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Measures towards full funding of the Pension Fund applicable to future members

Position of the Staff Association

This document presents the approach of the Staff Association concerning the pension plan to be offered to staff recruited as from 1 January 2012. We first recall the legal obligations of CERN as an International Organization and look at recent changes in pension schemes in other International Organizations. We then present our approach, explaining step by step its various parameters.

Introduction

Within the framework of the internal concertation process CERN Management and the Staff Association were unable to arrive at a consensus for the pension benefits plan that will be offered to staff recruited as of 1 January 2012. Indeed, notwithstanding many months of discussions, the negotiating mandate given to the Management by CERN Council was too constrained and did not allow the two parties to reach an agreement on a proposal that was acceptable to both of them. This is why we present in this separate paper the Staff Association approach.

 Legal obligations of CERN to provide a pension scheme

CERN has an obligation to provide adequate social protection for its employed members of personnel, as detailed in the Convention and in further Agreements with the two Host States, as well as in the Protocol on CERN’s privileges and immunities. In particular, under Article 21 of the Headquarters Agreement concluded between CERN and Switzerland, the Organization’s social security scheme must offer protection at least equivalent to that provided in Switzerland (see §2.1.1 of document CERN/2897 for a detailed discussion).

 Furthermore, its social security scheme - as part of the Organization’s package of employment conditions - must allow the recruitment and retention of highly qualified personnel from all Member States (Articles S II 1.03 and S II 1.04 and Annex A 1 of the CERN Staff Rules and Regulations).

 Newcomers should not have the worst pension conditions

When comparing the Management’s pension proposals for newcomers with defined benefit pension schemes which have recently (following the financial crash of 2008) been changed in other International Organizations, such as the European Space Agency, we see that the newly proposed pension, which is nothing else than a deferred salary, is being modified at CERN in the most unfavourable way possible (Table 1). This is not only unfair but also reduces substantially the attractiveness of CERN and its possibilities to retain staff.

 Indeed, Article S II 1.03 of the Staff Rules requires the employment of personnel of the highest competence. This new pension system will not motivate newcomers to CERN, and even less encourage them to stay since, in addition, they will suffer from

                        – salary levels well below those in the comparator organizations for most of the career paths,

                        – the suppression of the international indemnity six years after obtaining an indefinite contract, even though problems remain regarding expatriation,

                        – a very dissuasive contract policy.

 The current renown of our institution will allow it to last a few more years, but it will quickly cease being a centre of excellence since it will be incapable of retaining staff of the highest caliber who, having obtained the CERN label, will leave to seek their fortune elsewhere.

If, in a few years’ time, it becomes evident that the new pension conditions were too drastic and make it difficult to retain the highly qualified staff members needed to fulfil CERN’s mission, it must be possible to return to more favourable conditions. Therefore it is important that Article III 1.02 of the current Rules of the Fund should also apply to staff recruited as from 1 January 2012.

 A pension plan for newcomers

The Staff Association has examined the modifications introduced over the last three years (following the financial crash of 2008) in the defined benefit schemes in other International Organizations (see Table 1). This study shows that the conditions after the recent changes in the other organizations are similar, and sometimes even better, than the current conditions at CERN. Hence there is no objective reason to worsen the conditions for CERN staff recruited in the future. Therefore, the Staff Association has developed a pension scheme which, globally taken, is similar to the current scheme, yet takes into account the evolution in the outside world, and is at the same time fully compatible with the strategy aiming at restoring full funding, as set out in Council document CERN/2947. The parameters of the current scheme and those for staff recruited as from 1 January 2012 are compared in Table 2. The following sections will explain the various parameter values in more detail.

Table 2: Pension plan parameters for current and future CERN staff

* Legal age limit : 67 years; no reduction factors after age 65.

** Total 34% (employee 13.6%) in voluntary scheme; total 30.6% (employee 10.2%) in obligatory scheme.

Taking into account periods of training and acquiring experience

CERN’s activities are of a high technical level and require highly-qualified staff. This qualification can only be obtained after many years of study or following a long period of accumulating experience in various positions before joining the Organization. In the current CERN pension scheme it is impossible to take account of these years of training or of long careers, potentially spread over several employers. In certain national schemes in the Member States measures exist to take them into account and it would seem appropriate to introduce a similar mechanism at CERN.

