Financial product distributors are increasingly promoting working time accounts and the models of partial retirement. The financial intermediaries are mostly concerned with commissions: Few brokers are aware of the civil and criminal liability risks.
A time value account is not an implementation method of the company pension scheme. Rather, it is a matter of a “gross saving” of the employee, whereby a “malfunction” can occur at any time, which then triggers a payment as a wage. It is also particularly important to realize that during the savings phase, the employee’s claims are old – only the due date is postponed: In terms of social security law, no “phantom wage” with an immediate obligation to pay contributions usually arises only if the legal requirements of the time account model are fully implemented.
Necessary insolvency protection
Insolvency protection is mandatory by law in Sections 23 b, 7 d SGB IV for the working time account and Section 8 a ATG for partial retirement. This also includes employers’ social security contributions. From this, expert authors correctly deduce that (even partially) unprotected assets lead to criminal liability under § 266 a StGB – quite apart from the personal liability of the employer’s management for the charges. In the case of the tax advisor, instigation, aiding and abetting and/or complicity are then involved – not least, he is often in a guarantor position within the meaning of § 13 StGB.
Highly liable insolvency models
In practice, financial intermediaries offer a wide range of different arrangements. The pledge as well as various trust models to protect the assets in the event of insolvency are particularly liable. This is a catastrophe for the tax advisor and the employer, because depending on the responsibility of the parties involved, there is the threat of retroactive interest (with monthly 0.5 percent or one percent), calculated from the unjustly not paid social security contributions.
Incomplete pledge model
Even renowned insurance companies have a “standard pledge agreement” for employers and employees. This agreement is intended to safeguard the value of the credit – the law stipulates that this must include the amount of the gross salary waiver plus the employer’s social security contribution. However, the pledge always only covers the employee’s net payment claim in the event of a malfunction: wage tax and social insurance are not covered by it. The lien is accessory, i.e. it presupposes a principal claim – and this only exists for the employee in the amount of the net amount.
Apart from that, very few models provide for the employee to be constantly informed about the amount of his or her claims – in the event of insolvency he or she cannot in fact even proportionally realise the pledged property if he or she cannot concretely present and substantiate the extent of his or her claim for payment.
Even this unsuitable attempt at insolvency insurance can lead to surprising reactions from the consultant’s own financial loss liability insurer in the event of damage: Because the violation of clear legal norms – including the German Criminal Code – is considered a so-called “knowingly breach of duty”, which means that the obligation of your own VSH insurer to pay compensation is generally excluded.
Incomplete trust models
Artists of legal design have for years supported financial sales through advertising with a supposedly bomb-proof trust solution. Regrettably, the only accusation of fraud in the objective facts of § 263 StGB appears to be absolutely certain. After all, consultants, employees and employers are also misled by full-bodied promises of insolvency protection. What is regrettable about this is that the trustees involved are mostly honorary professionals: In the practice of the criminal courts, they will hardly be able to successfully plead an error of fact or prohibition.
Prohibition of disposal after insolvency application
Normally, the insolvency court will issue a so-called prohibition of disposition immediately after receipt of the insolvency petition, section 21 InsO. Then the employer as debtor may no longer make any dispositions and certainly not have them made by a trustee. Any dispositions that were nevertheless made, such as cash disbursements, would be invalid, §§ 81 f. InsO.
And anyone who believes that the reinsurance of the current value account (e.g. fund, fixed-term deposit) is transferred to the trustee (as it were as the new owner of the reinsurance) “in the event of insolvency” is mistaken: such arrangements are ineffective. The trustee therefore has hardly any legal possibility to dispose of the employees’ assets.
End of order after the InsO
The opening of insolvency is recorded by the court with date and time. The legal consequence is that all instructions and contracts of agency (including those of a trustee) end at the same moment, §§ 115 f. InsO.
If a Trustee would therefore still dispose of the assets, it would act without mandate. Only in passing, it should be pointed out that in such a situation – which is, as it were, the business as trustee – no honorary professional can obtain insurance cover on the market. Uninsurability is the reflection of a considerable risk situation.
Trustee in collision
Renowned insurance companies for financial loss liability of honorary professionals point out that a collision will lead to the loss of insurance cover. For tax consultants it is in the professional code of conduct, for lawyers it is also in the penal code. In most cases, the trustee has already participated in the development of a trust solution on behalf of the initiator or product provider: a later order by employers and/or employees would not be compatible with this.
