What is an employer contribution reserve (RCE), and what are its tax benefits?

The RCE (Art. 331, para. 3, CO) allows an employer to pay its employer’s share of contributions in advance, up to five times the annual amount of its employer contributions. In principle, this amount is deductible from taxable income at the time of payment, even if it is used to fund contributions for subsequent years; this is a rare exception to the principle of periodicity under Swiss tax law.

What criteria can be used to objectively compare pension funds?

Five main criteria: the rate of return on assets, the technical rate (projected future returns), the coverage ratio (ability to meet its obligations), the conversion rate (the monthly amount paid out based on the principal, which is freely determined within the framework of the non-mandatory portion of the LPP), and administrative fees, which range from CHF 62 to CHF 400 per insured person per year, depending on the pension fund.

Why is choosing a pension fund so important?

The rate of return credited by the pension fund has a direct impact on the retirement benefit, often much more so than the amount of contributions, due to compound interest over several decades.

What are the disadvantages of a 1e plan compared to the standard supplementary pension plan?

In a 1e plan, the employee no longer benefits from a capital guarantee: if the markets fall by 10%, the employee bears the full loss. In return, insurance premiums are generally lower. All 1e plans fall under the LPP’s non-mandatory portion, but the reverse is not true.

What is a 1e plan, and what is the eligibility threshold?

The 1e Plan (Art. 1e OPP2) is an open-ended plan for the portion of salary exceeding approximately CHF 136,080 (2026 threshold). Employees are free to choose their investment strategy from up to 10 options offered by the pension fund and benefit fully from market performance, minus fees.

At what salary level does the non-mandatory LPP become significant?

Once the insured annual salary reaches CHF 150,000, more than half of the insurable salary falls into the non-mandatory category. It is at this income level that structuring one’s occupational pension plan becomes particularly advantageous from a tax perspective.

What is the difference between mandatory LPP and non-mandatory LPP?

The mandatory LPP covers the portion of annual salary between CHF 26,640 and CHF 90,720 (2026 amounts), with contribution rates and a conversion rate (6.8%) set by law. The non-mandatory portion of the LPP covers any contributions the employer voluntarily makes above this legal minimum, with contribution rates of up to 35% of the insured salary and often a free choice of investment strategy. It is this portion that offers the greatest potential for tax optimization.

Does a voluntary disclosure carry any risks related to the Old Age and Survivors' Insurance (AVS)?

If the tax authorities are unable to link voluntarily disclosed assets to income from movable property or income from employment, they would have to reclassify them as income from self-employment, resulting in liability for AVS contributions. In the case discussed, this additional issue could have resulted in an extra burden of approximately CHF 66,000—a consequence rarely anticipated by taxpayers and their representatives.

FAQs 2 -

What is an employer contribution reserve (RCE), and what are its tax benefits?
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What criteria can be used to objectively compare pension funds?
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Why is choosing a pension fund so important?
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What are the disadvantages of a 1e plan compared to the standard supplementary pension plan?
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What is a 1e plan, and what is the eligibility threshold?
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At what salary level does the non-mandatory LPP become significant?
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What is the difference between mandatory LPP and non-mandatory LPP?
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Does a voluntary disclosure carry any risks related to the Old Age and Survivors' Insurance (AVS)?
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