Deferred compensation with insurance solutions: Employers have double wage costs due to company pension scheme?

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The case: Employee loses approx. 90% of his company pension scheme: Anna M. (name changed) had asked her employer to invest part of her salary in a company pension scheme for her (deferred compensation). After € 6,230 had been transferred by the employer to a “company pension scheme” over three years, the employment relationship ended. The company pension scheme reported that €639 of “her converted salary” was still there – the rest had been used for costs (e.g. commissions). The employer was ordered by the Munich Regional Labor Court to pay the employee the missing 90% (again) as wages. For the employer, however, this “experience with financial sales” will be even more expensive due to levies, because social insurance will still be due, which can no longer be charged retroactively to the employee after three months. The employer saw a 20% tax advantage in the company pension scheme – he had not been advised about the risk of paying 120% and more on balance in the end. In the case of endowment insurance, the intermediary receives a commission as part of the acquisition costs. In the century before last, the actuary August Zillmer introduced a method according to which, with the premiums of the first years at the beginning of the contract, these acquisition costs had to be paid by the customer through the premiums. Therefore, the so-called value in the first years was “zero” – and this is not only “an investor damage” (Prof. Dr. Michael Adams, Univ. Cologne) but simply unconstitutional (Federal Constitutional Court, decision of 15.02.2006, Az. 1 BvR 1317/96). The new decision of the Munich Regional Labor Court (judgment of March 15, 2007, Case No. 4 Sa 1152106) concerns every implementation channel of the company pension scheme (direct insurance, pension commitment, pension fund, pension fund, reinsured support fund). If the sum of the contributions paid in is not available at all times, the employer is liable for the loss of earnings in the case of deferred compensation. The agreements with the employees and the sponsor of the company pension scheme are simply invalid – therefore a double reversal is possible. In the insurance contract, a good half of the premiums can legally be calculated for acquisition costs in the first few years – under employment law, this is impossible because of the employer’s duty of care regardless of fault and the requirement of equal value. Employer liability cannot be eliminated by “employee education.” Employees can, at the latest when they leave the company, sue the employer for payment of a missing value difference. Works councils can appoint an economic restructuring committee. Collective agreements also contain void provisions in this respect. Clarity brings the employer, whether he belongs to the probably over 90% concerned, often only the discussion with an independent actuary (e.g. pkv-gutachter.de). Reasons for timely reorganisation: In the case of deferred compensation, the employer has the role of a “disinterested trustee” (OLG Düsseldorf, judgement of 06.03.1992), i.e. the duty to choose a favourable offer in the interest of the employees. Increasing employer liability over time may suggest a balance sheet adjustment. Some pension funds do not shy away from reassuring employers with untruths through in-house lawyers: Employers are kept in the dark about the often negative return on investment and the consequences of liability, especially in the first 10-20 years, by the vast majority of pension funds, and employees’ liability claims become time-barred after 30 years. Employers often have only three years from knowledge to recover their money in full.
Dr. Johannes Fiala, lawyer (Munich), MBA Financial Services (Univ. Wales), certified financial and investment advisor (A.F.A.), lecturer in civil law and insurance law (Univ. of Cooperative Education), banker.
(Bankpraktiker 6/2007, 304)
Courtesy ofwww.bankpraktiker.de.

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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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