Billion-dollar liability for employers, intermediaries and providers – employers successfully sued over company pension scheme. A few days before the oral proceedings (Case No. 3 AZR 376/07) before the Federal Labour Court (Bundesarbeitsgericht – BAG), the employer sued apparently recognised the hopelessness of its appeal.
Liability for deferred compensation
Seven legal grounds – one alone is sufficient: Zillmerisation leads to the invalidity of the occupational pension scheme
- infringement of the principle of equal value
It is of no use to the employer if he (or “his intermediary”) had pointed out the lack of equality of value, because statutory requirements – such as the equality of value in sec. 1 para. 2 No. 3 of the German Company Pensions Act (BetrAVG) – cannot be waived.
- Violation of the duty of care under the employment contract (§ 611 in conjunction with § 241 (2) BGB)
The employer violates these obligations if, by choosing a zillmerized contract, it initially allows the funds entrusted to it by its employees to be used exclusively to offset the acquisition costs of the insurance contract. Moreover, the question of criminal breach of trust may also arise here.
- Violation of the transparency requirement (§ 307 BGB)
As already decided by the Federal Court of Justice, a clause in deferred compensation agreements allowing Zillmerisation is contrary to good faith and constitutes an unreasonable disadvantage, which results in its invalidity.
- Contradiction to the regulations on portability (§ 4 BetrAVG)
Since the value of the entitlement to be transferred in the event of a change of employer in the case of zillmerisation – depending on the duration of the previous contribution payment – often tends towards zero or, in extreme cases, no surrender value could even be formed, the objective of portability pursued with the transfer regulations in Section 4 of the German Occupational Pensions Act (BetrAVG) would come to nothing if zillmerised tariffs were permissible. This also touches on the issue of free choice of occupation, as employees may in fact feel compelled not to change their occupation or employer in order to minimise the damage.
- Incompatibility with principles of recent case law of the federal courts
According to rulings of the Federal Court of Justice (e.g. ruling of 12.10.2005, IV ZR 162/03), the absolute lower limit for private life insurance policies is “50% of the unzillmerised actuarial reserve”. The Federal Constitutional Court (decision of 15.02.2006, Ref. 1 BvR 1317/96) demands an appropriate distribution of costs because (private) life insurance customers must not be deprived of the opportunity to accumulate assets through zillmerisation. In employment law, the employer’s duty of care is added to this (see above).
- Restriction of legal flexibility (Section 1a (1) sentence 5 BetrAVG)
The employee is entitled by law to determine anew each year whether and in what amount he or she wishes to convert his or her remuneration. It must be at least one hundred and sixtieth of the reference amount pursuant to Section 18 (1). 1 SGB IV (currently only 189 Euro per year). Gezillmermerte tariffs deprive this flexibility, since these assume a constant financing over often several decades.
- Incompatibility with the legislator’s objective: Abuse of the systemThe legislator’s objective is to counteract old-age poverty and to close pension gaps. By participating in deferred compensation, the employee should ultimately not incur any risk. With zillmerised contracts, however, there is always a risk or certain loss for employees in the event of changes in the modalities of deferred compensation (reduction in contributions or exemption from contributions). The fact that such models should still receive tax incentives is not compatible with the objectives of occupational pension law. Zillmerisation in fact leads to a partial reintroduction of the “vesting” of occupational pensions, although the legislator has expressly provided for vesting here. In an information brochure on deferred compensation published in May 2002, the Federal Ministry of Labour and Social Affairs stated, inter alia: “Contributions that employees invest in occupational pension schemes through deferred compensation cannot be forfeited. Every euro paid in either turns into an entitlement that is preserved even if the employee changes companies, or can be reclaimed later through severance pay …” Since it also states that “no acquisition commissions are incurred as with a private pension insurance and no issue surcharge as with the acquisition of investment units of an investment fund”, the prevention of the formation of a contract value in the first contribution years due to zillmerisation is ruled out in the case of employee-financed occupational pension provision.
Insurance companies know their liability
Stumbling block: incorrect advice and sales mediation
Alternatives often cost the employer fees for independent advice
Support funds particularly affected
Damage caused by insurance sales: Employer liability of over 50 billion euros
Old-age poverty or filling the pension gap: Others got the money!
More in the account without deferred compensation
Insurance industry on the wrong track with its own creation of law
Political response of the legislator since 2002 to the threat of old-age poverty
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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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