bAV: Liability traps with the time value account – Traps for the financial sales force

*by Johannes Fiala (Munich), attorney (www.fiala.de), and Peter A. Schramm (Diethardt), actuarial expert (www.pkv-gutachter.de)
No company pension scheme This is not a way of implementing a company pension scheme. Rather, it is a matter of a “gross saving” by the employee, whereby an “incident” can occur at any time, which then triggers a payment as a salary. It is also particularly important to realise that during the savings phase the employee’s entitlements are aged ? only the due date is postponed: in terms of social security law, a ‘phantom wage’ with an immediate obligation to pay contributions only arises as an exception if the legal requirements of the working time account model are fully implemented. Insolvency protection is prescribed by law in §§ 23 b, 7 d SGB IV for the working time account and in § 8 a ATG for partial retirement. This also includes the employer’s social security contributions. From this, specialist authors correctly deduce that (also partially) unprotected value credits lead to criminal liability under § 266 a StGB ? quite apart from the personal liability of the employer’s management for the levies. The tax advisor is then affected by instigation, aiding and abetting and/or complicity ? not least, he is often in a guarantor position within the meaning of § 13 StGB. Time value accounts and the models of the age part-time work are promoted strengthened by the financial selling. The financial mediators concern it here mostly around commissions: Very few intermediaries are aware of the civil and criminal liability risks for tax advisors and the management of employers.
Insolvency models involving liability In practice, a wide variety of arrangements are offered by financial intermediaries. Pledging, as well as various trust models to protect the value credits in the event of insolvency, are particularly prone to liability. Thus, auditors comment that more than 90% of the models on the market are incomplete. For the tax advisor and the employer a catastrophe, because depending upon responsibility of the involved ones a retroactive interest (with monthly 0.5% and/or 1%) threatens, calculated from the wrongfully not transferred contributions to the social security.
Even renowned insurance companies have a “standard pledge agreement” for employers and employees. This agreement is supposed to secure the credit balance ? the law stipulates that it must cover the amount of the gross salary waiver plus the employer’s social security contribution. However, the pledge always only covers the net payment claim of the employee in the event of a disruption: wage tax and social insurance are not covered by it. It is important to understand that the pledge is accessory, i.e. it presupposes a principal claim ? and this only exists for the employee in the amount of the net sum. Apart from that, very few models provide that the employee is continuously informed about the amount of his claims ? In the event of insolvency, he cannot even realise the pledged assets on a pro rata basis if he is unable to present and substantiate the extent of his claim to payment in concrete terms. Even this ineffectual attempt at insolvency protection can lead to surprising reactions on the part of the consultant’s own property damage liability insurer in the event of a claim: Because the offence against clear legal norms ? also the StGB – is considered as a so-called ?knowing breach of duty?, with which the obligation to indemnify of the own VSHPlichtverstoß?, with which the obligation to indemnify of the own VSHVersicherers is excluded as a rule.
Sketchy trust models artist legal design, have supported financial sales for years by advertising a supposedly bombproof trust solution. Regrettably, the only accusation of fraud in the objective facts of § 263 StGB appears to be absolutely certain. After all, consultants, employees and employers are also misled by full-bodied promises of insolvency protection. It is regrettable that the trustees involved are mostly honorary professionals: In the practice of the criminal courts, they will hardly be able to successfully invoke an error of fact or prohibition.
Normally, the insolvency court will issue a so-called prohibition of disposal immediately after receipt of the insolvency petition, section 21 InsO. Then the employer as debtor may no longer make any dispositions, and certainly not have them made by a trustee. Any dispositions nevertheless made, such as cash payments, would be ineffective, §§ 81 f. InsO. Lawyers with little talent in the service of several providers of working time accounts believed that this situation could be circumvented by transferring the reinsurance of the working time account (e.g. funds, fixed-term deposits) to the trustee (as the new owner of the reinsurance) “in the event of insolvency”: however, the Reichsgericht already ruled in the 1930s that such arrangements are invalid. The Federal Labour Court and the Federal Supreme Court have long since confirmed this legal opinion. The trustee therefore has hardly any legal possibility of disposing of the employees’ credit balances.
End of order according to the InsO The opening of the insolvency is recorded by the court with date and time. The legal consequence is that all instructions and contracts of agency (including those of a trustee) end at the same moment, §§ 115 f. InsO. If a Trustee would therefore still dispose of the assets, it would act without mandate. It should only be pointed out in passing that no honorary professional can be appointed to such a position – leading the business as trustee, as it were? situation, can obtain insurance coverage on the market. Uninsurability is the reflection of a considerable risk situation.
