Two specialists in the field of company pension schemes (bAV) should be known to employers and intermediaries:
Prof. Dr. Hans-Peter Schwintowski and the presiding judge at the Federal Labour Court (BAG), Dr. Gerhard Reinecke.
The chairman of the pension senate at the BAG stands for the statement that the overwhelming majority of deferred compensation v.a. do not comply with the requirement of “equal value” under the BetrAVG. Therefore, it is not only the employer’s agreements with the employee that are invalid. On the contrary, this ineffectiveness affects the contract with the “product provider” because it is a contract bundle with mutual reference. (Source: amongst others Trade journal “Der Betrieb” of 10.03.2006).
This professor stands for the proposition that the employer has numerous legal obligations to the employees in the case of deferred compensation. (This is an article from the current expertenReport “Legal obligations of the employer in the case of deferred compensation”. In addition, he argues that insurance companies are liable for “fraud and misappropriation.” v.a. if they give incorrect values to customers and do not correct them. (Source: amongst others Specialist journal “Deutsches Steuerrecht”, issues 10 and 11/2006).
The article “Occupational pension schemes: requirement of equal value – void occupational pension scheme brokerage” – has raised important questions among employers, works councils and financial service providers:
What does equality of value mean:
Equality of value is an undefined legal concept. Thus, the legislature has left it to the courts to define the content. The following consideration helps: The deferred compensation is, as it were, the employee’s assets – i.e. wages/salary for which the employee has also worked.
The employer was given the role of trustee by the legislator, because it determines the “implementation method and tariff”, i.e. how the money is invested. Now, if the employer invests “his employees’ money,” he must not misappropriate it by accepting unnecessary commissions or excessive administrative costs.
The employer must therefore make a market comparison so that the occupational pension model is not burdened with unnecessary transaction costs. In labour law, this follows from the duty of care regardless of fault, in criminal law it follows from §§ 266, 266a StGB – the prohibition to embezzle assets or (partially) withhold wages.
Whose hour of truth has come? First of all, the “moment of truth” has struck for the employer, because if he has “bought” a random tariff from an insurance agent for the money of his employees, the deferred compensation is usually partially ineffective or null and void.
This is because, as a value or surrender value, only a fraction of the amounts paid in is available as a matter of course. Calculated approximately for the difference, the employer is then liable.
The tax advisor also has to put up with embarrassing questions:
Why was this liability difference not reported on the balance sheet?
What does the law say about payroll deductions in the case of partially ineffective or void deferred compensation?
Finally, we have the insurance agent (for him, as a vicarious agent, the insurer is usually responsible), or the insurance broker. The latter is also particularly personally under fire, because his duties as a trustee require the utmost care when working for the employer. If a criminal accusation is substantiated, not even the protection of a possibly existing property damage insurance will intervene.
What is disentanglement information?
About the fact that the value equality is an indeterminate legal term, a duty of explanation of the selling exists, as recently decided with a tax advisor liability by the Federal High Court (BGH).
The informed employer will recognise its role as a “statutory trustee” in the occupational pension scheme:
This means that not only commissions in zillmerised tariffs are effectively stillborn from the outset. There is an Indian proverb that says “If your horse is dead, get off !”.
In almost every employer’s human resources department, you will find deferred compensation that needs to be remediated. For the financial services provider, personal liability leads to the realisation that, as a rule, only fee-based advice is an option – even in the case of restructuring. Am I no longer liable if I have a disclaimer from the product provider?
Only very few product providers confirm to the employer or intermediary that the implementation of the occupational pension scheme in a specific individual case complies with the equal value principle. When advising and restructuring, but also when reviewing existing deferred compensation, the involvement of a truly independent actuary can be extremely time-saving and useful.
Is the product provider then liable?
If the product provider confirms the equality of value, then he is liable for it. An actuary can check whether it is true. Because the risk continues to be borne by the employer, as I said – regardless of fault because of his duty of care. Some brokers of occupational pension schemes still think that “you have to live on something – and can therefore offer zillmerised tariffs”.
