– How advisors, brokers and pension funds are taken into recourse in time –
A daily newspaper from southern Germany misleads its readers with the title “Erste Pensionskasse reduces company pensions”. For neither are company pensions reduced if the pension fund cuts its benefits.
This is still the first pension fund where pensions and entitlements have been reduced. The Federal Labor Court (BAG, AZ. 3 AZR 408/10) had already decided in its ruling of June 19, 2012 that the employer must be liable for the difference in case of a reduction in benefits, i.e. is liable.
Confusion of terms in the daily newspaper
The speaker of a pension fund (PK) is quoted on 01.06.2016:
“From the outset, the commitment to the employee provided for the possibility of changing future calculation bases in specific cases with the approval of the Federal Supervisory Authority”.
Here the proverbial apples are confused with pears.
On the one hand, employees have received a promise under labour law that part of their wages for current work will only be paid out later as a company pension scheme (bAV). And on the other hand, the employer has then invested this money in a pension fund, with the prospect of being able to vouch for it later.
The subtle difference is that a PF cannot go bankrupt – the statutes always provide for the possibility of a reduction in benefits. The situation is different for the liable employer.
Pension funds “at least in the short and medium term” still stable?
The Federal Financial Supervisory Authority (BaFin) now considers pension funds as providers of occupational pension schemes to be stable only “at least in the short and medium term”. In the medium or long term it is quite likely that further PFs will have to reduce their benefits because, nominally, they will not even generate their own administrative costs due to the low interest rate.
As a rule, employers’ commitments do not provide for a subsequent reduction in the salary partially accrued for old age, which is then to be paid out as a company pension.
Incorrect promises lead to the liability of designing intermediaries
A bAV commitment is normally part of the employment contract. A PF can presumably be informed about their content if it has designed them itself and advised on them through intermediaries. Then these and possibly the PF itself could be held liable if they are defective.
In most cases, there is also unauthorised legal advice from PK or an intermediary, so that liability for any damage is assumed without fault. In addition, the pensions could have been “accidentally” “sold” to the employees as guaranteed. Since the employers alone are responsible for the occupational pension fund investment with your PF, the employees do not even have to have received the conditions.
Reduction of benefits leads to the obligation to pay
At the latest when the pension event occurs, the employer is obliged to pay the contributions if the occupational pension fund member has not been able to accumulate the assets necessary to fulfil the commitment. Employers should not let themselves be fobbed off with sedatives, such as the Pension Fund’s Persil certificate.
Specifically, this concerns the so-called regulated portfolio, in which BaFin itself approved higher guaranteed interest rates for much longer than was permitted by law for the deregulated PF and in the LV (which is always deregulated): Pension funds calculated – with BaFin approvals – their investments much longer than insurers with higher expected interest rates. This was riskier.
prospectus liability, expert liability and guarantee liability
Liability on the part of the pension fund and its intermediaries can already arise from the fact that the employer and its employees are repeatedly led to believe that they are dealing with higher guaranteed interest rates than anywhere else. Guarantees are also given orally by some sellers of the PF capital investment. Some occupational pension specialists are also subject to expert liability because they claim personal trust or have called themselves experts.
Not only advertising with higher guaranteed interest rates or a reference to the BaFin supervision and approval in the case of regulated PK can trigger liability. The BaFin supervisory authority does not make this type of occupational pension fund investment safer, but rather more uncertain.
It’s like when someone says:
“You can feel safe here because I wear electronic leg irons, there are always three policemen outside the house and I have to report to the police office twice a day, and if I make a mistake, my parole ends and I have to go back to my cell for another 10 years.”
Or how it is more dangerous to encounter a dog running free when the owner is present than when the dog is not present but the dog is chained.
Implemented and increasingly imminent performance reductions
There have already been repeated reductions in benefits from life insurance companies and pension funds. In the occupational pension system it is considered almost certain that the employer will have to answer for this. The gap in the necessary assets cannot usually be read from the employer’s tax balance sheet. A tax consultant will rarely be able to calculate this on an actuarial basis.
Timely examination of the financial circumstances on the one hand, and the promises made by insurers and pension funds and their advisors and sales staff on the other, provide the basis for liability claims and timely restructuring efforts before bankruptcy maturity.
Avoiding the statute of limitations through declaratory action
A divisional head of pension insurance recommended that intermediaries and advisors remain calm, as employers will only notice the problem when the employee makes a claim – until then, however, everything is time-barred and the employer alone with the problem. Employers also lacked the knowledge to recognise and prove claims at all. This tactic of the providers and advisors can be interrupted by timely assessment of the consulting errors and a declaratory action against advisors, brokers and providers for liability on the merits. After the employer has won a declaratory action, the provider, consultant and intermediary are usually quickly prepared to agree to an early settlement.
Alternative through the commitment of a trust foundation
To avoid the liability of the employer (AG) completely, a pension commitment via a trust foundation, as conceived by the Carta Mensch Foundation, is possible. Since only commitments by the employer must comply with the provisions of the German Company Pensions Act (BetrAVG), all restrictions of the BetrAVG, any liability of the AG, as well as any balance sheet contact with the AG – even contributions to the Pension Security Association are not payable.
Nevertheless, it is a company pension scheme in the broader sense. Freedom from the BetrAVG also allows, for example, more restrictive vesting rules – even payment only to those who remain loyal to the employer until the age limit or the onset of occupational disability is permitted.
Employers who want to do something to provide for their employees should not allow themselves to be restricted to the implementation methods of the Occupational Pensions Act if there are better solutions.
by Dr. Johannes Fiala and Dipl.Math. Peter A. Schramm
by courtesy of
www.elektropraktiker.de (published on 01.07.2016)
www.procontra-online.de (published on 30.06.2016)
Publisher C.H.BECK oHG
Editor “BC – Zeitschrift für Bilanzierung, Rechnungswesen und Controlling” (published in BC 7/2016)
www.euro-focus.de (Published in “Focus”, issue 2016_12, page 43)
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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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