Collective foundations in a nutshell

Every company needs occupational benefits insurance for its employees. Business owners can also found their own pension fund or affiliate with a collective foundation.  We have summarized the most important points for you.

What is a collective foundation? 

A collective foundation is a legally independent occupational benefits institution (Pillar 2). Companies can join a collective foundation in order to provide occupational benefits insurance for their employees in accordance with the Federal Act on Occupational Old Age, Survivors’ and Invalidity Pension Provision (OPA). This affiliation results in synergies for all affiliated companies, for example in that the pension capital of all insureds of all companies is invested together The fixed costs of managing a pension fund are also shared.

Why are there collective foundations in the first place?

The beginnings of occupational benefits insurance

A company-owned pension fund was the pride of many companies for a long time. Because if you run your pension fund yourself, you can directly influence everything. This is why company-owned pension funds initially dominated the pension landscape when occupational benefits insurance was introduced in Switzerland.

The pension fund landscape is changing

Occupational benefits insurance became increasingly complex over time, and new regulatory obligations were constantly being added. This made it more difficult for small and medium-sized companies in particular to implement modern pension solutions themselves with internal resources. Insureds’ entitlements to their pension fund have also changed.

Alternatives are in demand

More and more companies are therefore opting to join a collective foundation. A collective foundation offers companies the possibility of operating a pension fund without having to manage it themselves.  Collective foundations also offer a broad spectrum of solutions with varying degrees of independence and participation.

What are the advantages of a collective foundation?

Thanks to the size of a collective foundation solution, the risks of death and disability and  administration costs can be more widely distributed . In addition, a collective foundation offers affiliated companies

• great flexibility in the design of pension plans,
• professional asset management with broad market access to attractive asset classes,
• consultation services for employers and insureds,
• state-of-the-art online tools for managing occupational benefits for employers and insureds, and
• attractive additional services such as fringe benefits.

Companies also retain a great deal of autonomy when joining a collective foundation : For example, they define the pension plans that apply to them themselves – while also benefiting from lower overall costs, a holistic case management approach, and additional digital services.

What pension models do collective foundations offer?

There are essentially two pension models for collective foundations: The full-value insurance model and the semi-autonomous collective foundation solution.

There are only a handful of providers of full-value insurance solutions in the Swiss pension market – the trend is towards semi-autonomy. This is why we are focusing on the semi-autonomous collective foundations here. Our blog article comparing semi-autonomous pension funds and full-value insurance gives you more information on both pension models and an overview of all the advantages and disadvantages.

How does a collective foundation work?

To understand how a collective foundation works, you have to know what bodies it has and what their responsibilities are. The board of trustees is the highest governing body of a collective foundation. It consists of employees and employers of the affiliated companies and holds elections regularly. The board of trustees decides which risks the foundation itself bears and which ones are to be reinsured by an insurer. It appoints the operational management, asset management, and other bodies. It also determines the investment strategy, according to which the pension assets are invested. The foundation is supervised by the cantonal Foundation Supervision.

A collective foundation manages a separate occupational benefits fund for each affiliated company. Every occupational benefits fund is required to elect an occupational benefits fund commission (OBFC). This consists of an equal number of employee and employer representatives of the company. The OBFC adopts the relevant occupational benefits plan for the insureds in the occupational benefits fund. This defines the contributions and the occupational benefits due at retirement and in the event of death or disability. The company deducts the employee contributions due from each salary and transfers them together with its own employer contributions to the collective foundation.

Overview of the bodies of a collective foundation

The board of trustees

• is the supreme decision-making body,
• determines the investment strategy, strategic objectives and principles of the foundation,
• defines the organization of the foundation
• is elected by employers and employees of all affiliated companies, and
• comprises an equal number of employer and employee representatives.

The management is often handled by a specialized service company or an insurance company and is liable to the foundation.

The asset manager is elected by the board of trustees and is responsible for implementing the investment strategy.

The occupational benefits fund commission issues and makes changes to the occupational benefits fund’s occupational benefits plan and decides on the financing of the occupational benefits fund.

The insurer is responsible for the reinsurance of disability and death.

How do I find the right collective foundation?

When choosing a collective foundation, it’s not only whether the framework conditions are right for your company that matters, but also the financial stability of the pension fund. Entrepreneurs can compare different collective foundation solutions on the basis of the most important key figures and deduce from this

• how the collective foundation manages the contributions of the insureds and
• whether it is able to meet its obligations.

Which key figures are relevant for a collective foundation?

A glance at the key figures shows how a collective foundation uses the contributions of its insureds and how sound it is financially.

Coverage ratio: Provides information on the ratio of the foundation’s assets to its obligations. However, it is only a simplified snapshot and does not enable a comprehensive assessment of a collective foundation’s structural performance or risk capacity.

Performance: Provides information on the profits generated. However, a good year for the stock market alone says little. A multi-year period therefore provides better information about the sustainable development of the performance achieved with the chosen investment strategy.

Interest: Has a significant impact on the amount of the expected retirement benefits. A sustainable average interest rate compared with the market over the long term is one of the most important building blocks of a good pension solution.

Size and structure:  The ratio of active insureds to pension recipients as well as the average age of the insureds are the deciding factors. As a general rule: The more active insureds there are for every pension recipient and the lower the average age of the insured, the better.

Our tip: All key figures can be found in the annual report (published on the pension fund’s website or available on request). You can find out more about this in our article on the criteria for a good pension fund.