trapped employer

Deferred compensation with insurance solutions: Employers have double wage costs through company pension schemes.


An employee had asked her employer to invest part of her salary in a company pension scheme on her behalf (deferred compensation). After 6,230 euros had been transferred to a “company pension scheme” by the employer within three years, the employment relationship ended.

The company pension scheme reported that 639 euros of “her converted salary” were still there – the rest had been used for costs (such as commissions).

The employer was ordered by the Munich Regional Labor Court to pay the employee the missing 90 percent (again) as wages.

For the employer, however, this “experience with financial sales” will be even more expensive due to levies, because social insurance will still be due, which can no longer be charged retroactively to the employee after three months.

The employer saw a 20 percent tax advantage in the company pension scheme – he had not been advised about the risk of paying 120 percent and more on balance in the end.

In the case of endowment insurance, the intermediary receives a commission as part of the acquisition costs.

In the century before last, the actuary August Zillmer introduced a method according to which these acquisition costs first had to be paid by the customer through the premiums of the first years.

Therefore, the so-called value in the first years was “zero” – and this is simply unconstitutional (Federal Constitutional Court, decision of 15 February 2006, Ref. 1 BvR 1317/96).

The decision of the Munich Regional Labor Court (judgment of March 15, 2007, Case No. 4 Sa 1152106) applies to every implementation channel of the company pension plan (direct insurance, pension fund, etc.). If the sum of the contributions paid in is not available at all times, the employer is liable for the loss of earnings in the case of deferred compensation.

The agreements with the employees and the sponsor of the company pension scheme are simply invalid – therefore a double reversal is possible.

In the insurance contract, a good half of the premiums can legally be calculated for acquisition costs in the first few years – under employment law, this is impossible because of the employer’s duty of care regardless of fault and the requirement of equal value.

Employer liability cannot be eliminated by “employee education.” Employees can, at the latest when they leave the company, sue the employer for payment of a missing value difference.

Works councils can appoint an economic restructuring committee. Collective agreements also contain void provisions in this respect. The only way for employers to find out whether they are among the 90 percent or more affected is to talk to an independent actuary.

In the case of deferred compensation, the employer has the role of a “disinterested trustee” (OLG Düsseldorf, judgement of 6 March 1992), i.e. the duty to choose a favourable offer in the interest of the employees. Increasing employer liability over time may suggest a balance sheet adjustment.

Some supply works did not shrink from it to calm down the employers with untruths by house lawyers – employers are concealed the often negative net yield together with liability consequences straight in the first ten to 20 years by the very most supply works – liability claims of the coworkers become time-barred after 30 years.

Employers often have only three years from knowledge to recover their money in full.



by Dr. Johannes Fiala

by courtesy of (published in Waffenmarkt Intern, issue 11/2009, page 36)

and (published on 01.05.2007)
and (published on (news & more)
and (published on 2007-05-02 under the headline: New judgement: Employers in the liability trap)

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Dr. Johannes Fiala Dr. Johannes Fiala

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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