In a similar situation, the honorary professional is in the CTA model, a double-sided trust, where employer and employee act as clients of the trustee. If the employer falls into insolvency, an insolvency administrator will demand that the trustee not to dispose of the assets so that it can first be checked whether there are counterclaims against the employees – with which counterclaims could then be offset, § 394 BGB. If the employee, and possibly also the (former managing) partner, nevertheless insists on payment and settlement vis-à-vis the trustee, the conflict of interests becomes concrete. However, for the criminal liability and possible invalidity of trust contracts, the abstract threat is sufficient.
Ineffective pledging of bank balances
Fixed-term deposits or open-ended investment funds in a custodian account of the employer, for example, are eligible for reinsurance of time accounts. It is not uncommon to set up a deposit or fixed-term deposit account at the employer’s house bank. The catch of this design can be found in the general terms and conditions of the banks: Already with the opening of accounts and deposits the terms and conditions are included – and these state that first of all the bank or savings bank is granted a lien. So if the employer has any debts with the bank, the subsequent pledge to the employee is often economically and legally ineffective. As practice shows, this consideration applies analogously to the pledging of reinsurance in connection with a pension commitment.
In the case of the time value account, the agent is also interested in securing his income through appropriate product proposals. If, for example, a life insurance policy is chosen as an investment, the zillmerisation (a charge of seven percent or more of the acquisition sum on the contract for administrative costs in the first few years) means that the available surrender value will only be available to a limited extent in the first few years.
Even when investing in open-ended investment funds, the investment risk may be noticeable for the employer due to price losses and expenses.
Few product providers point out the employer’s contingent liability. However, more decisive is the question of whether the tax auditor will later accept the model, both in terms of the scope of existing assets and the insolvency protection.
For consultants and employers, obtaining binding information from the health insurance companies in accordance with § 28 h SGB IV is not only an option, but also a duty, so to speak, in order to be able to counteract contrary views during a later tax audit. In dealing with the tax authorities, the information provided by the call according to § 42 e EStG is not sufficient, because this only applies to the phase of withholding tax on wages at the employer: if necessary, binding information must be obtained here according to the AO.
Restructuring through a bond guarantee
Bond insurance with guarantee is hardly ever offered by intermediaries: in this case, a financial intermediary guarantees the employee in particular, including the payment of any social security and taxes. For the employer, this represents an effective instrument of internal financing, as only about 20 to 30 percent of the total value of the credit balance needs to be secured, depending on creditworthiness. The costs of the guarantees usually amount to an annual guarantee commission of 1.5-2 percent: For the entrepreneur, the model is similar to a lump-sum support fund (U-Kasse), but often at much more favourable conditions. The agent’s commission is about ten percent of the guarantee commission – so little that few agents are willing to deal with it.
For the BAV management consultant or the fee-based consultant, this product is suitable for customer retention. But beware: there are also guarantee models with trustees on the market – and it is precisely these that can entail the greatest risks for the financial services provider, always including an invitation from the public prosecutor and criminal court.
Liability instead of guarantees
While some product providers misleadingly advertise a “time account reinsurance with guarantee”, experts know that despite “guaranteed interest and profit participation” a considerable risk of additional contributions remains for the employer. Legal loopholes and questions regarding insolvency protection force the tax advisor to delegate to a legal advisor according to constant higher court decisions. The tax or economic adviser also owes the client an unsolicited clarification in this respect, just as every insurance broker must show the employer his (also criminal) liability. For the GGF, the situation is precarious because the so-called manager’s liability often comes into play here: this requires a particularly prudent design, but also without orientation to the interest in commission.
Solution approach to the order of thought
Anyone who deals with deferred compensation or time value accounts should be aware that it is a question of employees’ money, i.e. their “earned” property, their wages. Whoever determines the “way of implementation and the tariff” here as an employer (as employer or agent) is dealing with third party assets as a trustee, so to speak. Charging commissions and administrative costs to this can lead to the (partial) nullity of all contracts. What is exciting about this is that not only the contracts with the employee can be affected, but also all investment contracts: After all, it is usually a bundle of contracts, in which mutual references are made to each other. The true fee-based consultant can avoid these problems more easily.
by Dr. Johannes Fiala
published on 18 May 2006 on www.channelpartner.de
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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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