20.10.2022 | KPMG Law Insights

Client alert on occupational pension provision

bAV written form requirement following amendment of the Verification Act

The new version of the Verification Act (NachwG), which came into force on August 1, 2022, caused displeasure with the extension and now fine-proof enforcement of the written form requirement. This implementation, which is excessive in terms of European law, forces employers to adapt their employment contracts and is criticized as an outmoded bureaucratic and digitalization hurdle. With regard to occupational pension schemes, the need for action is discussed critically. After all, there are already various obligations to write down and provide information, including those arising from data protection law, insurance law, insurance supervisory law and, last but not least, tax law. Compliance with the relevant formal requirements in each case remains a major challenge in practice. To what extent will employers have to provide written information on all the requirements of each pension commitment in the future? Is a reference to collective sets of rules on supply systems always sufficient to exclude questions of doubt? What applies to deferred compensation? In this Client Alert, we discuss the main labor law consequences of the amendment to the NachwG for occupational pension plans.

1. derivation and sense of the obligations to provide evidence

The purpose of the obligation to provide evidence is derived from Directive 91/533/EEC of 14.10.1991: The protection of employees is to be strengthened through the transparency of working conditions. Against this background, the NachwG was created in Germany in 1995. Since then, employees must be informed by means of a written document about the essential terms of the employment contract, in essence: the time, place and remuneration of their work. Notwithstanding compliance with the obligation to provide evidence, employment contracts are binding even without compliance with the written form requirement. The reform prescribed by the European legislator to improve the verification requirements in accordance with Directive 2019/1152/ EU of 20 June 2019 on transparent and predictable working conditions (Verification Directive 2020) brought new requirements, the implementation of which had to be carried out by the EU member states.

2. extension and punishment of the violation of the obligation to provide evidence

Although, according to the Evidence Directive, the less strict text form would have been sufficient and thus the possibility existed to introduce electronic evidence, the German legislator decided to retain the written form requirement and to extend it in accordance with the new information requirements. The catalog of minimum proof requirements in § 2 para. 1 NachwG has been expanded and now also lists, for example, overtime and its requirements and remuneration, as well as rest breaks, termination options and requirements (written form requirement, procedure, deadlines for bringing an action for protection against dismissal), etc.

The extended information requirements generally apply to new employment relationships with a start date on or after August 1, 2022 (Section 5 NachwG). However, they must also be implemented in existing employment relationships at the request of the employees. Reference is made to the European concept of employee, e.g. civil servants and probably also third-party managing directors of a GmbH are also covered. The deadlines for providing evidence are staggered and shortened; with regard to the essential terms of the contract, a transcript must generally be provided no later than on the first working day.

Another new aspect is the probation of fines for violations by the employer: Previously, there were no legally standardized sanctions, but at most disadvantages in the burden of presentation and proof.
Now the punishment is a misdemeanor with a fine of up to 2,000 EUR. Only the hope of a pragmatic handling in the practice of the tax audit remains.

3. need for action in the area of occupational pension schemes?

What changes does the NachwG bring for occupational pension plans? The catalog in § 2 para. 1 NachwG now stipulates that the employer must include in the minutes at least:
– according to No. 7 “the composition and amount of remuneration, including overtime pay, bonuses, allowances, premiums and special payments, as well as other components of remuneration, each of which shall be stated separately, and their due dates, as well as the method of payment, […]” and
– according to No. 13 “if the employer promises the employee an occupational pension through a pension provider, the name and address of this pension provider; the obligation to provide evidence does not apply if the pension provider is obliged to provide this information […].”
What is part of the remuneration was already defined in § 2 para. 1 No. 6 NachwG old version. Since occupational pensions have the character of remuneration, it was considered at the time that contributions to occupational pensions should also be subsumed under remuneration, irrespective of the implementation channels.
By the addition of § 2 para. 1 NachwG by No. 13, it is questionable whether this provision is now to be regarded as a new lex specialis for the occupational pension scheme compared to No. 7. This would mean that pension commitments would no longer be subject to verification as part of remuneration, but would be subject to an independent verification requirement (only) in the case of medium-term care. Supply carriers exist in the areas defined in § 1b para. 2 to 4 of the German Occupational Pensions Act (BetrAVG) (direct insurance, pension funds, pension funds and support funds); there would therefore no longer be an obligation to provide evidence in the case of a direct commitment. Since No. 13 expressly states that the employer is not required to provide evidence if the pension provider is obliged to provide this information, the new provision would de facto only apply to the provident fund, for which only the name and address would have to be provided, since Sections 234k et seq. of the German Insurance Supervision Act (Versicherungsaufsichtgesetz) provide for the obligation to provide information for the insurance-based implementation channels. German Insurance Supervision Act (Versicherungsaufsichtsgesetz) require pension providers to provide information.
As desirable as this might be from the employer’s point of view, we do not consider the “lex specialis” argumentation to be convincing. Due to the indisputable nature of remuneration and the importance of occupational pensions for employees, there is no apparent reason not to include occupational pensions further under Section 2 (2) of the German Income Tax Act. 1 No. 7 NachwG. The Federal Labor Court (Bundesarbeitsgericht – BAG) also affirms the remuneration character of the occupational pension plan (see only BAG ruling dated November 13, 2012, ref. no. 3 AZR 444/10). No. 7 regulates the obligations with regard to the composition and due date of remuneration and thus also obligates the employer to provide information on the occupational pension scheme. No. 13 only additionally regulates an obligation to provide information on any external pension provider, insofar as the latter is not itself obliged to provide information.

