How can companies best protect themselves against possible liability claims in occupational pension schemes?

Employers have double wage costs due to company pension scheme?!


The case:

Employee loses around 90% of his company pension Anna M. (name changed) had asked her employer to invest part of her salary in a company pension scheme on her behalf (deferred compensation). After 6,230 euros had been transferred to a “company pension scheme” by the employer within three years, the employment relationship ended. The company pension scheme reported that 639 euros of “her converted salary” were still there – the rest had been used for costs (e.g. commissions). Before the LAG Munich, the employer was ordered 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.


Unconstitutional cost burden

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 these acquisition costs first had to be paid by the customer through the premiums of the first years. 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 (BVG, 15.02.2006, Az. 1 BvR 1317/96).


New ruling: Employers in the liability trap

The new decision of the LAG Munich (15.03.2007, Az. 4 Sa 1152106) concerns each implementation method 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.


Employment law beats insurance law:

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. see focal point handicraft, expenditure 2/2007).


Reasons for timely remediation

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. It should be noted that employee liability claims become time-barred after 30 years. However, employers often only have 3 years from knowledge to get their money back in full.


by Dr. Johannes Fiala, Attorney at Law, e-mail: / web:


by courtesy of (published in Brennpunkt Handwerk 3/2007, 26)


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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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