Swiss retirement provision is typically built around either final-salary plans or, more commonly, cash-balance plans that convert on retirement into a guaranteed lifetime pension and which also includes long-term disability and widows benefits (see panel). The legal framework for second-pillar retirement provision means that more or less all Swiss plans are classified as defined-benefit (DB) plans for accounting purposes under International Accounting Standard 19, Employee Benefits (IAS19).
As for the pressure points, Willi Thurnherr, the head of Mercer’s Swiss retirement practice, notes that discounting is an area where the IAS19 approach sits awkwardly within the Swiss system. “The statutory discount rate is now in the range of 1% whereas the statutory one is typically between 2% and 3%. This tends to result in a position of underfunding against both US General Accepted Accounting Principles [GAAP] and International Financial Reporting Standards [IFRS]. Nonetheless, according to Swiss law, most schemes are adequately funded.”
Under IFRS, the discount rate is determined by applying a high-quality corporate bond rate or proxy at the balance sheet date. The Swiss discount rate, however, is based on an expected return on plan assets, although it has a longer-term focus than a market-based valuation. Some experts believe the statutory liability measure understates a Swiss company’s true pension funding position.
