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The Swiss Federal Council has released the long-awaiting final wording of the new law that will govern 1e pension plans. 1e pension plans allow employees to choose their own investment strategy from a range of options. The plan can apply on earnings above CHF126’900 (4.5 times the maximum single AHV/AVS pension).
The new legislation applies from 1 October 2017. The main change is largely as expected – the Vested Benefit Act has been changed to exclude the need for a minimum guarantee at leaving. This change should mean that companies can account for these plans as defined contribution plans under IFRS/US GAAP, meaning no balance sheet liability, provided the plan meets the conditions for this.
The main changes in the ordinance
- Plans can offer up to maximum 10 different investment strategies that apply to all of an employee’s savings. The limit is applied to a pension arrangement (“Vorsorgewerk”) rather than a provider.
- At least one “low risk” investment strategy has to be offered. Low risk is broadly defined as cash and debt investments in Swiss francs with good credit-worthiness and an average duration below 5 years.
- Remove the minimal benefit requirement of articles 15 and 17 of the Vested Benefit Act. For existing plans this requirement is removed once the plan offers a low risk strategy.
- The definition of maximum savings in a 1e plan has been clarified.
- Transition rules apply: if you already have a plan this has to comply with the new rules, in particular the new investment strategy offering by the end of 2019.
If you already have a 1e plan: you’ll need to review and possibly update the plan to meet the new rules. To be able to remove the minimal guarantee, the main barrier to defined contribution accounting under IFRS/US GAAP, one of the strategies you offer needs to meet the “low risk” definition. The plan design may need to be reviewed to ensure it complies with the maximum savings limits. Your plan will need to fully comply with the new rules by the end of 2019.
If you don’t yet have a 1e plan: the legislation is now clear and applies from 1 October 2017. So if your provider is ready, any project to implement a 1e plan should now have a clear path forward. How complex this will be depends on your own situation. Companies with corporate pension funds may find implementing a 1e plan with a separate provider more challenging due to the impact this has on their current fund. Given the timing, need for communication to employees and contractual implications, implementing a 1e plan by 1 January 2018 may be too soon. But starting as early as possible should mean you are on course for 2018.