It has already been decided in rulings by the Düsseldorf Higher Regional Court of 2 July 2008 (reference 7 O 212/06) and 11 December 2007 (reference I-4 U 205/06) that managing directors and other employees have no claim against the insolvency administrator of the provident fund for surrender of the life insurance policy taken out by a provident fund. These assets shall fall within the insolvency estate.
Support funds safe?
Support funds are not subject to supervision by the Federal Financial Supervisory Authority. Board members, managing directors and intermediaries of such “constructs” do not have to prove any expertise. Therefore, small tax “errors” in the provident fund can quickly lead to insolvency. Obtaining credit reports reveals that the initiators often have neither a good credit rating nor a good reputation. There are also managers who have been released from custody and those who managed their provident fund from prison or while on release – as in the saying “If you need a thief, take him down from the gallows – if you’ve used him, put him back up again!”. The risk for employers also lies in the fact that repeatedly the assets saved for retirement were simply transferred to a tax haven. It is also certainly a signal that insurance companies do not want to issue letters of comfort or guarantees for the provident funds they have set up. For affected employers, who are thus threatened with double payment of pension costs, this is not exactly a signal for confidence-building.
Even with current pension: Managing director loses pension assets “according to plan
As a rule, managing directors and employees who have financial mathematics independently recalculated are threatened with a fainting fit. Many of the sample calculations are far from matching reality. In many cases, the board of the provident funds would have to send each retiree a box of poisoned chocolates on his or her seventieth birthday in order to pay the promised pension. Often there is only one third of the assets that would be needed to finance a lifelong pension. False predictions at the time of brokerage, as well as high commissions and additional administrative costs, deplete assets. On closer inspection, some of these tax-saving schemes are reminiscent of a Ponzi scheme, where it is completely unclear how payments are to be made to later pensioners in the event of an emergency.
Incorrect sample calculations for return on investment: liability for reversal
The Regional Court of Bamberg sentenced a British insurer to rescind the contract on the grounds of embellished past values and unrealistic future prospects (reference number 2 O 88/08). The relatively widespread deterioration in the economic situation of numerous provident funds and the financial institutions behind them also justifies termination without notice. The Federal Supreme Court came to this conclusion in a decision on 4 April 1951. After all, no one has to wait with their eyes open until their retirement provision falls into the hands of an insolvency administrator. Most life insurers are already making payments to customers from current premiums so that they do not have to sell their securities, which have fallen in value during the financial crisis, and uncover the “hidden” losses that have arisen. In taking this approach, they are hoping that there will not be a wave of layoffs. Thus, on shaky ground or as a colossus on feet of clay, you can still present yourself to the outside world as a rock in order not to scare away customers.
Hardly any security in practice: pledge or subscription right
Insofar as employees have been granted a subscription right in the life insurance policy, this is at best a declaration that can be revoked at any time, i.e. a sham security. Irrevocable subscription rights or pledges may be tax-damaging or voidable. This is especially true if the person to be provided for uses them as collateral for a loan with his bank. An assignment to the employee would certainly be tax-damaging, but in practice it happens again and again until the tax auditor discovers it. Support funds and insurers have little experience of what is possible in the event of insolvency. Statutory rules, excluded transferability or exclusion of contractual termination or exploitation rights are popular attempts to arm oneself against capture by the insolvency administrator. In fact, however, there is a constitutional right to property that protects the creditor. It is not as easy as one might imagine to stop the creditor from realising the assets. In a serious case, courts simply judge such contractual and statutory antidotes against insolvency administrators to be invalid. An insurer and its provident fund may have a different opinion. However, he never wants to be liable for it or give a guarantee.
by Dr. Johannes Fiala Peter A. Schramm
by courtesy of
www.dvs-media.eu (Der Praktiker 06/2009, 208-209)
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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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