LPP and the pension fund: the employer's obligations

The LPP (occupational pension provision) is the second pillar of the Swiss system and complements the AVS (state old-age insurance): while the first pillar guarantees the subsistence minimum, the second serves to maintain one’s standard of living in retirement. For the employer it is not an accessory: it is a legal obligation with precise rules on who must be affiliated, how to calculate contributions and what to pay. Here is what you need to know.

When the duty to affiliate arises

The employer must affiliate with a pension institution (pension fund) and insure the employees who meet the legal conditions. In short, mandatory insurance applies to employees:

• whose annual salary exceeds an entry threshold set by law;
• who have reached a certain age.

Coverage is structured in phases: first the risks are insured (disability and death), then, from a later age, retirement savings are added. Those who earn below the threshold, or have very short employment relationships, are as a rule not covered by the obligation.

The coordinated salary

LPP contributions are not calculated on the entire salary, but on the coordinated salary: the portion of pay between a coordination deduction and an upper limit, both set by law. The idea is that the band already covered by the AVS is not insured twice.

There is also a minimum coordinated salary for those with low incomes but above the entry threshold. Many funds offer plans that are more generous than the legal minimum, for example by reducing or eliminating the coordination deduction: these are the so-called extra-mandatory plans.

How contributions are shared

The overall LPP contribution is borne by employer and employee, but with a key rule: the employer must pay at least half of the total. Many employers pay a larger share as a factor of attractiveness.

The savings rates (retirement credits) increase with the age of the employee: the closer the employee is to retirement, the higher the percentage credited. This means that the LPP cost of a senior employee is structurally higher than that of a junior one, at equal salary.

The operational duties towards the fund

Once affiliated, the employer must:

• register every new insurable hire and report departures;
• notify salary changes, which alter the coordinated salary;
• withhold the employee’s share from the salary and pay it together with its own;
• respect the payment deadlines set by the fund;
• manage cases of leave, illness and maternity according to the plan’s rules.

The employer withholds the employee’s share but remains liable for paying the entire contribution: even the employee’s part, once withheld, is money that must reach the fund.

Vested benefits and departure

When an employee leaves the company, the accumulated pension assets are not lost: they are transferred to the new employer’s fund or to a vested benefits account. The departing employer must provide the necessary information and the fund handles the transfer. It is a delicate point in staff transitions and must be coordinated with the final salary statement.

The most common mistakes

• Failing to affiliate an employee who exceeds the threshold, thinking it is optional.
• Failing to report salary increases, leaving the coordinated salary misaligned.
• Underestimating the age-related cost: hiring senior profiles without budgeting the LPP.
• Delaying payments: this exposes the company to interest and to the liability of its officers.
• Ignoring extra-mandatory plans when they help retain talent.

A budgeting matter, not just compliance

The LPP has a significant impact on the cost of labour and grows with the seniority of employees. It is worth comparing the funds’ plans, understanding the level of coverage offered and deciding consciously whether to stay at the legal minimum or offer more. It is a matter of compensation policy, as well as of compliance.

How we help you

SIH ONE’s Payroll division manages LPP affiliations, calculation of the coordinated salary, notifications to the fund and payments, keeping salaries, ages and pension plans aligned. Entrust us with your payroll.