Pension plans – five key questions and answers

Five questions and answers

• Who decides the contents of the pension plan?

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  Generally, as the employer, you define the benefit level set out in the pension plan. You and your employees elect a pension fund committee with equal representation, i.e. a committee consisting of equal numbers of employees and employers. As a second step, the pension plan is adjusted, if necessary, and approved in close cooperation with the pension fund committee.

• What is the difference between BVG mandatory benefits and non-mandatory benefits?

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  The Federal Law on Occupational Retirement, Survivors’ and Disability Pension Plans (BVG) mandates minimum benefits for which you must insure your employees. In today’s world, these minimum benefits are, however, often insufficient. Most companies therefore insure higher benefits for their employees, in which case the term “non-mandatory” is used.  

• What leeway do companies have in the non-mandatory field?

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  This leeway depends on your choice of employee benefits institution. The spectrum ranges from institutions with predefined pension plans, so-called standard plans, to highly customised pension solutions.  

  If you decide for the last option, you can choose between the following alternatives:  

  • Extension of insured salary beyond the mandatory BVG benefits (e.g. reduced or no coordination deduction, no BVG upper threshold, taking the level of employment into account) 

  • Increase of savings contributions  

  • Creation of buy-in potential for members 

  • Definition of disability pension/disabled person’s child benefit as a percentage of the AHV salary or the insured salary 

  • Definition of survivors’ benefits as a percentage of the AHV salary or the insured salary 

  • Coverage of an additional lump-sum death benefit 

  • Introduction of optional plans under which members can voluntarily make higher or lower savings contributions 

• What are the different types of pension plans?

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  A distinction is made between defined contribution plans and defined benefits plans. By choosing one, you determine the type of benefits payable to your employees and how they are financed.  

  • Defined contribution plan: The amount of the insured employee benefits is based on the members’ accrued retirement savings. The savings contributions are fixed, usually in the form of salary percentages.  

  • Defined benefits plan: The insured employee benefits are defined as a percentage of a reference value (e.g. relevant salary). Under the defined benefits plan, the pension is determined proportionally on the basis of the last insured salary.  

  Today, pension plans often include both defined contribution and defined benefits components. The majority of retirement benefits are determined according to the defined contribution plan. The risks of death and disability are usually insured under the defined benefits plan. 

• Points to consider when choosing a pension plan?

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  Two questions are decisive for your choice: How do you want to cover your employees and what benefits do you want to offer them? Furthermore, how much should the pension plan cost? When considering these questions, you should also factor in your line of business, the salary structure in your company and the different types of insured persons (employees, management, directors). The structure of the pension plan is, after all, an important element in the competition for the best employees.