Trustees in Collision Reputable property damage liability insurance companies for honorary professionals advise that a collision will result in the lapse of coverage. For tax consultants it is in the professional code of conduct, for lawyers it is also in the penal code. In most cases, the trustee has already participated in the development of a trust solution on behalf of the initiator or product provider: a later order by employers and/or employees would not be compatible with this. The honorary professional is in a similar position in the CTA model, a two-sided trust in which the employer and employee act as principals of the trustee. If the employer becomes insolvent, will an insolvency administrator require the trustee not to dispose of the assets so that it can first check whether there are any counterclaims against the employees ? which could then be offset, § 394 BGB. If the employee, possibly also the (former managing) partner, then nevertheless insists on payment and settlement vis-à-vis the trustee, the conflict of interest becomes concretely apparent. However, for the criminal liability and possible invalidity of trust contracts, the abstract threat is sufficient.
Pledging of bank balances without effect For the reinsurance of working time accounts, fixed-term deposits or open-ended investment funds in a custody account of the employer, for example, come into question. It is not unusual for a custody account or fixed-term deposit account to be set up with the employer’s bank. The catch of this design can be found in the general terms and conditions of the banks: Already with the opening of accounts and deposits the terms and conditions are included ? and these state that first of all a lien is granted to the bank or savings bank. If the employer has any debts with the bank, then the subsequent pledge to the employee often runs economically and legally into the void. As practice shows, this consideration applies analogously to the pledging of reinsurance in connection with a pension commitment.
Zillmerungshaftung Also with the time value account the mediator is interested in securing its incomes by appropriate product suggestions. If, for example, a life insurance policy is chosen as an investment, the surrender value available in the first few years will be low due to zillmerisation (a burdening of the contract with administrative costs in the first few years, amounting to 7% or more of the contract sum). Even when investing in open-ended investment funds, the investment risk may be noticeable for the employer due to price losses and expenses. Few product providers make reference to the employer’s default liability: more decisive, however, is the question of whether the tax auditor will later still recognise the model, both from the point of view of the extent of existing assets and of insolvency protection. For consultants and employers, obtaining binding information from the health insurance companies in accordance with § 28 h SGB IV is not only an option, but also an obligation, so to speak, in order to be able to counter contrary views in the event of a later tax audit. When dealing with the tax authorities, it is not sufficient to call for information in accordance with § 42 e EStG, because this only applies to the phase of withholding taxation of wages at the employer: here, if necessary, binding information must be obtained in accordance with the AO.
Restructuring by bail bond guarantee Barely offered by intermediaries is the bail bond insurance with guarantee: In this case, a financial intermediary guarantees in particular the employee, including the payment of any social security and taxes. For the employer, this is an effective instrument of internal financing, because only about 20-30% of the total credit balance needs to be guaranteed, depending on creditworthiness. The costs of the guarantees usually amount to an annual guarantee commission of 1.5-2%: for the entrepreneur, the model then resembles a lump-sum funded provident fund (U-Kasse), but often on much more favourable terms. The commission of the mediator lies with approximately 10% of the guarantee commission ? this is so little that only few mediators would like to concern themselves with it gladly. For the bAV company consultant or the fee-based consultant, this product is suitable for customer loyalty. But caution, on the market there are also guarantee models with trustees ? and straight these can contain largest risks for the Finanzdienstleister, always enclosed an invitation by public prosecutor and criminal court. While some product providers misleadingly advertise a ?time account reinsurance with guarantee?, experts know that despite ?guaranteed interest and surplus participation? a considerable additional payment risk of the employer remains. The legal gaps and questions to the insolvency protection force the fiscal advisor after constant supreme court iurisdiction to the delegation to a legal advisor. The tax or economic advisor also owes the client in this respect just as much an unsolicited clarification as any insurance broker has to show the employer his liability (also under criminal law). For the GGF the situation is precarious, because here the so-called Mangerhaftung often comes to bear: This requires particularly prudent design, but also without orientation on the commission interest.
If you are concerned with deferred compensation or working time accounts, you should be aware that you are dealing with the employees’ money, i.e. their ‘earned’ property, their wages. property, the wages. Whoever as an employer determines the ?implementation method and the tariff? here (as an employer or intermediary) is, as it were, dealing as a trustee with other people’s assets. To burden this by commissions and administration costs can lead all contracts to the (partial) nullity. It is exciting at the fact that of it not only the contracts with the employee can be concerned, but also all investment contracts: After all, it is regularly a bundle of contracts in which mutual reference is made to each other. The genuine fee-based advisor can avoid these problems more easily.

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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