bAV: Reduced insolvency protection in the event of a work interruption

Published on 02.08.2006

by Johannes Fiala, Lawyer (Munich), M.B.A. (Univ.Wales), M.M. (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Banker (www.fiala.de)
Two employment contracts: One employee was working for the same company with an interruption of his employment. The employment relationship had been interrupted for studies. After the study, the employer agreed that the previous length of service would be credited against his company pension entitlement.
No PSV protection in the event of insolvency: The PSVaG, the statutory insolvency insurance institution, refused to include the first employment relationship. This reduced the insolvency-protected pension provision not inconsiderably.
The BAG ruling: The Federal Labour Court (BAG ruling dated 25.4.2006, ref. 3 AZR 78/05) agreed with this opinion of the PSV. The employment relationship had not been “inactive” but “interrupted” during the interruption. Contractual improvements to the old-age provision are also not taken into account in the statutory insolvency protection for pension entitlements. The decisive factor is the actual uninterrupted length of service. Only in this respect does the insolvency protection under the German Company Pensions Act apply.
Design option: The insolvency risks in occupational pension schemes are considerable. This means that not only managing partners are affected, but also many employees. The present case shows that, through clumsy drafting, employers, honorary professionals as advisors, insurance intermediaries as well as product providers behind them can also be held liable if the contracts are not drafted in accordance with the law.