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Pension fund management in extraordinary times

360°Benefits News

Retirement
COVID 19 Coronavirus

By Linda Haas and Peter Zanella | June 10, 2020

The following article is an interview between Willis Towers Watson and Michele Casartelli, pension fund manager of Fondazione di Previdenza EFG SA (hereinafter Fondazione) and Fondo Complementare di Previdenza EFG SA (hereinafter Fondo).

Fondazione is a registered pension scheme according to Article 48 BVG and Fondo is a pension scheme with purely over-mandatory benefits. A total of around 800 active employees and over 1’000 pensioners are insured in the two pension schemes. The total fixed assets across both pension schemes amounted to around CHF 1.1 billion at the end of 2019. Michele Casartelli has been managing the two pension schemes together with a team of four permanent employees (equivalent to 2.7 full time employees) since 1.1.2015. The pension schemes are based in Lugano, where the Fondazione employees' workplace is also located. Fondazione was founded in 1944 and thus has a long tradition of providing pension benefits for employees and pensioners.

Of the five affiliated employers, which are active in the banking and fiduciary sector, none has currently introduced short-time working.

Willis Towers Watson: Mr. Casartelli, thank you for your willingness to take part in this interview. We live in unusual times, that present us all with new challenges. Ticino, in particular, was initially hit harder by the corona pandemic than the rest of Switzerland and has thus almost taken a pioneering role in combating and containing the pandemic. You and the Board of Trustees therefore had to act sooner and more actively than others. What were the first organisational adjustments you made to protect employees?

Mr. Casartelli: In order to maintain operations and at the same time protect the employees and also take into account their personal situations (offspring, belonging to a risk group, cross-border commuters), we opted for a differentiated collaboration model. On the one hand, we let the employees work from home, and on the other hand, due to the necessity of being present in the office premises for certain work, we organised two physically separate workplaces where the employees could work without any contact with each other. This enabled us to implement an optimum protection concept and prevent any contact between the employees, thus minimising the operational risk. Overall, as pension schemes, we benefited from the strong ties to the employers and their prudent implementation of organisational measures. For example, all employees are given a fever reading when entering the office building.

Willis Towers Watson: The organisational adjustments discussed above as well as the personal circumstances of the individual employees naturally presented you and your team with new challenges. Looking back, how would you assess the performance of your team under these difficult conditions?

Mr. Casartelli: I am extremely satisfied with the team's performance under these difficult conditions and would like to take this opportunity to thank my employees. Since three of the four employees work part-time, we were already very well coordinated before the crisis. This has now proven to be an advantage during the crisis.

Willis Towers Watson: You and your team process personal data that require a high level of data protection. Can these stringent requirements also be implemented from the home office without any problems?

Mr. Casartelli: In this area, too, we as pension schemes benefit from the infrastructure and the security measures afforded by the employer. Data protection is of course extremely important, especially in the banking sector, and is therefore treated as a priority. Working from home and the IT infrastructure required for that, including the necessary data protection measures, already existed before the crisis, and we were therefore ideally prepared. For example, I personally have been working from home from time to time for a year now.

Willis Towers Watson: Certain legal transactions that a pension fund routinely carries out require a notarised signature or notarisation. In addition, documents are often sent/received by post, making the presence of employees at the place of delivery of the mail and access to the mail necessary to maintain operations. How have you and your employees dealt with this situation?

Mr. Casartelli: As I mentioned earlier, we organised two separate workstations and made sure that at least one person was always on site to process the mail. We made sure that employees who do not belong to a risk group or who do not have any support duties were assigned to this task. In general, we noticed that there were fewer legal transactions and that processes slowed down somewhat. We were therefore always able to ensure that the pending transactions were processed.

Willis Towers Watson: Before the crisis, did the pension funds have a so-called business continuity plan? If not, do you intend to create one? If so, will you adapt it based on recent developments and in what areas?

Mr. Casartelli: Here too, as pension schemes we benefit from the employer’s extremely robust structures and required processes that are binding for us. The employer's business continuity plan encompasses the pension schemes and is tested annually. There is a service agreement between the employer and the pension schemes in which the services are contractually regulated. We are thus very well positioned and, based on our experience to date in the crisis, we see no need for adjustments.

