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Company International Pension Accounting: Negative discount rates in Switzerland!

360°Benefits News

Retirement
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September 5, 2019

Companies may need to inflate (instead of discount) long term pension liabilities for the first time in Switzerland for international company reporting under IFRS / US GAAP.

The discount rate used in the calculations needed for this reporting would be negative for the vast majority of Swiss pension funds now. Discount rates for international company accounting for pension funds are set based on corporate bond yields for that country and Swiss corporate bond yields have fallen significantly from their already low levels at 31 December 2018 by about 90 basis points year to date. This means that for a typical Swiss pension fund the discount rate would be around -0.1% at 27 August 2019.

In the case that bond yields remain at similar levels then companies will need to prepare themselves for significantly higher pension fund liabilities at forthcoming company year-end reporting dates (e.g. 30 September and 31 December 2019). For a typical Swiss pension fund the DBO/PBO liability is likely to have increased by around 15% based on current conditions.

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