4. exception for proof requirement?

Only in the case of collective legal acts (collective agreement, works or service agreement) of the supply in the company, the obligation to provide evidence in relation to details does not apply in principle, because here § 2 para. 1 No. 15 NachwG with the option of a reference to the regulations provides relief. However, such an exception is now only provided for in the case of collective-law and statutory regulations.
The former extension “or similar” regulations is no longer included in the wording of the law. Many follow-up questions therefore arise: Does the exemption from the notification requirement still apply to other acts establishing the law governing occupational pension schemes? A reference in the case of individual legal acts with a collective reference (collective commitments) is not applicable. Per se, all regulations without normative effect or even amendments to these regulations must be taken as an annex to the employment contract. It remains to be clarified whether a distinction between a substantial change and mere acts of transposition can be derived in this context in any case.

5. written form for deferred compensation agreements?

The obligations to provide evidence do not differentiate between employer- and employee-funded occupational pension plans. Does this mean that there is also an obligation to comply with the written form requirement for deferred compensation agreements or for voluntary employer contributions? Yes: The wording of § 2 para. 1 No. 7 NachwG focuses on changes in the amount, composition and due date of the remuneration. It could be argued that the amount of the (gross) remuneration remains unchanged even in the case of deferred compensation as such, since the remuneration is only converted in accordance with the pension commitment. If applicable, a distinction must also be made as to whether a legal basis already regulates deferred compensation or a voluntary allowance. However, from a risk-averse point of view, the deferred compensation agreement must be written down as before. This is an important agreement to change the payment of remuneration and thus an essential part of the employment contract. This applies irrespective of the employee’s own initiation or the basic statutory entitlement to deferred compensation under Section 1a (1). 1 BetrAVG.
It cannot be ruled out that, at any rate for ongoing implementation processes as in previous practice, a risk-averse digital approach will also prevail in order to ensure form-identical data transmission and payment processing between HR or the salary system and the pension provider.

6. conclusion

There is much to suggest that occupational pension schemes should continue to be exempt from the obligation to provide evidence under Section 2 (2) of the German Income Tax Act as remuneration for work. 1 No. 7 NachwG is covered. In addition, according to § 2 para. 1 No. 13 NachwG, the name and address of the provider must be included in the proof of supply in the case of supplies via an external supply provider, provided that the provider is not required to provide information itself.
An exception for the obligation to provide evidence applies according to § 2 para. 1 No. 15 NachwG in the case of collective and statutory regulations on occupational pension schemes. For further legal acts of the pension commitments such as esp. In our opinion, it is advisable to include these in principle as an annex to the employment contract. It is not only because of the stricter obligations to provide evidence that it is advisable to write down the pension scheme in an orderly manner. Other arrangements for implementation, such as the deferred compensation agreement, should also be written down in a risk-averse manner.

We will be happy to provide you with individual, vendor-neutral advice and suggestions on how to find a suitable solution for your company that is sustainable, legally compliant and justifiable in terms of personnel policy.

Contact at KPMG LAW: Christine Hansen (specialist attorney for employment law, focus on company pension plans) and Dr. Julian Cahn (attorney, specialist attorney for employment law, focus on company pension plans).


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