Company pension scheme: Design errors can lead to a social case
Management consultancies for a company pension scheme advertise a pension commitment check along the following lines, for example: “We would be happy to undertake the professional examination of pension commitments for you. In doing so, we additionally ensure that common deficiencies that occur in practice are also identified.” The practice requires however more than many standard questions, rather individual case examination of files is announced. In addition a few examples from practice: Social welfare request after pension check: A customer operates a small GmbH – with pension promise are employed a partner managing director and its wife. Other employees and the cooperating daughter do not have pension commitments. The management consultant asks the intermediary to check the documents. The management consultant, the intermediary and also the client think that everything is in order. Unfortunately a mistake. When the client falls into insolvency, it turns out that there are numerous pension commitments and pledges, only unfortunately these are contradictory and incomplete – and the 30 or so reinsurance policies have already been partially terminated. The client discovers that the management consultant had unfortunately only received part of the files from the tax advisor for examination. Without a pension, the shareholder-manager could possibly become a social case. Litigation financiers: The client cannot enforce a pension with the insolvent GmbH. Several process financiers say without further a Prozessfinanzeirung to. Especially after neither the management consultant nor the tax consultant have a permit according to the legal advice law, according to information from the local district court president. The mediator “hired” by the management consultant is horrified – he, too, is to be held liable, although he had only filled out the questionnaire and discussed the result with the client: no wonder, because after all he had received part of the remuneration and had taken advantage of the client’s personal trust – as an expert for company pension schemes one sells better, after all. The pension commitment is no less problematic in the case of the sale of a company and in the case of anticipated succession. If the purchaser of the company later makes deficiencies known or there is a dispute in the family with the heirs, the managing director and partner will be at the mercy of “his former” GmbH in the case of the pension commitment. If a dispute arises, the GmbH simply freezes the pension payments. Now the shareholder-managing director gets the idea of asserting his right of lien. But again, nothing comes of it: The insurer will hardly interfere in the dispute with the GmbH, and simply deposit it with the district court – shareholder-managing director and GmbH can then calmly argue, and that can take time. Lawsuits can take a long time to reach the “highest court”, i.e. the last instance – 10 years of proceedings can be constitutional. The practitioner calls this the “judicial credit”. Social security claim after social security check: the client had also ordered a social security check at the time, through the intermediary at the consultancy. The expert checklists were processed, the text module expert opinion led to the desired success. The shareholder-managing director and his wife received substantial repayments from the statutory pension insurance – and the intermediary received a commission from the subsequent investment. But now it turns out that the advice was incomplete – for the spouses would have resulted in significant benefits through voluntary contributions and other design measures. Had the advice been correct, the wife could draw a full pension earlier than 65. The shareholder-manager could also draw a full pension after becoming disabled prior to insolvency – if he had been advised correctly. Both would have been able to draw their pensions earlier than promised – in addition to a statutory pension – for legal reasons (even if this is not stated in the pension commitment). The tax adviser is surprised, the intermediary appalled: In his documents on training as a financial planner, he looks in vain for the intricacies of social security and the creative details related to the company pension plan. No unemployment benefit despite social security check: But it gets even better – the daughter is also affected by the insolvency, the insolvency administrator gives her notice. No problem, she thinks, and contacts the employment office. The office replies “Thank you very much for your application, which we hereby reject”, because she was “exempt from insurance” after being checked by the employment office – after all, she does not receive any benefits but only has her contributions refunded for four years (but only on application). The tax advisor is also liable in such cases, as the LG Cologne had already decided once years ago (Az. 16 O 6/93). The right procedure: The starting point of any design is the analysis. The undertaking with checklists, by an intermediary the pension promise to examine to let, resembles a patient, who would let itself operate on the heart by the nurse. Even with a doctor, treatment begins after a personal examination and consultation. This takes time, because checklists can hardly cover all conceivable cases, especially when it comes to existentially complex legal and tax issues. Then the question of finances arises, and here above all the question of risk diversification. Intermediaries should have the client sign off on the fact that structuring the entire retirement provision through a single implementation channel is practically a cluster risk. Who would deliberately put all their eggs in one basket?
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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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