SWITZERLAND - The Swiss canton of Valais is finalising a merger between its two public pension funds, to increase the funding level and eventually change from a DB to a DC scheme.

From 2010 the CHF1.14bn (€740m) public pension fund for the administrative staff of the canton (VPSW) and the CHF715.1m pension fund for the canton's teachers (RVKL) are to be merged to eventually become the Wallis Pensionskasse (PKWAL).

But the details still have to pass the cantonal assembly, which is to decide on the new law in September.

"We are in the finishing stages of the preparatory phase," Guy Barbey, deputy director, of the VPSW, confirmed to IPE.

However, he noted that details, including the future strategic asset allocation and possible financial aid from the canton, are still being discussed by expert groups.

"It is a difficult phase because the merger is not yet finalised but we expect it to be accepted by the delegates."

According to the current plan the canton is to make a one-off payment of CHF310m in January 2010 to harmonise the funding levels of the fund.

The VPSW's funding level dropped to 59.4% from 75.4% over the last year while the teachers' fund is 58.3% funded, down from 72% at year-end 2007. By 2012 further payments will be necessary to ensure an 80% funding level for the new fund.

From then the fund's structure is also to be changed from a defined benefit to a defined contribution scheme, Barbey explained.

Last year the VPSW saw its portfolio drop by 17.97% and the RVKL reported a 14.14% loss.

At year-end the larger VPSW was invested in equities (23.59%), bonds (32.41%), alternative assets including commodities (9.35%) and real estate (27.23%); the rest was in cash.

For the smaller RVKL the asset allocation as of March 2009 was: bonds including convertibles (32.02%), equities (20.96%), real estate (24.17%), alternatives including commodities (7.40%); the rest in cash and money market instruments.