Total contribution rate

At the end of 2010 the structural deficit of the CERN Pension Fund stood at about 1’700 MCHF and the actuary calculates that to reach full funding between 20 and 30 years will be necessary with a total contribution rate of 34% (as introduced for current staff on 1 January 2011) and an injection of 60 MCHF by CERN (and an amount between 1 and 2 MCHF by ESO) each year.

The Management proposal reduces this rate from 34% to 28.33%, a reduction of 5.67% percentage points in the contribution rate of the Organization, the employee’s contribution remaining unchanged at 11.33%.

This low total contribution rate of 28.33% is in contradiction with the actuarial calculation mentioned above and is even substantially lower than the rate of 30.88% in effect until the end of 2010.

Furthermore, actuarial forecasts over a twenty to thirty year period are, by nature, rather imprecise, since there are many variables in the models which are unknown, such as the performance of the Fund, the technical rate/return, the increase in life expectancy, etc. All this introduces uncertainty and increases the risk of not reaching full funding in the envisaged time frame. Therefore we consider it unwise to reduce the total contribution rate below 34% until full funding is achieved.

Hence we keep the total contribution rate at the level of 34%.

Contribution rates for newly recruited staff

Staff recruited as from January 2012 will have a contribution rate of 40% of 34% = 13.60% of their reference salary instead of 11.33% for current staff.

As CERN’s activities are of a high technical level for many functions, an advanced level of qualifications is needed, which is only obtained after several years of study. Therefore, a large fraction of the staff joins CERN at an age well into their thirties, so that it will be impossible for them to obtain a full CERN pension. It is thus proposed to take into account these years of training by reserving 10% of the total contribution, i.e. 3.4%, to allow them to buy back years of study spent in higher education. This would permit, for instance, after a career of 30 years at CERN, to buy back three years of study. As, evidently, this possibility to buy back years of study in higher education depends on the personal curriculum of the staff member, this contribution would only be on a voluntary basis. The mandatory contribution rate for a staff member, which would correspond to the accumulation of rights proportional to the period of activity at CERN, would hence be 13.60% − 3.40% = 10.20%.

Age of retirement

In its proposal, Management increases the mandatory retirement age at CERN by two years, from 65 to 67 for staff recruited as from 1 January 2012. Comparing this number to the retirement age in other International Organizations (Table 1) shows that the current retirement age of 65 corresponds to the maximum in all schemes reviewed, even after the recent changes.

We should also mention that in Switzerland the AVS pension (mandatory insurance scheme for old age and surviving spouses) is paid, without reduction factor, from the age of 65. As pointed out in the section on the legal obligations of CERN, the Organization’s Scheme must not offer conditions which are worse than those in the national scheme of the State where the Organization has its headquarters.

On the other hand, the legal retirement age in France has been increased to 67 years but measures have been put in place for “long careers”, where one can benefit from a pension without reduction factor if one has worked and contributed to the national pension scheme for at least 42 years. Therefore, ways should be studied at CERN to put in place programmes which should make it possible for staff with a long career at CERN not to have to stay until the age of 67 to benefit from a full pension.

Although we can understand that some flexibility should be allowed for staff to remain beyond the current age limit of 65, there should be no reduction factors applied to the pension for those who want to leave at the age of 65.

Accrual rate

The current accrual rate of pension rights is 2% per year, so that the maximal pension of 70% of the last reference salary is reached after 35 years of contributions. If the retirement age is increased by two years, from 65 to 67, it might seem logical that the same ceiling should be reached after 37 years, so that the accrual rate of pension rights for staff recruited as from 1 January 2012 would be 2% * 35/37 = 1.89%.

Conclusion

In this document the Staff Association discusses a pension scheme for staff recruited as from 1 January 2012 which takes into account recent evolutions in pension schemes in other International Organizations. However, as compared to the scheme proposed by the Management, which worsens too drastically the conditions for these new staff, it is more in line with current pension conditions in those International Organizations. Moreover, it takes a more prudent approach by keeping the same total contribution rate (i.e. 34%) as for current staff, thus ensuring that full funding will be reached in a shorter time frame, so that the CERN Member States will be able to end their special contribution of 60 MCHF per annum several years earlier.

13.05.2011