What's in 1 + e

1e plan

With a 1e plan, the insured can determine for themselves how their retirement savings are invested on insured salary components over 129,060 francs. With a 1e plan, companies can reduce their costs for occupational benefits and eliminate the risk of underfunding.

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What is a 1e plan?

1e plans allow employees to determine for themselves how their retirement savings are invested in insured salary components over CHF 129,060. You can adapt the investment strategy to your personal investment horizon and your risk tolerance and thus optimize the return on your retirement assets over the long term. With a 1e plan, companies can lower their occupational pension costs and eliminate the risk of underfunding. Compared to a conventional pension fund, there are no restructuring risks with 1e plans.

The term 1e plan comes from the fact that the pension plans refer to Article 1e in the Ordinance on Occupational Pensions (BVV 2). Due to legal hurdles, the demand for 1e pension plans has so far been low. In Article 17 of the Freedom of Movement Act, for example, people who leave the company receive a legally guaranteed minimum amount. In other words, if an employee resigned and the chosen investment strategy led to losses, the pension fund, the employer and the other insured had to finance the shortfall.

At the end of 2015, the United Federal Assembly passed an amendment to the Freedom of Movement Act, which came into force on October 1, 2017. It was stipulated that when an insured member who has chosen their own investment strategy leaves the company, they only have to provide the effective value of the retirement assets - even if there is an investment loss at the time of leaving.

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The benefits for employees

  • Each insured person chooses the investment strategy according to their risk profile and investment horizon. Pension funds may offer a maximum of ten investment strategies per affiliated employer. At least one of these must be low-risk.
  • With the 1e pension plans, the entire net success of the investments is credited in full to the management employee. In return, the insured person waives an interest guarantee and bears the risk of loss.
  • A redistribution of the investment income in favor of other insured persons is excluded. The success of the investment is credited to the individual insured. No collective fluctuation reserves are necessary.
  • The contributions made can be deducted from taxable income. Voluntary purchases are also possible.

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The advantages for employers

  • The risk premiums are on average 25 percent lower, as 1e plans usually only cover sectors and people with a below-average risk of disability.
  • Since no underfunding is possible with 1e pension solutions, there are no restructuring risks.
  • According to the changes in the law in 2017, 1e plans are defined as defined contribution pension solutions in accordance with the rules of IFRS and USGAAP and therefore do not have to be booked as pension obligations.
  • 1e pension solutions help companies to retain qualified managers in the company in the long term. The modern pension fund solution offers executives a lot of freedom in planning their pension. In addition, the supplementary pension can be introduced quickly and quickly.

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Individual investment strategies

With a 1e plan, the insured can choose from a maximum of ten investment strategies, at least one of which must be low-risk. Every insured person can adapt the investment strategy to his or her personal investment horizon and risk tolerance and thus optimize the return on his retirement assets over the long term.

Younger employees can, for example, choose a strategy with a high equity component because, thanks to the longer investment horizon, fluctuations in value in their portfolio usually balance out over time. On the other hand, employees who are about to retire should take as few risks as possible. In this case, the appropriate investment strategy is more conservative.

How do insured persons deal with this freedom of choice? This question is answered by a study for which around 1900 portfolios of the VZ Collective Foundation were examined, the second largest collective foundation for 1e plans in Switzerland. The study shows that the vast majority of insured persons choose an investment strategy with a higher equity quota than for basic pension provision. Around 70 percent opt ​​for an investment strategy with 35 percent or more shares. At the VZ Collective Foundation, management employees can increase their share of the shares to up to 90 percent.

Modern pension institutions such as the VZ Collective Foundation offer companies more than just 1e pension plans with several investment strategies. They also enable the insured to determine the time of the investment themselves, to change the investment strategy at any time and to invest the credit in cheap index investments. The insured receive an account and deposit statement every quarter and can regularly monitor the development of their pension assets.

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No redistribution in favor of other insured persons

In the second pillar, every insured person actually saves a credit that is used to finance their benefits. In fact, however, many pension funds have to redistribute money from the extra-mandatory assets in order to keep their pension promises. So they have to pay higher interest on the retirement assets saved by the pensioners than those of the active workers. Management employees are hardest hit because they have often saved a lot of money in the form of extra-mandatory credit.

Such a redistribution can largely be avoided with a 1e plan. The insured persons choose their investment strategy themselves, and their investment success is posted to a personal account and custody account. The pension fund does not compensate for investment losses and there is no need to build up fluctuation reserves.

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Selectable savings contributions

Many management employees would like to pay as much as possible into the pension fund in order to improve their retirement provisions and at the same time to save taxes. Modern pension solutions therefore not only offer employees different investment strategies. You also give employees the choice of how high their savings contribution should be, which is deducted directly from their wages and paid into the pension fund.

A company can offer up to three different savings contributions. The management staff can decide for themselves whether, for example, they will pay in a total of 17, 21 or 25 percent of the insured salary. The employer's share must be at least 50 percent and be the same in all plans. The lowest savings contribution must not be less than two thirds of the highest savings contribution.

The savings contributions to the pension fund may not exceed 25 percent of the insured annual AHV salary; the insurable salary is currently limited to CHF 860,400. This amount can also contain variable salary components such as a performance-related bonus.

The law prohibits pension plans that only provide for savings contributions, but no insurance component: at least 4 percent of the contributions must be for the insurance of disability and death risks.

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save taxes

Purchases into the pension fund can be deducted from taxable income. In addition, there are no taxes on income or wealth on the amount paid. Withdrawal tax is due on withdrawal; however, the tax rate is lower than for income. The tax advantage improves the return on purchases considerably.

Example: A manager earns 280,000 francs. The current pension plan insures the coordinated annual salary, the savings contribution corresponds to 19 percent of the insured salary.

The wage component between CHF 25,095 and CHF 129,060 remains insured as before. In the case of the wage component of CHF 129,060 or more, the savings premium is increased to the statutory maximum of 25 percent. This increases the manager's savings contributions from CHF 48,432 to CHF 57,553 per year.

The additional savings premiums reduce his taxable income, and as his pension benefits expand, so does his potential for voluntary purchases. The manager can now pay an additional CHF 719,000 more than before into the pension fund and deduct this amount from taxable income.

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Optimization of the purchasing potential
Example: Managing Director, 55 years old, AHV salary 280,000 francs.

Example: Managing Director, 55 years old, AHV salary 280,000 francs.

Lower risk premiums

The premiums for disability and death risks can usually be massively reduced with a separate 1e plan. Example: The basic pension covers the insured salary components up to CHF 129,060. The salary parts above this limit are insured in a 1e plan through a separate pension fund, which only covers extra-mandatory benefits.

Such pension schemes can offer lower risk premiums because they predominantly insure business owners and managers who can be shown to make less use of disability and death benefits. As a result, the risk structure is better than that of institutions that insure all wage components and sectors. It is not uncommon for the risk premiums to be up to 30 percent lower without reducing the benefits.

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Flexible categories

Not all executives want to pay higher savings contributions, and some shy away from the risk that comes with free choice of investment strategy. Every company can restrict the group of employees to whom a certain pension plan applies. For example, it can be based on wages, hierarchical level, function, age or the number of years of service of the employees. If the company divides the insured into different categories according to objective criteria, pension plans are also possible in which only one person is insured.

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