Checklist for bosses and intermediaries

Recent rulings on liability in occupational pension schemes1) raise the question of how intermediaries and employers can protect themselves against claims. Important questions and answers.
1. is an employer entitled vis-à-vis his employee to prevent the continuation of the occupational pension scheme? To be examined, (a) whether the employer’s potential liability is increased, if necessary, by terminating the occupational pension scheme; b) whether the deferred compensation would be ineffective anyway according to LAG Munich (the employer may be committing tax evasion if he continues to convert the compensation); (c) whether new deferred compensation arrangements should wait until the situation is clear from a legal and actuarial point of view. 2) What should an employer recommend when seeking to unwind occupational pension contracts: Continuation until reversal, exemption from contributions until reversal (in order not to “carry more furniture into the burning house”) or termination of the contracts at the next possible date? Without transparency, the employer may initially have only internalized the risk of liability. Whether his contract falls under the LAG-Munich scheme (or the ten percent not affected) must be examined actuarially. Rash action without prior transparency can increase the damage, but so can hesitation. 3. how can employers “talk” employees out of a likely void occupational pension scheme without giving them the idea of “claiming damages”? If the deferred compensation is void, the employer not only owes salary, but also wage tax and social security contributions. Social security is particularly critical, because a “wage deferral” is subject to contributions as a “phantom wage”. Important: The management/entrepreneur is personally liable. Waiting for a tax audit that would lead to a criminal investigation would be risky. And: For example, the tax advisor, lawyer or auditor can be involved in the liability. Then you can hold yourself harmless later and make it plausible to the tax office that there was no criminal culpability. It is advisable to manage the converted remuneration in a special account until clarification, then the employee does not have to be told about this at first. However, virtually every employee will participate in a reorganisation of the occupational pension scheme without dispute – they can then only increase their old-age pension as a result. 4. how to manage the reversal of 200 employees with different occupational pension plans with several insurance companies? Does each contract have to be individually reviewed, processed and litigated in court? In the recommended settlement procedure, bundling is possible and sensible; in the case of judicial enforcement, it depends on what the product provider side puts forward – if necessary, each individual case must be calculated down to the cent. Experience with mass actions in other areas shows that the opponent’s litigation tactics are designed to prevent any simplification of the proceedings and therefore treats each case separately with a new hearing of evidence. There is nothing to calculate actuarially in the reversal towards the employee: He receives his full salary plus interest less the surrender value already received. 5. what is the cost to the employer of an initial consultation to ascertain whether there is any prospect of a repudiation? One or two sample cases per product and provider as well as a list of the total scope by product/provider are sufficient for the current assessment. This results in expert costs of 600 to 1,200 euros plus value added tax. An initial consultation with a lawyer, for example on the basis of a sample case, costs around 250 euros. The subsequent renovation is then often billed according to time spent. 6. what costs do employers incur when hiring a law firm for reversal? Expert costs must always be paid in advance, as a rule even if legal expenses insurance is in place. Under certain circumstances, they may be reimbursed by the opponent as necessary costs out of court or in court. It may be that an IORP sponsor will immediately reimburse all costs and expenses in response to an initial attorney’s letter – but there are cases where IORP sponsor employees will show “zillmerization as consumer protection.” If the sponsor of the occupational pension scheme holds to such ideas, a court would have to be asked for a ruling. 7. will all costs incurred (including the initial consultation) be borne by the other party in the event of success? Insofar as they were necessary and the case is won in full, they usually are – if the opponent is not already insolvent. However, it is the case that in many cases there is insufficient legal protection cover and the courts do not always judge all costs to be recoverable. At least the costs are then legally deductible as business expenses. 8. from which closing date is a reversal promising? As of the effective date of the AVG. 9. what happens to the tax or social security benefits accrued during the term? These must be paid subsequently, if necessary with surcharges – not only after successful reversal if the deferred compensation is null and void. This means that the payroll is corrected, which is tantamount to “self-disclosure”. 10. is there a chance for intermediaries to be reimbursed for their own expenses? If the claim is for intentional immoral damage by the product provider (Section 826 of the German Civil Code), the chances are good that the distributor or product provider will be held liable due to grossly faulty training and/or instructions. The documentation of training and sales documents, but also of circulars and newsletters, can improve the evidence in this respect. As a rule, product providers shy away from such lawsuits and judgments, because they then reveal deficits in the legal advice given to their own intermediaries – and could lead to an increase in intermediaries suing for a declaratory judgment that a duty to pay damages exists because of the statute of limitations. On the other hand, legal advice should also be sought in the event of an out-of-court settlement, so that there is no further miscarriage of justice.
The authors Dr. Johannes Fiala (left) is a lawyer in Munich, Dipl.-Mathematiker Peter A. Schramm is actuary DAV and expert for actuarial mathematics.
(Cash Jul+Aug 2007, 179)

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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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