Additional financing of company pension schemes (bAV) subject to wage tax

When do employees face a double insolvency risk with occupational pension schemes and additional tax burdens?

The subject of the BMF letter of 6 December 2017 (IV C 5 – S 2333/17/10002; DOK 2017/0989084) is, among other things, also the future treatment of
incorrectly structured company pension scheme (bAV):
Accordingly, special payments by the employer in the event of calculation errors by the provider are liable to wage tax for employees. Employers and employees are thus doubly liable for this “tax savings model”. Employers and occupational pension consultants are thus subject to recourse liability. Works councils and trade unions are also subject to accusations of irresponsibility.


First of all, subsequent claims for payments are made to the employer

The BMF deals with the case that the pension institution is no longer able to meet its benefits for various reasons, including calculation errors, misinvestments and insolvency risks, and therefore also demands special payments from the employer. The explicit mention makes it clear that these risks already exist more frequently or on a massive scale and are expected to increase in the future and are therefore already a topic for the tax authorities with an increasing need for regulation.

If the cause lies in calculation errors, the special payment is liable to payroll tax.

So if, for example, an employee (AN) has only 100,000 EUR in actuarial reserves and 25,000 EUR must be financed once only, he (the AN) must pay tax on this amount and probably also pay social security contributions on it. He may not receive a net salary for a few months, or as a pensioner he may not receive a pension for a few years. The occupational pension scheme becomes a source of additional risks for the Contractor.

Walter Riester had recommended additional private pension provision on a funded basis, while the statutory pension continues to decline. It is astonishing that the trade unions were only tentatively opposed here – and that works councils were hardly interested in such consequential risks: Do they abolish themselves? Even the “Verdi Company” does not dare to talk about the “halving of the pension” within 30 years in all details; as if they had fed the wolf with chalk?

Unrealistic occupational pension advice (also) leads to (tax) liability

If the calculation interest rate was initially correct and the interest rate fell unexpectedly, or if life expectancy was correctly calculated and then increased, no income tax is due. If, however, the interest rate was unrealistically high from the outset or life expectancy was already recognisably underestimated, a later adjustment is not due to the low interest rate environment, the slump on the capital market or the extension of life expectancy, but was foreseeable from the outset. It only turns out that the assumptions were wrong – these are shortfalls “caused by risks set earlier”, as the BMF says. Apparently, risks are enough, i.e. those who have made unrealistic calculations in the hope that this will go well and not occur otherwise. For example, the low interest rate environment would soon come to an end, life expectancy would rise less than realistically assumed or could be financed by surpluses, or equities would rise by 7% per annum for all eternity. If you have deluded yourself in this way, you may not be able to prove that you knew with certainty how wrong you were – and without testing you only hoped that it would go well, e.g. a miracle would happen. But he took the risks, even when he wasn’t aware of them. Why should it be an advantage to put unsuspecting idiots in a responsible position so that you can clear the market with the most attractive offers as long as possible?


Failure of employees and works councils to review the occupational pension scheme leads to the risk of insolvency

Thus, if an employer does not check how the pension fund has calculated, he not only exposes himself to the risk of back payments, but may also be allowed to pay wage tax and possibly social security contributions on them and may also expose his employees and company pensioners to considerable financial risks of high one-off payments of wage tax and social security contributions. Everyone who wants to count on the occupational pension scheme as a reliable form of provision should be aware of this. As a result of these risks, the occupational pension scheme itself can lead to poverty in old age, over-indebtedness and insolvency.


Liability traps for the future through the draft of a BMF letter

First of all, there is an “all-clear” signal: no tax liability for AN occurs if special payments are made by the employer in addition to current contributions and benefits, if these

– the restoration of adequate capital resources after unforeseeable losses, or
– serve to finance the strengthening of the calculation bases due to a unforeseeable and not just temporary change in circumstances.

The snag is that losses were often foreseeable by the provider after all, as an employer, works council, employee or trade union would have been able to convince themselves with the details in an expert manner.

Changes in circumstances, such as low interest rates on the capital market, had also been foreseeable since the 1990s. Often no change has occurred, but the conditions have remained as they were, only they have not improved as hoped. This gives the BMF the option of varying its opinion even after many years in order to demand additional taxes for almost all constellations of subsequent financing.


Unclear regulations open the way for a later decision for or against tax liability

The BMF formed two groups of cases, which in reality, however, could be simultaneously applicable:

“The above conditions are particularly important if the following conditions are met
facts are basically fulfilled:
– Capital market slump,
– Increase in disability cases,
– increased life expectancy,
– Low interest rate environment.


However, taxable wages are special payments that are made to the
employer to an external occupational pension institution
– for losses from individual transactions or
– in the case of shortfalls caused by risks previously set (e.g.
calculation errors, insolvency risks).”


Alternative of release from liability for employer, works council and employees

As an employer, you will consider whether your own tax advisor has done his job correctly here over the past decades, including the reference to underfunding, i.e. a financial liability, including the risk of insolvency?

In addition, employers will increasingly try to absolve themselves by means of severance pay – hopefully without this leading to recourse liability of up to 30 years according to §§ 18 ff. BetrAVG, or to the liability case of a double payment at the bAV: Because experience shows that employees who leave later are sometimes more unrestrained in suing former works council members and employers.


How could it have come to the point where employers were also liable for the occupational pension scheme as a social benefit?

The first cause is the convenience of the employer, employees and works councils. Or the belief that intermediaries in the occupational pension scheme know what they are doing. In case of doubt, they only know the (potential) advantages of an occupational pension scheme through training – but they have not been trained with regard to the (liability) risks. The critical jurist suspects a fraud in indirect perpetration, i.e. through a mediator who unsuspectingly successfully implements the best deals, painlessly. Independent experts should have been called in from the outset – back then, when such models were concluded, and today this could have enabled rehabilitation and debarment.

The second reason is due to the legislator: the company pension law made the employer liable in accordance with his duty of care and his obligation to assume responsibility, for example if a member of the occupational pension scheme has to reduce his benefits – and the employer is allowed to “top up”. Now the BMF opens the tax liability “as a punishment” if the employer tries to reorganize this by its subsequent financing. Employee severance pay – or better still, complete reversal of the transaction – would, on the other hand, often be a model for saving social security and income tax, provided that one could master it. The normal agent scents a commission and therefore offers the additional financing.


BAG: Liability is constitutional

The Federal Labour Court states in its judgment of 12.062007 – Ref.: 3 ZR 14/06

“Constitutional law does not preclude the defendant’s obligation to conclude an agreement on deferred compensation and the obligation to implement it. …

In addition, it is in principle the employer’s right to choose the insurance institution … It therefore has the power to take further measures to reduce the risk. If the employer decides to process the deferred compensation through a direct insurance policy, there is now a protection through the security fund for life insurers

… Another way for the employer to limit his risk is to cover only the employees’ old-age risk, rather than all risks – old-age, invalidity or survivors’ pensions – when deferred compensation is paid”.

So anyone who, as an employer, takes on increased risks – for the supposed additional benefit of the employees – is thus doing more than he would have to risk.

Employers who want to be absolutely certain do not make any commitments themselves, but leave this to a group foundation which in its own name grants company pension commitments completely outside the scope of the German Company Pensions Act and thus without its restrictions, for which the employer may at best make voluntary supplementary payments.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of

Publisher C.H.BECK oHG

Editorial office “BC – Zeitschrift für Bilanzierung, Rechnungswesen und Controlling

published in BC 1/2018


and (published on 27.02.2018)


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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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