Some provident funds or pension funds also continue to buy in such tariffs for reinsurance purposes – “behind the employer’s back”, so to speak. With the appropriate, i.e. incomplete, training of the intermediaries, the product provider then often runs into liability for intentional immoral damage.
Am I no longer liable if I have provided information about the “undefined legal concept” of equal value and the uncertainty about the admissibility of zillmerised tariffs?
Many concepts are based on educating employers or employees. However, this is usually an “ineffectual attempt” at exoneration, because in addition to the duty of disclosure on the part of the financial distributor and the employer, there is also the duty of care, which is not dependent on fault.
The employer’s liability can hardly be avoided here – and this in turn impacts on the advisers’ duties. Just as deferred compensation that is not equal in value passes through to the contract with the product provider.
What must an insurance tariff offer so that it does not violate the requirement of equal value?
First of all, and this is another ground for liability or ineffectiveness, tenders should be transparent. It is therefore advantageous if the individual cost components are broken down comprehensibly in a premium or contribution. Of course, insurance contracts can also contain “biometric§ risks (e.g. disability cover, widow’s benefits). Such costs are perfectly normal and also legal.
The same applies to low administrative costs: and this is where the first problems begin.
Every asset manager is obliged not to “throw his trustor’s money out the window” – otherwise he could be accused of breach of trust. So the employer has to compare tariffs or have them compared by an occupational pension expert or insurance broker. We all know that there are significant price differences in almost all products on the market.
This is where the solution lies, and of course, in case of doubt, with a cover by an independent actuary. As is well known, the vast majority of “supposedly independent occupational pension institutions” are firmly within the sphere of influence of certain product providers.
The usual financial mediation starts with a lie: “Our activity does not cost you a penny, of course”.
This is of course because the average client would rather pay 60,000 euros commission (through the back door, charged to the contract) than 20,000 euros for sound advice. However, the “Zillmerungsverbot”, the “transparency requirement”, the employer’s duty of care and the protection of property under the Basic Law force a completely different approach to occupational pension provision.
Just one example of a pension scheme:
Thus, the specialist literature also describes the provident fund as ineffective solely “because of additional unnecessary administrative costs” if the costs of the provident fund are taken from the converted remuneration of the employees. Am I no longer liable if I use a tariff that the insurer describes as an unzillmerised tariff?
The Zillmerung is only a variant the commission temporally seen, to load the insurance contract. In the case of the so-called metal pension, the distribution takes place over five years, as has recently been the case with Riester contracts. For the employer as a legal trustee, there is always the possibility to choose a commission-free tariff.
If he uses the services of an occupational pension consultant or occupational pension intermediary, then that is his decision, as it were – but not at the same time permission to then charge these costs to the employee: which employer would have the idea of deducting the monthly costs of payroll accounting from the salary?
Transferred to the occupational pension system:
In principle, the employer may not charge or allow to be charged – even through the back door – the “unnecessary commissions” or “excessive administrative costs” to the salary/salary administered by him as a bAV. This can extend in relation to the employee to an allegation of fraud by deception.
It should not be overlooked that even “half-true” information of the employees or the employer can be a deception by omission.
What can I do as an employer or financial services provider that makes sense?
The employer must be aware from a financial point of view that the damage caused by “models not equal in value” usually increases from day to day. This is due to the compound interest effect. The employee is often entitled to all income – including income that is not generated because the total costs are too high. Here it is therefore often a matter of creating a situation of equal value for the first time as far as possible within the framework of a refurbishment.
If the contracts are partially void or ineffective, new agreements must be concluded – and above all, employers must ensure that they comprehensively and demonstrably comply with the statutory duties to inform employees.
The financial services provider has a wide range of options for assisting the employer – not least by coordinating the restructuring and facilitating discussions with the employees, actuary and other parties involved. The advisor’s follow-up duties require active claims management.
The principles of personal “managerial liability” of managing directors and board members force immediate restructuring.
by Dr. Johannes Fiala
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About the author
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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