How half-baked company pension commitments can be interpreted by the courts

The Federal Labor Court (BAG, ruling dated February 21, 2017, file no. 3 AZR 297/15) dismissed an employee’s action seeking to establish that his current wife is entitled to a widow’s pension from his company pension commitment. The employee had remarried at the end of the employment relationship. The future widow goes away empty-handed – and so does the divorcee.

Legal situation since the reform of the law of obligations

If, in an occupational pension scheme commitment, only “the current wife without an interim divorce” is to receive a survivor’s pension, this places the employee at an unreasonable disadvantage, Section 307 I 1 of the German Civil Code. This means that, contrary to the wording of the promise, the last wife – for the duration of the employment relationship – would receive the survivor’s pension. In the event of a divorce, there is therefore a risk that the survivor’s pension will be wrongly taken into account in the pension settlement.

Application of law without an expert leads to incorrect interpretation

In fact, the actuaries and actuaries who calculate the pension provisions are not really interested in whether the employee is married or not, nor in the age of the wife. This is often not even known to the employer (AG). Which AG constantly asks its CO about this?

Thus, the court’s reasoning proves to be fiction, for example when it states: “There is therefore a recognizable legitimate interest of the person who sets up a corresponding pension plan to limit these risks and make them more calculable (BAG, ruling dated February 19, 2002 – 3 AZR 99/01 -, marginal no. 25, juris; BAG, ruling dated October 15, 2013 – 3 AZR 294/11 -, BAGE 146, 200-216, marginal no. 31).

In practice, average marriage probabilities are expected, and an average age difference between the wife and the employee. For example, the fact that 65% are married and the wife is always 5 years younger. This can even ruin an employer’s balance sheet profit when a former board member dies, leaving behind a widow decades younger than him, for whose pension there are several million in provisions.

All the more so if the completeness of the risk transfer in reinsurance has been overlooked. It is a practical rule that commitment and reinsurance “from one source” are “delivered” by financial institutions, but neither of them is congruent in terms of content, so that bankruptcy may threaten later. Because, for example, the reinsurance company has insured a different widow than the one for whom the employer – unfortunately now alone – has to pay in accordance with his promise.

If necessary, the calculations may also show that remarriages are taken into account until the insured event occurs, or are based on average values or only on the probability of marriage on the date of death.

No pension after divorce in the case of promises made before the reform of the law of obligations for “current” widow

Prior to the reform of the law of obligations, commitments to provide survivors’ benefits are only effective if they are based on any survivorship already existing during the term of the employment relationship instead of on marriage at the date of the commitment. If this is not the case, the judicial supplementary interpretation of the contract comes into play, according to which, however, the “present” wife, who is only married after the end of the employment relationship, also goes away empty-handed.

This should certainly surprise some AN, either right now, or later, where they can turn over in their graves if necessary, if their ashes were not scattered over the resting field. Widows who keep them in an urn in the display case would not be forgiven for using the ashes after this experience to scatter them in winter on black ice as a precaution so that the milkman does not fall.

Discrepancy between occupational pension commitments and insurance reinsurance

The basis for the linguistic revision of occupational pension commitments, but also for disputes about surviving dependants’ benefits, will at best be actuarial reports, because calculation bases can prove whether the employer had deliberately assumed the risk – which makes it easier for the courts to interpret the law. It can be used to show what he must have meant, or at least what the actuary believed at the time.

At best, the concrete person of the future widow was recorded in the case of insurance reinsurance. Then there is – so the hope – the widow’s pension on the death of the employee even after a divorce. In the case of divorce, such an error then reduced the pension equalization.

However, the employer is often allowed to keep such a pension himself if the promise is not consistent with it. And vice versa, depending on the content of the reinsurance cover, the employer risks that the insurer will not pay a widow’s pension at all – i.e. the employer is allowed to pay everything alone – after the employee has remarried in time and the first wife has died. Human resources departments then search in vain for documentation from the intermediary on this.

Eliminate insolvency risks through occupational pension restructuring and clever outsourcing

There is only one way for employers to avoid their own liability with legal certainty. This means that the occupational pension commitment is made by another person, for example a company foundation, which can be structured as a partial foundation of a group trust foundation. Even the “target pension” or “close pension” invented by politicians only means a release from liability with regard to the amount of the pension – but still full responsibility for all kinds of false advice.

The average SME runs the risk of bankruptcy itself as a result of occupational pension commitments for employees, without realising it. The tax advisor can hardly overview it and therefore cannot advise. The AG will only learn about it when a court explains to him what he has actually promised and must have meant, and what is effective or must first be interpreted by a court. How is one supposed to know what is really laid down in a contract before a federal court has explained this in detail?

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of

www.network-karriere.com (published in issue 12.2017, page 30)

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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