A new ruling by the Munich Regional Labor Court is forcing many employers to compensate employees for losses incurred when their company pension plans are terminated.
If you only speculate on the blinds, i.e. the basic stakes, when playing poker, you can lose everything. This may soon be the case for many employers. In future, they will be allowed to “pay twice” for their employees’ company pension schemes if an employee leaves early. The background: A recent ruling by the Regional Labor Court (LAG) in Munich confirms that the offsetting of acquisition costs in company pension schemes with deferred compensation is not permissible. Especially in the first years, no value is added here by zillmerization*. Even if the employee had previously been expressly informed of the acquisition costs, such agreements were null and void. In its reasoning, the LAG also assumes that other forms of accounting for acquisition costs – e.g. over the first five years – are also inadmissible due to their zillmer-like effect.
Ultimately, an absolutely typical case that is considered normal in the insurance industry. The insurance broker, as the employer’s vicarious agent, had expressly informed the employee that the termination of the contract could lead to considerable losses in the first few years. Nor was the employee “completely inexperienced.” The insurance broker had spoken to her in detail – documents had also been handed over to the employee, from which the low surrender value of 639 euros was recognisable in terms of amount when terminating the policy in the third current year. The employer was still wrong in law in saying that the employee could at best turn to the insurance company.
Labour law beats insurance law
The Stuttgart Labor Court (judgment of January 17, 2005, file no. 19 Ca 3152/04) had already ordered an employer to pay damages. This employer also had to compensate its former personnel manager who had left the company, i.e. a specialist in its own company, because of the Zillmer successes. In the opinion of the labor court, this was due to the fact that the employee was not properly informed. Numerous insurers and other sponsors of occupational pension schemes then believed that it was sufficient to inform the employee about the “Zillmerung”. What’s more, the ruling was often wrongly interpreted as virtually confirming the admissibility of informed zillmerization. Zillmerization means that “insurance and acquisition costs, all distribution and acquisition costs” are paid with the first converted pay rates. Only then does a “cover capital for the old-age pension scheme” build up. In the present case, not even the sum of the premiums paid would have been available as a surrender value in the first 20 years – not to mention the interest. For years it has been known from the trade press that the employer continues to be liable, i.e. may “pay twice” in the case of deferred compensation, even if the employee has been informed. This is because the employer has a duty of loyalty to its employees regardless of fault. The Regional Labor Court (judgment of March 15, 2007, Case No. 4 Sa 1152106) ordered the employer to pay the approximately 90 percent of the salary that was missing after the salary conversion – this time to the employee and not to the company pension fund. Legally, this deferred compensation was found to be legally invalid. The court based its ruling on four legal grounds – even one would have been sufficient. 1. infringement of the legal requirement of equality of value. According to § 1 II No.3 BetrAVG, the employer is required by law to ensure that the employee receives a pension entitlement of “equal value” at all times. In particular, zillmerised insurance contracts do not meet this requirement. Calculated costs for the risk of death are regularly not taken into account here An employee had waived part of her salary for 35 months. 178 euros per month flow into a life insurance policy via an intercompany pension fund. When the employee left the employer, she had converted 6,230 Euros of her salary into a company pension plan (bAV), of which only 639 Euros were still available as an insurance surrender value. The employee noted that she was thus missing about 90 percent of the commuted pay. important (possible higher costs for occupational disability risk do not apply in the specific case). The deferred compensation thus violates the statutory requirement of equal value and is therefore null and void, § 134 BGB. The ruling clarifies that the employer, as the contractual partner of its employee, does not merely owe the “simple forwarding” of the earned pro rata wage within the framework of deferred compensation “as a messenger”. This means that direct insurance, Pensionskassen, pension funds and support funds are affected. In the case of individual providers or implementation channels, there are apparently only zillmerised contracts. 2. infringement of the prohibition of unreasonable discrimination. Conversion of remuneration with Zillmerisation – and similar methods of offsetting acquisition costs in the first few years – puts employees at an unreasonable disadvantage and is not compatible with the fundamental ideas of the statutory regulation, § 307 I S.1, II No.1. BGB. This follows the established case law of the Federal Labour Court on “unfair discrimination contrary to good faith”, § 307 I p.1. BGB, since abusively own interests of the employer at the expense of the employees are affected.
Ausfallhaftung for acquisition costs
The employer is legally liable for the fulfilment of the deferred compensation, § 1 II No.3 BetrAVG. The employer is liable for default irrespective of fault, especially if the actuarial reserve is “substantially reduced” as a result of the acquisition costs being charged. This disadvantage of the employee also leads to the invalidity of the deferred compensation. 3. violation of portability, § 4 BetrAVG. Portability means that the employee can take his occupational pension with him from the previous employer to the new employer. The legislator has clarified that employees can “take along” the “current transfer value” of their occupational pension when changing employer. However, portability is de facto not possible if the (surrender) value tends towards zero due to zillmerisation. With any new employer, the employee would have to “practically start from scratch”. For the employer, this means in a mirror image that the brokerage of such company pension contracts violates the established case law of the Federal Court of Justice on “advice appropriate to the investor and the object”: Because on average employees are in a company for 4.9 years – contractual arrangements with a term of 30 to over 40 years and correspondingly high commissions/contracting costs are unsuitable for employers. 4. violation of principles of the Federal Court of Justice and the Constitutional Court. The Federal Constitutional Court (rulings of 26. 07. 2005 and 15. 02. 2006) and the Federal Supreme Court (rulings of 12. 10. 2005) have ruled that Zillmerisation violates the contractual objective of capital accumulation. Thus, it cannot be agreed if the (redemption) value upon termination of the contract is disproportionately low or even tends towards zero in the first years. This applies all the more with remuneration conversion contracts. The judgement has RA Dipl.-Jur. (Univ.) Thomas Keppel, law firm Dr. Johannes Fiala, MBA. The reasons for the judgment are in line with the case law of the higher courts and the prevailing opinion in the specialist literature. The LAG only allowed the employer, who lost the case in full, to appeal to the Federal Labor Court. In its reasons for the judgment, the LAG Munich states that, in addition to Zillmerisation, other types of settlement of acquisition costs – e.g. over the first five years – are also invalid for the same reasons. This means that more than 90 percent of deferred compensation is to be regarded as null and void – employees can then demand reversal from their employers – including earlier ones.
recoveries must bear interest
Due to the lack of transparency of many deferred compensation contracts, most employees do not know how the acquisition costs and whether further expenses, e.g. for risk protection, were charged. In case of doubt, the specialist lawyer will therefore first have the contracts examined actuarially. Altogether the possible reclaims plus interest and social security contributions to be paid in arrears are estimated at today already approximately 65 billion euro – a liability potential, which increases also in the future rapidly. P. A. Schramm Contact Dipl.-Math. Peter A. Schramm Actuary DAV Expert for Actuarial Science 56355 Diethardt Tel.: 06772/962568 Internet: www.pkv-gutachter.de
(campingimpulse 3/2007, 21)
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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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