(July 20, 2012) — The Swiss are not immune to the funding headaches facing most corporate pension plans.
Like their peers around the world, Swiss corporate pension plans suffered greatly in fiscal year 2011, with their funding ratios returning to their 2008 lows, an analysis by consultancy Towers Watson has demonstrated. Plunging interest rates and an ailing European market caused the average pension funding level ratio for the Swiss Market Index (SMI), the index of Switzerland’s largest public companies, to drop to 85.7% in fiscal 2011. That represents a decline of 3.9% from the year before and the lowest percentage since the 84.9% reached in fiscal year 2008.
“The average funding ratio is much lower than at the end of 2007 (94 percent) and the slight improvement in funding ratios observed over the last two years has reversed,” the report noted. Of the 20 companies that make up the SMI, the funding ratios of their plans ranged from Credit Suisse’s 97% to Transocean’s 66%.
The decline in funding was largely due to a jump in liabilities, which in absolute terms grew by CHF 15 billion ($14 billion) from fiscal year 2010 to 2011. Investors have regarded Switzerland as a safe haven for capital during the European sovereign debt crisis, and consequently interest rates there have plummeted. The value of pension obligations moves inversely to the discount rate, so low interest rates exacerbate underfunding. Weak markets also took a toll—plan assets grew in absolute terms by CHF 5 billion ($4.7 billion) from fiscal 2010, not enough to offset the increase in liabilities.
In relative terms, however, Swiss corporate plans enjoy comfortable funding levels. “In comparison with companies in the US and Germany, the funding ratio of [Swiss] companies’ pension liabilities is higher than average,” the report contended. “Fortune 1000 companies report a funding ratio of just under 80% for their pension liabilities, and DAX companies only around 65%.”
To read the analysis in full, click here.