Life insurance is the only savings contract that starts with a minus . . .
* by Dr. Johannes Fiala, lawyer (Munich), mediator (Univ.) MBA Financial Services (Univ. Wales), MM (Univ.), certified financial and investment advisor (A.F.A.), lecturer in civil law and insurance law (Univ. of Cooperatice Education), banker (www.fiala.de).
A recent ruling by the Labour Court of Munich confirms that the offsetting of acquisition costs in the first few years – in particular by zillmerisation – is not permissible in occupational pension schemes with deferred compensation. According to a new ruling by the LAG Munich, such agreements are even null and void and must be reversed – irrespective of whether the employee was previously informed about the offsetting of acquisition costs. In its reasons, the LAG furthermore assumes that other forms of settlement of acquisition costs – for example over the first five years – are also inadmissible due to their zillmer-like effect.
Conversion of ownership
An employee had waived part of her salary for 35 months. 178 euros per month flowed into a life insurance policy via a company pension fund. When the employee left her employer, she had converted 6230 Euros of salary into a company pension, of which only 639 Euros were still available as insurance (surrender) value. The employee discovered that she was missing approximately 90% of her commuted salary. Ultimately, an absolutely typical case that is considered normal in the insurance industry. This was not the case for the LAG Munich, which ruled in favour of the employee in its judgment (AZ. 4 Sa 1152106) on zillmerisation in the company pension scheme. The employer has to compensate the loss of his employee and this in spite of education. The ruling confirmed that the employer must compensate the loss itself, with the deferred compensation being declared legally invalid. It can therefore be assumed that about 90% of all deferred compensation can be regarded as non-existent and that employees can demand the reversal of deferred compensation, even from earlier years.
Clarification by the employer irrelevant
In the case decided by the Munich Higher Labor Court (LAG), the parties disputed whether the employee had been sufficiently informed of the fact that the termination of the contract could lead to considerable losses in the first few years. The lower court had assumed such in an attackable manner. In any event, the employee was “not completely inexperienced” in insurance matters, having previously cancelled life insurance policies. The insurance broker had spoken to her at length. It remained unclear, however, whether the employee, as claimed by the employer, was also handed over documents from which the low surrender value of EUR 639 was identifiable in terms of amount upon termination in the third current year. Ultimately, the LAG did not address the question of informing the employee about the consequences of a premature termination of the contract, since Zillmerization was generally impermissible in the context of deferred compensation.
Employer may “pay twice”
The Stuttgart Labour Court has already ordered an employer to pay damages in a similar case (judgement of 17.01.2005), AZ 19Ca3152/04. This employer also had to compensate its departed human resources manager, a professional in-house, because of Zillmer’s successes. With this ruling, the LAG Munich joins the list of decisions on the surrender value. Both the Federal Constitutional Court and the Federal Supreme Court had already ruled that the surrender value of a life insurance policy should not fall to zero in the event of premature withdrawal. This will probably also apply in future to occupational pension schemes with deferred compensation. Closer information or questions to this principle judgement answer you the Kanzlei Dr. Johannes Fiala in a question hour on Monday, 11 June 07, from 17.00 to 19.00 o’clock under the Hotline 089-17 90 90 35. The question hour was sponsored by the Halstenbeker magazine exclusively for its attentive readers.
(Halstenbeker Magazine June 2007, 18)
Courtesy of Halstenbek Magazine.
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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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