The Swiss Federal Council is proposing to change the Federal Law governing Publica pension fund – Publica-Gesetz – to have the possibility to act promptly in the case of underfunding of so-called closed pension schemes.

In a message sent to parliament, the cabinet has proposed to add a new Article 24a to the Federal Law. The article defines the conditions, including the extent of the underfunding, triggering an intervention by the Federal Council but not automatically restructuring payments.

The Federal Council will have to request the possibility to use funds to parliament before deploying them.

After assessing different options, the Federal Council has opted for a financing solution foreseeing a continuous rebalancing of the funding ratio of the closed pension schemes.

The federal government intervenes in the case of an underfunding of 5 percentage points to bring the funding ratio back to 100%, according to the cabinet’s message to parliament.

Publica will have, therefore, a form of guarantee by the federal government on the solvency of its schemes, it added.

Publica has seven closed pension schemes, stemming from companies that became independent at the turn of the millennium, including Swisscom and aerospace engineering company RUAG. Those companies’ pensioners are now with Publica.

The closed pension plans’ assets amounted to CHF3.02bn (€2.8bn) in December 2020, with the number of pensioners at 8,374.

None of the closed pension schemes was underfunded by 5 or more percentage points as of December last year, according to the Federal Council.

However, Publica’s board of directors – Kassenkommission – considered the underfunding occurred at the end of 2019 as the beginning of an exacerbation of financial problems for the schemes.

The Kassenkommission cut the technical interest rate for the closed pension plans from 1.25% to 0.5% at the end of 2019, and four out of seven closed pension plans fell into underfunding.

It informed the head of the Federal Department of Finance in a letter last year of teh schemes’ situation, demanding the Federal Council to take legislative action leading to a restructuring process.

The investment strategy for the closed pension plans was originally split into 70% bonds, 10% equities and 20% real estate.

The board of directors decided to increase the share of equities to 15% to fend off from low interest rates, but structural problems remain.

The Federal Council came therefore to the conclusion that the financial situation of the pension plans calls for action from parliament to approve a law defining the legal framework to apply the necessary restructuring measures to the schemes.

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