Conversion of remuneration: August Zillmer lives

Life insurers had looked to Erfurt like a rabbit to a snake.


In mid-September, the Federal Labour Court (Bundesarbeitsgericht – BAG) had to decide whether deferred compensation agreements from before 2008 are invalid if zillmerised tariffs are used.


Result: Gezillmermerte contracts do not automatically violate the principle of equal value (Ref.: 3 AZR 17/09).


However, they may be an unreasonable disadvantage to the employee. Then the employer must follow up, the judges said. With this Solomonic judgement, the discussion about zillmerisation is further fuelled. In the case at issue, an employee had taken out a direct insurance policy as deferred compensation at the end of 2004.

The contract was fully zillmerised, i.e. the acquisition and sales costs were immediately charged in full – which goes back to the German mathematician August Zillmer (1831 – 1893), who developed the theory of premium reserves in 1863, which is still used today to keep the sales force happy.

When the employee changed jobs almost three years later, 7,000 euros had been paid to the insurance company, but the actuarial reserve was only 4,711 euros due to zillmerisation. The employee then wanted to cancel the occupational pension scheme and sued his former boss for back pay of EUR 7,000.

This was rejected by the BAG. Reason: In principle, the use of fully zillmerised contracts does not violate the principle of equal value. Therefore, this does not lead to an invalidity of the deferred compensation agreement. However, the judges built themselves a bridge for other cases to decide differently as well.


O-Ton: “There is some evidence that it is not permissible to promise the employee direct insurance with fully zillmerized rates instead of cash wages.”


The punch line is remarkably clear:

If the Zillmerization is legally objectionable, this does not lead to a “revival” of the converted salary, but to an increase in the insurance benefit. In other words, if the client had sued for higher bAV instead of back pay, he probably would have won. The court cautiously gave the green light to the legality of partial zillmerisation in older contracts, as it is now permitted in the Riester pension and was otherwise legalised with the new VVG from 2008.


Original sound: “Appropriate could be the distribution of the acquisition and distribution costs over five years.”


GDV welcomed the decision. Employers could now be confident that they are not taking a liability risk. Also zillmerized old contracts from the time before 2008 are now no longer threatened by reversal. This could be a fallacy.

Lawyer Dr. Johannes Fiala (Munich) continues to see liability risks with old contracts. The starting point was the decision of the Federal Constitutional Court of 15 February 2006.

There it is stated that “the consequences of zillmerisation in the case of premature termination of the contract is unconstitutional until the VVG is revised” (Ref.: 1 BvR 1317/96).

The BAG does not oppose this decision, especially since it was the reason for the VVG reform in 2008. According to the BAG, employers are liable for the increase in benefits and would have to make additional payments if necessary. “The all-clear looks different,” Fiala wryly concludes:

“This was not the last word on zillmerization”.


by Detlef Pohl

by courtesy of (published in Performance Issue10/2009, page 6)

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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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