SWITZERLAND - The CHF8.5bn (€7bn) pension fund for the Swiss canton of Bern, Bernische Pensionskasse (BPK), has had to put off its switch to a defined contribution (DC) scheme due to new funding requirements.
Last year, the government decided not to force public funds to become fully funded - indeed, they can be as little as 80% funded, should the canton or the funding authority sign a guarantee.
In its annual report for 2010, the fund said it was "unclear" whether the canton of Bern wanted to run the BPK fully funded in future or only partly capitalised with a state guarantee.
Since year-end 2010, the funding level has deteriorated again from 88.1% to 87.5%, as the fund returned 0.6% in the first quarter.
This return is higher than the one achieved by the BPK's benchmark (0.3%) and at par with the Swiss average, but it has not been enough to keep the funding level stable.
To maintain the current funding, level the fund has to achieve an average annual return of 4.1%, but it has only returned 1.8% on average over the last years.
The fund has now commissioned an ALM study to estimate the likely return over the next few years.
If the study predicts a net return of less than 4% over the next five years, "measures will need to be taken", the fund said, such as lowering the expected rate of return and adjusting contributions.
In light of such uncertainty, the planned to DC could not occur before 2014, the fund said.
Meanwhile, the fund requested from the canton an early transition for some member institutions, which have already threatened to leave the BPK because of its defined benefit structure, which they consider unsustainable.