The CERN Pension Fund: an eternal challenge



By virtue of its status as an international organization, CERN and its employees do not operate under the labour laws and social security systems of the Host or Member States. Thus, the Organization has to establish its own social security scheme, including pension insurance, for the adequate protection of its employed personnel.
This scheme must also be designed to allow the recruitment and retention of highly qualified personnel from all Member States. It are the Organization’s pension obligations that certain Member States want to reconsider. This is the first in a series of articles where we explain that reneging on their commitments regarding the pension Fund the Member States would create a great social injustice, very detrimental to the Organization, its staff and not compliant with international law.

Principles and responsibilities

The CERN Pension Fund (hereafter called the “Fund”) was set up by the CERN Council in December 1955. Its legal basis is the Convention for the establishment of CERN and the Agreements on social security signed with the Host States. The Fund is a capitalized scheme of a defined benefits type for which the Organization guarantees the acquired benefits of its members of the personnel until the cessation of the rights of the last beneficiary.

Governance and responsibilities

In successive resolutions the Council recognized its direct responsibility for the Fund, and its role as the Fund’s supreme supervisory authority and ultimate guarantor of the pensions benefits. Most recently, in June 2007, the Council, underlining the operational autonomy of the Fund within CERN, redefined the Fund’s governance principles and structure (Fig. 1).

Fig. 1: The Fund’s governance structure

The management of the Fund is entrusted to the Governing Board (PFGB) and the Fund’s Chief Executive Officer (CEO), assisted by the Investment Committee (PFIC) and the Actuarial and Technical Committee (ATC). On the one hand the PFGB oversees the overall management of the Fund, and, in particular, supervises the CEO and decides upon proposals or measures submitted by the ATC or PFIC.

On the other hand the PFGB advises Council on issues relating to the financial position of the Fund, in particular informs Council on the Fund’s balance on the basis of periodic actuarial reviews, and proposes to the Council any measures aimed at securing, restoring or maintaining the actuarial balance of the Fund, it being understood that proposals relating to benefits and contributions shall remain within the competence of the Director-General.

One of the important roles of the ATC is to monitor the Fund’s funding status and recommend to the Governing Board any measures to achieve full funding. In particular, it recommends to the PFGB the actuarial parameters to be used in the periodic actuarial reviews by the Actuary, who is appointed by the PFGB on proposal of the ATC.The  ATC closely follows the execution of the mandate of the Actuary, whose draft actuarial reviews the ATC examines before sending them to the PFGB for approval and further discussion in Council.

Defining sound funding principles

In March 2008 Council set up a Working Group (WG2) to analyse measures to achieve full funding. This study produced a report (CERN/2897) which concluded that the investment strategy alone was not sufficient to enable the Fund’s recovery since the Fund had to face a deficit of around 2000 MCHF. As it was impractical to inject such a large sum immediately, WG2 considered that full funding could be achieved over a projection period of 30 years via a scenario consisting of three components: (i) an increase in contribution rate from 30.88% to 34% (impact:  +15.5 MCHF/year); (ii) the creation of an employer buffer fund assuming an annual return of 5% (impact: +53.3 MCHF/year); (iii) the introduction of a tax retrocession-type mechanism corresponding to 12% of the benefits, which would be repaid to the Organization (impact: +45.3 MCHF/year). Application of all these measures concurrently would give an average annual income of 114.1 MCHF/year over 30 years.

The 2010 package of measures

Taking into account the WG2 report and the 2010 actuarial study (CERN/2948) Council decided in December 2010 (CERN/2947), June 2011 (CERN/2978) and March 2012 (CERN/3010) on a package of measures towards restoring full funding of the Fund. The main parameters of these measures are:

- Contributions for members: increase from 30.88% to 34%
- Pensions of beneficiaries: freeze until individual      accumulated loss of purchasing power reaches 8%
- Special contributions of Organizations: (max 30 years
   or until full funding reached)
         - CERN: 60 MCHF/year
         - ESO: 1.3 MCHF/year
- Conditions for new members (see Table 1)

Table 1: Comparison of CERN Pension Fund conditions




Moreover, in June 2011 Council adopted a Resolution (CERN/2972, Annex 2) “Council Resolution on the restoration of full funding of the CERN Pension Fund”, where Council approves the equitable and interdependent distribution of the four components of the package of measures between all stakeholders.In particular Council confirms that:
“as this package constitutes an equitable distribution of efforts between all stakeholders, i.e., staff members, pensioners and the participating Organizations, its individual elements cannot be modified without revision of the entire package, always maintaining the equitable distribution model.”
Table 2 compares the pension conditions in 2010 at CERN with those in other International Organizations. It is seen that pension conditions at CERN (for pre-2012 staff, and even more so for staff recruited from 2012 onwards) re amongst the worst.

Table 2: Comparison of pension conditions at CERN and in other international Organizations



2013 actuarial review: a round for nothing


In the second half of 2013 a new actuary, Buck Consultants, performed the first triennial actuarial review following the introduction of the 2010 measures. In September 2013 after the Fund’s CEO, T. Economou, declared that the results of the 2013 triennial actuarial review would be examined by the PFGB at its September and November meetings, Council decided to have a presentation of these results in Finance Committee and Council in December 2013.
The PFGB was unable to review the actuarial report in question before the end of 2013. Yet the actuary nevertheless gave a report to the official bodies of CERN in December 2013, in disagreement with the governance
of the CERN Pension Fund, which states that the report of the Actuary must first be approved by the PFGB before sending it to Council. Moreover, the actuary made various assumptions in his model which were totally new and had never been examined by the PFGB.

