Switzerland: Converging problems

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‘Too rash, too unadvised, too sudden' is Juliet's appraisal of Romeo's declaration of love. This characterises the thinking of member companies of the BVK about proposed recovery measures, writes Barbara Ottawa

Last year, the government of the canton of Zurich passed a list of measures for BVK, the underfunded scheme of public employees in the canton. The list included a lowering of the discount and the conversion rate, an increase in contributions and a levying of additional contributions until it reached full funding.

The government argued these measures necessary if the fund remains below a 90% funding level for three years in a row - which is the case now after a 2.2% return in 2010 pushed the funding level back down again to 86.5%.

However, most companies and authorities in the BVK collective scheme do not agree. In its statement on the recovery measures, the Zurich district court, one of 12 within the canton, noted it was the "wrong point in time" to start recovery measures as markets were still recovering after the crisis and the underfunding was down to market movements.

The court also quotes the former BVK head Rolf Huber who in 2003 said that the BVK's 88% funding level was "no cause for worry" and promised not to cut benefits or raise additional contributions.

The district court of the district of Andelfingen suspects that the "hasty recovery" is part of a government plan to cut back the BVK in order to be able to relinquish responsibility and privatise it.

In fact, privatisation plans for the BVK are based on the Pensionskasse reaching a 110% funding level and have been postponed indefinitely.

Most of the 252 member companies, public authorities and municipalities, parties and unions that have responded to the consultation questionnaire have agreed to a lowering of the the discount rate and the conversion rate.

But the majority also sees the canton solely responsible for the current underfunding situation. "The one-off recovery of the BVK is entirely to be financed by the canton as it is responsible for the bad situation and as soon as the BVK is healthy again the members will contribute to a long-term recovery," the Andelfingen court pointed out.

Other statements contain similar demands with some mentioning the losses suffered by a reduction of contributions from the canton prior to 2000. Some link the current financial situation of the fund to the alleged corruption scandal - a link both parties deny.

A company in which the canton holds a 50%-share, whose statement was made anonymously, pointed out that financial concessions by the canton would represent "some compensation for the fact that the management of the BVK was not ideal". An unidentified municipality used much stronger words: "Before levying contributions for recovery from employees and employers the losses from bad investments and criminal activities by the former head of asset management should be quantified and reimbursed by the canton."

Daniel Gloor, the former head of asset management, was arrested in June 2010 for alleged corruption, but was subsequently released and remains untried.

The public prosecution office has since confirmed that "a strong suspicion remains that the main suspect, who has confessed on a number of matters, took bribes between 1997 and 2010 in connection with his position. The prosecutor's office estimate bribes of at least CHF1.5m (€1.2m)."

Another suspect in the case, a fund manager, has been refused release as his motion for case dismissal was rejected.

The federal court pointed out among other arguments that the complainant had so far refused to issue a statement on the nature of the payments, which, it said, "justifies the suspicion of management fraud".

In the meantime, the experts hired by the canton's government to look into the BVK unanimously found no need for immediate action or any grounds to assume further criminal activity or wrongdoing. However, they made several recommendations such as reviewing the rule for awarding mandates as well as the long-standing arrangement with Complementa.

The BVK will now re-tender "a large part" of its mandates and had already planned a review of some investments at the end of 2009. The contract with Complementa will be analysed as part of a discussion on the "basic set-up", as well as the long-standing nature of the arrangement, Thomas Schönbächler, chairman of the BVK's management board confirms.

Meanwhile Adrian Wipf has joined as new head of asset management while Thomas Liebi who had temporarily held this position has left for Swisscanto. One of the new positions created by the local government was risk manager. Stefan Kuhn filled this position and the risk department will be extended further.

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