Willis Towers Watson: The crisis shows that unfortunately the unthinkable could suddenly become reality. It is not unthinkable that well-managed companies in the aviation or tourism sectors, for example, could go bankrupt if the state does not support them. In the case of company-owned pension funds with their own administration and management, many structures, for example in IT or HR, are linked to the employer and can present the pension funds with additional challenges in a worst-case scenario. How do you assess this eventuality and do you think it will lead to discussions in the Board of Trustees?

Mr. Casartelli: The Board of Trustees considers the employer to be very solid and therefore the risk mentioned above to be minimal. I do not expect the current crisis to change this assessment significantly and therefore I do not expect the Board of Trustees to feel the need to review this point.

Willis Towers Watson: The first effects of the corona pandemic began to appear on the stock markets from in mid-February. You took swift and decisive action and the Investment Committee / Board of Trustees decided to suspend the rebalancing. This ensures that no additional purchases are made when prices fall, thus reducing exposure to the stock market. In retrospect, was this a sensible measure? Have you taken any further risk management measures in the area of asset management?

Mr. Casartelli: The Investment Committee and also the Board of Trustees dealt intensively with the investment of pension fund assets and we held frequent and intensive meetings during the peak of the stock market fluctuations. As both the Investment Committee and the Board of Trustees consider the market risks to be particularly high, we have suspended rebalancing and have not restarted it to date (mid-May). In this context, we benefit from the fact that we have defined wide ranges for asset allocation in the investment regulations (e.g. a lower limit of 0% for equity investments). This allows us to proceed tactically. As a further hedging measure, the Investment Committee and the Board of Trustees have decided to hedge 50% of the equity portfolio against further price falls by purchasing futures. It is still somewhat premature at present to make a final judgement on the benefits of these measures, but of course we hope that they will minimise the investment losses for the pension schemes.

Willis Towers Watson: Both pension schemes have a reinsurance contract for the risks of death and disability for active insured persons. Hand on heart: did you check the general terms and conditions with regard to pandemic coverage when you last renewed the contracts? Have the pension schemes already recorded deaths due to the pandemic?

Mr. Casartelli: This area of the general terms and conditions was not a major issue at the last renewal of reinsurance contracts. However, in February we contacted our reinsurer to clarify the coverage and fortunately we were able to establish that we are fully covered and that there are no exclusions or restrictions in the event of a pandemic. So far, however, we have fortunately not recorded any fatalities among our active members. On the other hand, we have recorded a slight increase in mortality among the pensioners compared with the same period last year.

Willis Towers Watson: Like all of us, your members are probably busy with many new questions and problems at the moment. Did you have specific questions from members that are attributable to the crisis? If so, what concerns or questions were raised with you and your team?

Mr. Casartelli: Yes, we have had many enquiries from members. In particular, the questions focused on coverage and benefit regulations in the event of death. But the financial situation of the pension schemes and the investments also gave rise to questions. So far, we have not sent out any communications to all scheme members in connection with the pandemic. However, we plan to do so after the regular mailing of the 2019 Annual Report, which takes place in May.

Willis Towers Watson: Parliament resumed operations at the beginning of May, albeit not in the usual Swiss parliament building but in a large exhibition hall. In the area of occupational benefits, the consultation period for the BVG reform was extended to the end of May. The bill was already controversial before the crisis and is unlikely to have gained popularity as a result of the crisis. How do you assess the situation in this respect and what influence do you think this crisis will have on the further development of occupational benefits in Switzerland?

Mr. Casartelli: I think that the crisis will make it even more difficult to reach a consensus and that this will slow down the introduction of the current proposal. We need new solutions that better address the pressing problems and which should eliminate or minimise the additional complexity and associated costs contained within the proposal.

Willis Towers Watson: Many thanks for the interesting interview, Mr. Casartelli. We wish you and your team continued strength and prudence in overcoming this crisis!

Mr. Casartelli: With pleasure. I would also like to take this opportunity to thank my staff, the Board of Trustees and Investment Committee and also the employer for their excellent cooperation and great commitment in this difficult situation.

This interview was conducted and recorded by Willis Towers Watson in May 2020 by Linda Haas and Peter Zanella.

Authors


Senior Director, Retirement

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