IFRS · IAS 19
IAS 19 actuary for valuations in Switzerland
We evaluate Swiss occupational pension obligations under IAS 19 for companies reporting under IFRS — from helping them choose their actuarial assumptions to providing a detailed written actuarial report containing sample disclosures to complete the requirements of IAS 19.
Why do Swiss occupational pensions require Defined Benefit reporting under IAS 19
The vast majority of Swiss pension plans are “Defined Contribution” in the language of the Swiss legislation LPP/ BVG. Under IAS 19, however, they qualify as “Defined Benefit” plans as there can be a legal obligation for the company to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. This deficit can arise from minimum conversion rates of savings to pension at retirement and/ or from minimum interest credits on retirement savings. Moreover, pensions in payment are Defined Benefit by definition.
Therefore all Swiss employers reporting under IFRS, such as listed companies or subsidiaries of a group reporting under IFRS, must have their pension obligations valued by an actuary using the projected unit credit method in accordance with IAS 19.
Why a specialised IAS 19 actuary?
Valuing post-employment benefits under IAS 19 requires a dual skill set — actuarial and financial. Engaging a specialised actuary ensures four imperatives:
Ensuring compliance
The standard imposes a specific, dynamic calculation method — the projected unit credit — that differs significantly from the static calculation method for valuations under Swiss law. Your auditors will almost always require these calculations to be performed by a recognised actuary before certifying your IFRS accounts.
Navigating your choices under IAS 19
An experienced actuary guides you towards realistic assumptions generating realistic results. Switzerland is unusual as the nature of its pension plans also leads to choices of methodology. A specialized actuary will take time to understand your objectives and help you make the choices that are right for you.
Controlling balance sheet volatility
Pension obligations are often among the largest liabilities on a company’s balance sheet. A small change in assumptions — discount rate, turnover — can move equity massively. An experienced actuary guides you towards realistic, stable assumptions, avoiding accounting surprises from one year to the next.
Turning technique into a management tool
We do not just deliver figures: we help finance and HR teams understand their cost structure (service cost, interest cost) and anticipate future impacts. The actuary bridges the complexity of Swiss pension plans and international accounting requirements. We are also here to answer your auditor’s questions to ensure a smooth audit.
How we calculate your defined benefit obligation (DBO)
The calculation has three steps.
1. Projecting future benefits
The valuation of active members is dynamic in the sense that it does not rest on today’s leaver benefit but estimates the leaver benefit at each possible year of leaving in the future. Similarly, it doesn’t look solely at the leaver benefit: it projects for retirement, disability and death benefits for each possible benefit event and timing in the future reflecting the financial assumptions that have been chosen.
2. Applying probabilities
Using the demographic assumptions we determine the probabilities of leaving, retiring, becoming disabled and dying for each year in the future. Applying these to the cash flows from step one we calculate the expected cash flows for each year in the future.
At the same time, we take into account the proportion of each future benefit that is accrued at the valuation date (Defined Benefit Obligation) and separately the proportion of each future benefit will accrue over the coming year (gross service cost).
3. Discounting
The Defined Benefit Obligation, or present value, is calculated by applying the discount rate to expected cash flows. The discount rate is based on the yields of high-quality corporate bonds of matching currency and term. Our reference rates are published monthly.
The obligation is the present value of future benefits, in proportion to the years of service already rendered. It therefore does not equal the vested termination benefit — it is often higher. The same holds for the service cost recognised by the employer: spread linearly over the whole career, it does not equal the employer contributions paid.
The three steps, visualised
Illustrative — member aged 45, retirement at 65, projected benefit = 100. The DBO is neither the projected benefit nor the vested termination benefit.
A typical engagement
- Collection of plan documents and membership data from the foundation(s)
- Review together with plausibility checks of this data
- Assumption setting discussion following analysis of your experience and supported by our annual study of over 200 Swiss companies
- Calculation of the DBO and service cost followed by determination of P&L, Balance Sheet and Other Comprehensive Income journal entries
- A detailed written report with reconciliations and ready-to-publish IAS 19 disclosures
- Direct coordination with your auditors and your group actuary to avoid surprises
- Projection of next year’s pension expense and, later, mid-year simulations
What the disclosure shows
Assumptions that stand up to audit
The discount rate is based on market yields of high-quality corporate bonds in Swiss francs; we publish our reference rates monthly. The other assumptions — interest credited on savings, salary increases, mortality on the latest BVG/LPP tables, turnover — are calibrated to your membership and benchmarked against Swiss market practice.
Discount rate sensitivity
Illustrative — 15-year duration. Base: 15-year CHF AA rate, .
Frequently asked questions
Our Swiss plan is “defined contribution” — why is it defined benefit under IAS 19?
