On 19 March 2010, Parliament adopted the bill for the structural reform of pension plans (Federal Law on Occupational Retirement, Survivors', and Disability Pension Plans). The Ordinance on the Regulation and Registration of Pension Plans (BVV1/OPP1) and the Ordinance on Occupational Retirement, Survivors' and Disability Pension Plans (BVV2/OPP2) were adapted to implement the reforms, and a new ordinance on investment funds (ASV/OFP) was introduced. At the end of November 2010, the amended ordinances were published and the consultation procedure launched. That procedure has now ended.
Pension funds facing huge cost hikes
The implementing ordinances are causing major discontent, especially in investment foundations. KGAST, the association of investment foundation managers, believes that the new regulatory concept contains several elements disfavouring investment foundations and their qualified investors.
Many see the new rules merely as a “bureaucratic exercise†making the second pillar more cumbersome and expensive to oversee. The Swiss Chamber of Pension Actuaries (KPE), for example, considers the additional cost for the oversight to be quite disproportionate. The claim that the new structure will avert investment scandals is considered wishful thinking by many. The oversight is too far removed from pension institutions for that. Ultimately, any rule can be circumvented. If anyone can detect fraudulent pension plan investments, it is the accredited pension actuary or the auditor, or so critics say. These two are much closer to those in charge of the pension plan than any watchdog authority can hope to be.
Auditors gaining importance
The structural reform tightens BVG/LPP rules on pension fund governance and transparency. The new bill stipulates the powers and responsibilities of the various pension plan bodies, and especially those of the joint administration board as the highest governing body. Some believe that, by strengthening board powers, Parliament was hoping to build up confidence in the 2nd pillar system. But, as it now stands, the bill scuttles that hope.
The reform also introduces specific ethical criteria to be satisfied by persons in charge of pension plan administration or managing pension assets. The auditors are now required to verify, by means of spot tests and risk-oriented sampling, that disclosures relating to conflicts of interest and pecuniary advantages are true and accurate. The auditors may ask for individual disclosures of pecuniary circumstances from the persons concerned. According to the Chamber, this does not fall within the auditor's remit. Moreover, no matter how thorough the sampling, the results can only provide marginal certainty.
This would considerably extend the auditor's responsibilities and powers. However, as ASIP (the Swiss association of pension institutions) points out, the final responsibility for compliance with statutory and regulatory requirements lies with the joint administration board, as the pension institution's highest governing body. Such responsibility cannot be transferred to the auditors. And on no account should the auditors oversee the joint administration board.
Employer-sponsored pension funds at risk
The amended ordinances undermine the joint administration board to such an extent that no one will want to sit on it. Employers are most unlikely to welcome the new set of rules. The new rules and requirements are bound to generate significant additional cost for pension institutions. The critics maintain that the smaller and medium-sized pension companies, whose employees have so far had the benefit of employer-sponsored pension funds, will come under pressure. Many companies will now have to consider whether it is worthwhile to maintain an employer-sponsored pension plan when any additional benefit is offset by the higher charges deriving from the extensive new reporting requirements. The Schindler Pension Fund, for example, recommends undertaking a comprehensive overhaul of the revised BVV1/OPP1 and BVV2/OPP2 ordinances and deferring their coming into effect by at least one year. The Pension Fund seems to doubt that the BVG/LPP commission was actively involved in preparing the revision package, speculating that the technocrats in the Federal Social Insurance Office may simply have ignored the commission's recommendations.
An occupational ban for asset managers?
The new BVV2/OPP2 ordinance also place high demands on pension fund executive management and asset managers. Only asset managers subject to FINMA regulation will henceforth qualify as external asset managers. This excludes banks, brokers, fund management companies, asset managers of Swiss collective investment foundations and insurance companies, but lets in external portfolio managers. For those whose core business is the management of pension assets, this is tantamount to an occupational ban. Once the Federal Council has handed down its final decision, they won't even have time to give their staff notice for the end of the business model. FINMA will not allow any exceptions; moreover, it takes between nine and eighteen months to process and approve licence applications from fund managers. No asset manager will be able to survive that period without any turnover. SAAM, the Swiss Association of Asset Managers, explains that, subsequently, the business would be open to banks and insurance companies.
Protectionism at the insured's expense
In future, even the transfer of asset management activities to foreign-based companies will be restricted. All asset management mandates between Swiss pension funds and foreign asset managers will be subject to Swiss law. The Swiss courts will have jurisdiction. Critics warn that this rule will fuel conflict since many pension funds work with foreign asset managers or invest in mutual funds governed by the laws of other countries. There are many reasons for this. Experts warn that, for certain types of investments, there are far too few specialists in Switzerland. Furthermore, many Swiss pension funds publish their calls for bids internationally to stir competition and keep prices down. Switching to Swiss providers will create high incremental costs which will have to be borne by the pension fund members.