Swiss pension fund governing body, the Arbeitsgemeinschaft Berufliche Vorsorge (ABV) has drawn up a checklist outlining what Swiss pension funds should do in the case of any under-funding, in a bid to ease the rising numbers of Swiss pension scheme shortfalls.

At the end of 2002, it was estimated that between 30-50 per cent of all Swiss pension funds were experiencing significant financial shortfalls.
In 2001, only six per cent percent of plans were considered under-funded.

According to the ABV paper, which will be published shortly, a pension fund is considered under-funded when the total amount of assets less liabilities is lower then the insured sum of all rents.

Swiss pension funds must be able to pay these insured rents at any time.

Regardless of the extent of under-funding, schemes must report their financial position to the Swiss government supervisory body no later then six months after the end of the business year. The fund has also to report what measures are being taken or will be taken to improve the situation.

ABV has drawn up three degrees of under-funding and the necessary measures to be taken in each case;
These are as follows:
a) If only the reserves for fluctuations of securities are inadequate, but all liabilities are still covered by the assets, then a pension fund is not obliged to change its investment strategy (i.e. to reduce equity exposure). However such a scheme shall end all voluntary benefits. Furthermore, contributions must be increased to the extent that insured achievements are not anymore debited to free reserves.

b) If the cover ratio for the fund is moderately below legal requirements, i.e. between 90-100 %, actuaries shall check the scheme thoroughly. If any individual accounts are above the legal minimum, then the interest on paid-in-capital must be reduced, if necessary, down to zero percent.

c) If a scheme is below 90 per cent and therefore "considerably" under-funded, employers as well as employees should increase contributions. The exchange rate (Umwandlungssatz) for accumulated capital into rents and compensation for inflation should be lowered and existing technical reserves (e.g. for longevity) should be abolished. Interestingly, even in the case of "considerable" under-funding" ABV does not proscribe a reallocation of investments.

As ABV points out, pension entitlements should only be reduced in extremely severe situations. Such entitlements are considered as legally enforceable contractual issues in Switzerland.

The ABV statement comes at a moment when the Swiss media has raised concerns about pension reductions. According to ABV, such a step would endanger trust in pension schemes and would cause severe damage to the entire old age system.

ABV is an informal group of nine organisations involved in governing Swiss pension schemes.