SWITZERLAND – Basle’s government has disclosed details of a planned bail-out of Pensionskasse Basel-Stadt (PKBS), one of Switzerland’s biggest public pension funds with CHF7.2bn (€4.6bn) in assets.
PKBS, which insures Basle’s civil servants, has suffered from chronic underfunding since the beginning of the decade. According to Swiss press reports, the underfunding was caused in part by mismanagement.
At the end of 2004, PKBS’ coverage ratio – or the extent to which it can fund its liabilities – was 72.3%.
Now Basle’s government said PKBS’ would be fully funded, adding that it would provide half of the money while the fund’s members would provide the other half.
“The total costs to the city will not, in any case, exceed 29% of the total salaries for the insured civil servants,” the government said in a statement.
At the end of 2004, PKBS insured 20,300 civil servants whose combined salaries totalled CHF1.1bn. It also had 14,000 pensioners to whom it paid out CHF435m in benefits.
Unlike other Swiss schemes that have repaired their balance sheets following the damage caused by the equity market crash, Basle’s government said a switch to defined contribution from defined benefit was not planned.
However, “the full capitalisation of the pension fund will mean the end of the absolute state guarantee”, the government said. Swiss public pension funds can incur deficits owing to an implicit state guarantee.
Details of the bail-out come just a week after Basle’s public prosecutor dropped a criminal investigation of the city’s finance department. The investigation followed an earlier trading scandal at PKBS.
In 2002, it emerged that finance personnel had used part of the pension fund’s assets for their own investing.
According to Swiss press reports, the scandal prompted the resignation of Urs Müller, the former head of Basle’s finance department and was partly responsible for millions of Swiss francs in losses at the fund in 2001 and 2002.
At the end of 2004, PKBS had 30% of its CHF7.2bn in assets allocated to equities and another 30% to fixed income. Real estate and real estate loans accounted for another 25% of assets, followed by cash which accounted for 12%.
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