Therefore, the Chairman of the PFGB, Dr. T. Roth, in a cover letter accompanying the 2013 Periodic Actuarial Review (CERN/3088) suggested to let the PFGB have some more time to examine the assumptions of the actuary and to report back to the Committees in their March 2014 meeting with a more focused analysis that would allow conclusions to be drawn which might lead to actions. Notwithstanding this proviso some Council members became alarmed by the overly pessimistic and unconsolidated figure for the funding ratio in 2041 presented by the actuary.

A letter with a series of questions


Following up on this regrettable presentation, which should never have taken place if the Council had followed the chain of responsibilities it had itself put into place, in January 2014 a Delegation sent a letter “Questions and considerations regarding the Future of the CERN Pension Fund” to all Finance Committee and Council members.It contained 19 questions, a large majority touching contributions, benefits or both. Such an initiative is contrary to the rules and procedures of the Pension Fund, and a letter underlining this fact was sent by the Presidents of the Staff Association and the CERN-ESO Pensions’ Association to the President of Council, Prof. A. Zalewska, inviting her “to remind delegations to respect the roles of the various bodies the Council itself has created, as well as the rules and procedures governing them. In particular, none of the questions aimed at steering the Pension Fund or relating to changes in employment conditions should be raised.”

A proposal for a resolution

A few days before the March meetings of Finance Committee and Council we found out that the same delegation had submitted a proposal for a resolution containing a series of five recommendations concerning the CERN Pension Fund. One of the recommendations aims to “reduce the amount of CERN Member States’ extraordinary contributions to the CERN Pension Fund as much as possible and with a view to ensure the CERN Pension Fund’s viability without such extraordinary contributions from, at the latest, 2019 onward.” This point is once more in direct contradiction to the 2010 Council decision where all stakeholders contribute to a balanced package of measures, and the commitment of the 2011 Resolution to “maintain its equitable distribution model”.

Furthermore the draft resolution requests an independent expert study of the legal obligations of CERN taking into account “developments in the operation of pension schemes in CERN Member States” and also addresses “the issue of the extent to which economic and demographic developments in the CERN Member States can impact the legal obligation of CERN”. This point questions directly the acquired rights of the pensioners, an issue that has been discussed in the report (CERN/2897), which concluded that the CERN Pension Fund being a defined benefit scheme accrued rights for pensioners and the determining parameters defining the level of future pensions for active personnel are guaranteed as specified in the Rules of the Fund.

2013 actuarial review: the 2010 measures are working

Since the beginning of 2014 the ATC had several meetings with the actuary to define the actuarial parameters that should be used for the final report of the 2013 study, which was then presented to the March meeting of the PFGB, where it was endorsed. This final report was presented to Finance Committee and Council (CERN/3103). It shows that the 2010 measures are working and that the Funding level is on a genuinely positive slope (Fig. 2). This figure compares predictions based on the actuarial assumptions of the 2010 actuarial model.

Fig. 2: Projected funding level

First we look at the evolution of the funding ratio without the 2010 measures (red line), where with a negative slope the funding ratio in 2041 falls to about 30.3%. Introducing the 2010 measures in the model we attain a funding level of 111.8% in 2041 (green line), which shows that the measures have the intended effect. After introducing the latest mortality tables (VZ2010) to take into account the increase in life expectancy (blue line),  the funding ratio in 2041 is calculated to be around 95.5% (with a projection precision of around 10%), clearly showing the positive trend due to the introduction of the 2010 measures.

Notwithstanding these positive developments, during the Restricted Session of Council on 20 March, several delegations expressed appreciation for the resolution put forward by the Delegation in question. Therefore it was decided to ask the President’s group propose a new text for a resolution to be discussed in the June Restricted Session of Council, based on an analysis of the salient points raised by the delegations.

The Staff Association reacts

Following this meeting of Council, the Staff Council in an extraordinary meeting, decided to react immediately and adopted unanimously a Resolution which was sent to all Member State delegates. This Resolution demands that CERN Council respects the commitment of the Organization to pay 60 MCHF per year for 30 years, taken when approving the package of equilibration measures in 2010, and strictly enforces the competences of the governing bodies and the rights of all stakeholders. The Staff Association also read a statement at the TREF meeting of 27 March, in which it deplored the non-respect of the formal responsibilities of the PFGB and the Rules and Procedures governing pension matters, and in particular of the commitments expressed in the 2011 Council Resolution.

A Crisis meeting of all staff was called on 2 April and was a huge success (Fig 3).


Fig. 3: Staff Association’s crisis meeting of 2 April 2014

The CERN main amphitheater was completely filled with over 400 participants, with several tens of people having to remain standing. Those present showed their support for the position defended by the staff representatives in the various bodies. They appreciated the promise that the Staff Association would keep them informed about the evolution of the situation over the coming weeks. Finally, they expressed their readiness to be called upon for further action in the near future, when needed.

Consolidating the model

Given the positive trend in the evolution of the funding level, the PFGB at present sees no need to propose further measures. Therefore one can wait for the next actuarial study in 2016, covering the period 2013−2015, to allow the ATC and the PFGB to evaluate the effect of the 2010 measures based on a five-year perspective. The two years will be used to refine the actuarial model to allow for a more precise analysis and projection of the Fund’s financial situation. The PFGB will report regularly to Finance Committee and Council on its work.




by Staff Association