Local Authorities Superannuation Fund Defined Benefit Plan, a Vision Super-operated defined benefit fund for employees of Victorian councils, is facing a shortfall of $453 million, according to a recent actuarial report.
From 1 July 2013, the Victorian councils will be required to pay $396.9 million to cover the shortfall, which will be spread out over 15 years.
Regional library corporations will add an additional $9.4 million.
The auditor concluded the shortfall could not have been foreseen.
"Key factors contributing to increased liabilities for defined benefit super funds include deteriorating investment performance in global markets, changed actuarial standards, increased longevity of individuals receiving pensions under the defined benefit plan, and a reduction in the expected earning rate," the Municipal Association of Victoria (MAV) said in a statement.
The MAV was somewhat bitter about the discrepancy in regulations that applied to its defined benefit fund and those that applied to other public sector schemes, with MAV chief executive Rob Spence, who is also Vision Super chairman, calling the rules "unfair".
"Unlike other exempt public sector schemes, it must be fully funded to pay the benefits owed to members now and into the future," Spence said.
"Unfunded superannuation liabilities for the Victorian government currently exceed $29 billion, while estimates of the unfunded Commonwealth defined benefits liability (excluding the Future Fund) are around $61 billion."
State Super's pooled funds alone faced an unfunded liability of $19.9 billion, according to the fund's annual report.
The MAV has set up a taskforce that will seek to return the defined benefit scheme as an exempt public sector scheme under state legislation.
"If current assets fall below what's needed to pay current and future benefits, then employers are required to make top-up payments. It's proving a volatile and unpredictable model that councils can't plan ahead for," Spence said.
The taskforce will also seek to access borrowing through the Treasury Corporation of Victoria to reduce the cost to councils of shortfall payments.
It will also seek to exempt payments made by councils to fund the shortfall from Commonwealth government contributions tax and state WorkCover premiums, but this will require support from both the federal and Victorian governments.
It is not the first time the fund has required a top-up; the fund faced a shortfall of $71 million in 2010, which required councils to contribute $62.1 million.
In 2003, the shortfall was estimated at $127 million, which led to a contribution of $114 million by councils.
The defined benefit plan for local government employees was a compulsory scheme set up by the Victorian government in 1982 and was closed in 1993.
When the fund closed it had 38,000 members and 7500 lifetime pensioners.
As at December 2011, the fund still had 4949 active members with an average age of 54 and 5132 lifetime pensioners with an average age of 79.
The estimated value of benefits payable to members and pensioners stands at $1.9 billion, but this is projected to fall to $425 million over the next 20 years.
