The new pension plan rules and regulations have now been set: in addition to tighter oversight, the rules provide for improved governance and transparency and more autonomy for pension funds. The criticism focuses on the higher costs.
The Federal Council has passed the new implementing ordinances: the existing Ordinance on the Regulation and Registration of Pension Plans (BVV1/OPP1) will be rescinded and replaced by a new ordinance on the regulation of occupational pension plans. The Ordinance on Occupational Retirement, Survivors' and Disability Pension Plans (BVV2/OPP2) will be partially amended and a new ordinance on investment funds (ASV/OFP) introduced.
More independence for 2nd pillar stakeholders
The Federal Social Insurance Office (BSV/OFAS) explained that more independence for 2nd pillar stakeholders was a central postulate of the structural reform. The direct oversight presently exercised by the Federal Social Insurance Office over national and international pension institutions will shift to administratively independent cantonal or regional regulatory authorities.
The final oversight is to be exercised by an independent watchdog commission with a professional secretariat. The commission, which will be presided by Pierre Triponez from 1 August 2011, will become operational on 1 January 2012. The members of the commission will be designated in autumn 2011. The commission is to ensure uniform regulatory practice and the stability of the second pillar system. Independent cantonal regulatory authorities must now be established as public entities with their own legal personality.
Stronger governance and more transparency
The structural reform tightens BVG/LPP rules on pension fund governance and transparency. The BVV2/OPP2 ordinance has been adapted accordingly. The reform also introduces specific ethical criteria to be met by persons in charge of pension plan administration or managing pension assets. The criteria include a good reputation, flawless business record and the absence of conflicts of interest. Moreover, legal transactions between pension plans and related parties have to be disclosed. Any financial advantages which a person or institution may derive from his or its activities on behalf of a third-party pension plan must be passed on to that pension plan if and insofar as they exceed previously defined limits. In addition to front running, parallel running and after running (use of insider information from securities transactions on behalf of a pension plan) are now also prohibited. Administrative costs must be disclosed in greater detail than heretofore in the financial statements. Adding weight to the new governance requirements, supplementary sanctions have been introduced in the BVG/LPP. In future, the duties of the auditor, accredited pension actuary and pension board will have to be more clearly specified.
Legislation extended to investment foundations
The structural reform extends the scope of the legislation to investment foundations for the first time. The new ordinance on investment foundations circumscribes the circle of authorised investors, defines the incrementation and use of pension assets, investments, bookkeeping, accounting procedures and auditing, investors' rights and the corresponding organisational aspects. According to the Federal Social Insurance Office, the provisions are largely guided by existing practice. Investment foundations are placed under the oversight of the regulatory commission.
Transitional period expiring end-2012
The transparency and governance rules come into effect on 1 August 2011. According to the Federal Social Insurance Office, pension institutions will have until the end of 2012 to make the necessary organisational and regulatory changes. The new regulatory system will come into force on 1 January 2012 when the federal regulatory commission starts work.
According to BSV/OFAS, the changes enjoy broad support
The basic goals and contents of the structural reform enjoy the support of most stakeholders. The original ordinance proposals were highly controversial and the ordinances were substantially revised at the outcome of the consultation procedure. The social security and national health committees of both houses of parliament were then consulted anew. Finally, according to the Federal Social Insurance Office, the committees had no further changes to recommend. The BVG/LPP advisory committee was consulted three times altogether; in the end all the changes were supported unanimously or by a large majority.
ASIP defends its interests
ASIP (the Swiss association of pension institutions) announced its satisfaction with the changes made by the Federal Council following the huge criticism in the consultation procedure. Notwithstanding, certain provisions are still devoid of any legal foundation. Furthermore, only time will tell if the planned regulatory measures are anything more than a sedative. The proposals were originally triggered by a purported loss of confidence in the second pillar system. However, a representative survey published by ASIP on 6 May shows that the public continues to trust their pension funds and the second pillar system. The survey also shows that pension plan members would actually refuse a great part of the costly structural reform proposals. ASIP also took note of the choice of president for the new watchdog commission. ASIP is looking to the commission to ensure standardised regulatory practice and to hear stakeholder proposals for the elaboration of the necessary standards and guidelines.
The Swiss Chamber of Fiduciaries anticipates higher auditing costs but considers the rules practicable
The Swiss Chamber of Fiduciaries, which had been extremely critical of the structural reform ordinance proposals, declared that it was now highly satisfied with the changes. The Chamber indicated that it had filed a comprehensive and well-substantiated consultation statement focusing on eleven points concerning auditing procedures. Those points included, in particular, the blanket introduction of an internal controlling system, the transfer of management functions to the auditors and the prohibition of long-term related party agreements. The Chamber also warned against precipitated implementation. The Chamber stated that the Federal Council had taken its criticism into account on all eleven points. The rules finally adopted extend the scope of auditing significantly but respect the legal separation of powers; they should therefore be practicable for all concerned.
Investment foundations are relieved
In its press release, KGAST, the association of investment foundation managers, was relieved to note that many of the improvements proposed by the investment foundations had been taken into account in the new regulations. A number of rules which were considered excessive had been dropped while others which were too far removed from conventional practice had been modified. The new ordinance on investment funds also ensures that the regulatory commission will continue to follow a great part of the existing BSV/OFAS practice.
Collective foundations are concerned
The situation is quite different for collective and multi-employer foundations. According to the new rules, no more than 50% of the surplus before allocations to fluctuation reserves may be used to improve benefits, and the reserve for fluctuation in asset values must be incremented to at least 75% of its target value (BVV2/OPP2 Article 46). A survey of collective foundations conducted by “Schweizer Personalvorsorge†shows a marked lack of enthusiasm for this new rule. Article 46 is generally regarded as being superfluous and an unnecessary restriction on the independence of the joint administration board. The 75% limit is considered random and too rigid. It does not make sufficient allowance for the different individual pension fund approaches. Moreover, the legal foundation of Article 46 BVV2/OPP2 is questioned. Article 46 may even be inconsistent with Article 51a(b) BVG/LPP, which provides that the board is responsible for setting benefit targets. Collective and multi-employer foundations are concerned that this special rule may create a new class of pension plan in addition to insurance companies and independent pension funds.