the Trustees Perpetual Succession Act Chapter 164. “This means Laptrust must be dissolved under these legal frameworks unless Parliament enacts a law dissolving the entities and creating a new outfit,” he said.

ACTUARIAL DEFICITS

Industry analysts say for the amalgamation to succeed, Lapfund and CPF must clear their liabilities in the form of their outstanding contributions and actuarial deficits. As at December 31, 2012, Lapfund had no actuarial deficit but had Sh3.5 billion in unremitted contributions while Laptrust had Sh1.9 billion actuarial deficit.

Total liabilities owed to Laptrust during the same period amounted to Sh6 billion. Legal experts say the CoG erroneously used Section 32 of the County Governments Act No. 17 of 2012 to imply the existence of Laptrust, only at the time when the law came into effect.  “Subject to the transitional provision herein, all members, officers and staff of a county government shall subscribe to an existing pension scheme for officers and staff of the local government,” states the Section.

Transition Authority (TA) Chairman Kinuthia Wamwangi on June 17, argued that the provision of pension benefits is a critical transition issue “which cannot be handled administratively”. Mr Wamwangi called for the need to anchor it under an Act of Parliament.

He advised that the provision of pension for county staff was both a transitional as well as a technical issue, and not just about the merger of Lapfund and Laptrust.

“We are concerned that our members’ welfare is now being taken care of through uncalled-for wars in the media. It was and remains our resolution that any merger of the pension schemes must be in accordance with the law,” Kenya County Government Workers Union Chairperson Mary Murongoro said.