Statutory and company pension schemes: Pension insurance obligation of managing directors ? 800 billion for budget restructuring?

*by Johannes Fiala, Lawyer (Munich), M.B.A. (Univ.Wales), M.M. (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Banker (www.fiala.de)
The judgement of the Federal Social Court (Bundessorzialgericht) Every managing director (Gf) who works “permanently and essentially” for an employer has been subject to compulsory pension insurance since 01.01.1999, § 2 I No. 9 SGB VI. This was decided by the Federal Social Court – the reasons for the judgement have been available since 22.02.2005 (Ref. B 12 RA 1/04 R). A management consultant had been active as a managing partner (GGF) for his own GmbH, and did not want to pay pension insurance arrears. After the judgement it does not play a role whether the GmbH belongs to the GF and/or GGF, it concerns thus the own enterprise. It is also irrelevant whether the GF or GGF is otherwise wealthy and therefore does not require social security. Up to one million managing directors are affected ? in family businesses often also collaborating partners. In addition, there are the directors of Limited�s operating in Germany. 800 billion liability potential ? The projection. Currently, the contribution assessment limit is 63,000 euros in the pension insurance in the West. At 19.5% contribution rate, this adds up to more than 10,000 euros a year. For five years at least, an additional payment has to be made retroactively, approx. 60,000 Euros per managing director. Added to this is the interest, not less than 0.5% per month of late payment. The correction of the payroll accounting often means a lot of work for the consultant. This too is reflected in the costs. With all the trimmings, there may well be around 80,000 euros for each managing director. Often corporate income tax charges are added on top!
Approaches to structuring: First of all, a clarification of the status for the past is advisable, because the ‘erroneous’ non-payment of duties can become evasion. Non-payment of taxes can turn into evasion, with criminal consequences and a doubling of interest from 0.5% to 1.0% per month. It is important to know that the social security obligation is based on the actual situation, not on a retroactive “arrangement on paper”. Then it will be a question of checking and arranging the GmbH articles of association, the legal form of the company and the employment contract – for example by splitting into several companies. In addition, it must be examined which possibilities exist for exemption from compulsory insurance ? and which statutory exemption provisions can be used to avoid compulsory insurance.
Finally, it must be examined how the occupational pension scheme is to be coordinated and adapted to the statutory one, § 6 BetrAVG. Here there are regularly considerable gaps in risk provision, for example for widows’ pensions, as well as for cases of invalidity and unemployment. This gives rise to serious financial and tax risks. Also with regard to possible interest, action could be taken against corresponding notices, because after the entry into force of the law, the central associations of the social insurance had still announced (above all meeting of 22/23 November 2000):
If a shareholder-director holds at least 50% of the share capital or can prevent the resolutions of the other shareholders on the basis of a special agreement in the articles of association (blocking minority), he generally has a decisive influence on the fate of the GmbH. In particular, he can prevent resolutions which would be detrimental to his employment relationship, so that in these cases a dependent employment relationship is ruled out from the outset. In all other cases it is to be examined in each case individually whether a dependent and thus social security-obligatory employment relationship is present? The new BSG ruling has rejected this legal opinion in accordance with the unambiguous legal wording of § 2 I No.9 SGB VI, which has been in force since 01.01.1999. The number of approximately 40,000 corporate insolvencies per year will thus hardly be able to decrease.
Reporting obligations and liability in social law For many managing directors it is an option to file for insolvency ? if it were not for the personal managerial liability for taxes and social insurance regulated by law. The employees of the GmbH (including Gf and GGF) have to be registered, § 28 a SGB IV. The managing directors are liable in tort, § 823 II BGB i.V.m. § 266a StGB. The Cologne Chamber of Industry and Commerce comments on insolvency liability: “Attention: Lack of legal knowledge does not have the effect of exempting from liability. Likewise, if tasks are delegated to subordinate employees, the managing director still has a duty of review?

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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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