Analysts "cautiously optimistic" on Swiss fund rescue plan

SWITZERLAND - The pension fund of the Swiss city of Lausanne saw its cover ratio increase from 44.2 % to 45.4% over the last year as structural changes decided in 2004 began to take full effect.
In its latest evaluation of the city finances, Standard & Poor's noted "the stretched financial situation of the city's pension fund remains a strong rating constraint".
However, S&P said it expected the city to partially recapitalize its pension fund which currently has one of the lowest coverage ratio in Switzerland.
"A possible recapitalisation amounting to CHF350m (€212.7m) is currently in discussion," Jacques-Antoine Baudraz, director of the Caisse de pensions du personnel communal (CPCL), confirmed to IPE.
He added the measure will need to be discussed by the local parliament first and a vote should take place in 2008.
In its rating, S&P affirmed Lausanne's A+ rating with a stable outlook. The analysts argued the recapitalisation combined with currently implemented consolidation measures "should gradually increase the pension fund's coverage ratio up to 100% in 20 years' time".
It added the rating would be revised to a negative outlook if the city failed to "contain its debt burden and provide structural funding for its pension fund without significantly deteriorating its own financial performance".
The annual report 2006 of CPCL mentioned it was too early to fully assess the effects of the structural changes made in 2004 as those were targeted at a long-term recovery of the funding status.

The current target set by the statutes of the fund is 60%, an objective which the currently implemented consolidation measures were designed to achieve within 20 years.

However, Daniel Brélaz, president of CPCL, said in the 2006 annual report the possible recapitalisation mentioned above should, instead, allow the fund to achieve a near 100% coverage within 25 to 30 years.

The CPCL has gradually increased the joint contribution rate for employees and employers over the last three years, starting with a 2% contribution increase in 2005.

This year saw the final increase, bringing the joint contribution rate up to 29.5 % and 37.5% respectively for different kinds of employees.

Furthermore, the fund reduced the portion of accrued pension per year of contribution from 1.667% to 1.5% as of 2005 and increased deductions in case of early retirement.
In addition, the re-evaluation of the fund's property holdings according to Swiss Generally Accepted Accounting Principles (GAAP) as of 2005 had a positive effect on the balance sheet.
Returns for the fund were 6.6% last year while the average Swiss pension fund returning 6.9%.

According to a draft law currently held in the consultation phase, the Federal Council wants to make it mandatory from next year for all public pension funds to be fully-funded.
Last year, 43% of Swiss public pension funds were not fully-funded and 16% had a funding level below 80%, according to the most recent Swisscanto pension fund study.

Under current legislation the partial capitalisation of public pension funds is allowed.

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