Because Swiss law prescribes guarantees — conversion rates, minimum interest, statutory benefits — that the employer economically bears. IAS 19 therefore classifies virtually all Swiss plans as defined benefit.
Which companies in Switzerland are concerned by IAS 19?
It is not the size of the company that decides, but the accounting framework of its financial statements:
- listed companies: Swiss companies reporting under the international standard on the SIX Swiss Exchange prepare their consolidated accounts under IFRS — IAS 19 is mandatory for them;
- subsidiaries of international groups — the most frequent case among our clients: even a modest Swiss SME must deliver an IAS 19 valuation every year if its foreign parent reports under IFRS;
- large private companies that voluntarily adopt IFRS — for international financing, transparency towards investors, or an upcoming sale or IPO.
Worth knowing: IAS 19 is particularly delicate to apply in Switzerland, because it must “translate” the specifics of the LPP/BVG second pillar — treated under IFRS as defined benefit, contrary to local perception.
How often is an IAS 19 actuarial valuation required?
IAS 19.58 requires that the present value of the obligations and the fair value of plan assets are determined with sufficient regularity that the net amount recognised does not differ materially from that that would be determined at the end of the reporting period. Swiss plans allow transfers in and out of vested rights as well as other significant debits and credits. Consequently, most organizations carry out a full valuation at each year end to avoid material differences.
During the year, a remeasurement is needed if there is a significant event — plan amendment, major workforce reduction, large interest-rate movement; otherwise roll-forwards are sufficient for interim assessments such as quarterly closings.
Our approach: start planning valuations three months in advance for better time and budget management, unhurried discussion of assumptions and methods, and pre-validation of these elements by your auditors to ensure a clean audit. For companies reporting under US GAAP we also offer US GAAP ASC 715. This requires similar data.
What data do we need?
We split the data collection into two streams to keep your administrative burden as light as possible.
From the pension foundation(s), with a power of attorney from you, we collect directly:
- the individual data of active members (insured salaries, retirement savings, key dates) and of pensioners;
- the current foundation regulations;
- the foundation’s asset situation.
We then check the data for plausibility and consistency.
From you as the employer:
- validate with us the economic and demographic assumptions specific to your company — expected salary increases, staff turnover;
- provide the data on jubilee benefits: loyalty awards and similar service-related benefits.
How do you set the discount rate?
From market yields of high-quality CHF corporate bonds with a duration matching that of your obligations. Our reference rates are updated monthly.
How does IAS 19 differ from US GAAP ASC 715?
The goal of International Financial Reporting Standards is to replace local standards. So it’s not surprising that there are significant similarities and that both require the same data. Both treat Swiss plans as defined benefit, but they differ in how pension cost is calculated and how gains and losses are recognised. We prepare valuations under both frameworks from the same data — see our ASC 715 page.
What are the main differences between IAS 19 and Swiss GAAP FER 16?
Both standards deal with occupational pensions, but their philosophy differs fundamentally — three key differences:
- future obligations vs. snapshot view: IAS 19 takes a long-term economic view — the present value of all pensions and lump sums payable in many decades into the future — which often creates a significant balance sheet liability. FER 16 relies on the pension fund’s situation at the closing date: for a defined contribution plan with no technical underfunding, the company generally recognises no obligation;
- the discount rate: IAS 19 requires the yield of high-quality (AA) corporate bonds, which fluctuates with the market — hence a volatile liability. FER 16 generally uses the fund’s technical interest rate, which is far more stable;
- recognition of surpluses: under IAS 19 it is rare — apart from employer contribution reserves — to recognise an asset when the fund is overfunded. FER 16 allows, under strict conditions, recognising part of a surplus intended to reduce future employer contributions.
IAS 19 is therefore generally more “pessimistic” than the Swiss standard: it brings onto the balance sheet a forward-looking economic perspective that Swiss standards — usually with good reason — leave off it. Much of this bias comes from the discount rate, well below the return expectations of pension institutions. FER 26, for its part, governs the accounts of the pension institution itself — allea is expert in all three frameworks.
Why is the Defined Benefit Obligation greater than the amount of savings for active employees?
Firstly, most plans have savings rates that increase in ten-year age bands in the same way as minimum savings rates under Swiss law. These are usually considered to lead to materially higher benefits than from earlier years of service, requiring recognition on a straight-line basis under IAS 19.70.
Conversion rates of savings to pension at retirement are set by reference to expected investment returns rather than the high-quality corporate bond yields by which they are valued under IAS 19.
Lastly, IAS 19 requires the accrual of disability and death benefits even if these are reinsured. These benefits are usually more valuable than the leaver benefit.
An independent actuary for your IFRS reporting
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