The Company Pension Strengthening Act (BRSG) is currently presenting companies with the challenge of implementing the introduction of the mandatory employer allowance for insurance-based implementation paths from 01.01.2019. This new provision of § 1a para. 1a BetrAVG raises various open questions in practice. In this Client Alert, we provide you with an overview of the key aspects that need to be taken into account when revising the existing company and collectively agreed legal bases for deferred compensation in order to minimize legal and financial risks and ensure that deferred compensation can be implemented in a practicable manner.
1. starting point
§ Section 1a of the German Occupational Pensions Act (BetrAVG) gives all employees a claim against their employer for the implementation of a company pension plan (“bAV”) by way of deferred compensation. In order to further promote occupational pension schemes, the BRSG introduced, in addition to the collectively agreed “centerpieces” of the pure defined contribution plan and the option model, which have yet to be revitalized by the social partners, an innovation for the employment of low-wage earners that is already in force by law: the mandatory passing on of the employer’s social security contributions saved through deferred compensation (mandatory employer subsidy).
§ 1a para. 1a BetrAVG reads literally:
“The employer must additionally pass on 15 percent of the converted remuneration as an employer allowance to the pension fund, pension fund or direct insurance insofar as it saves social security contributions as a result of the deferred compensation.”
This linguistically simple-looking new regulation raises many legal and administrative questions in its implementation. In particular, it provides an opportunity to examine the existing pension landscape for the need to adapt the legal basis (company agreements, pension regulations, remuneration conversion agreements) and the administrative processes of conversion.
2. scope of application – demarcation between new and old commitments?
The subsidy only applies to compulsorily insured employees (Section 17 (1) sentence 3 BetrAVG). It continues to apply only to contributions to pension fund, Pensionskasse and direct insurance commitments, not to direct commitments and support fund commitments. The subsidy obligation applies to both individual and collective legal bases and to all types of commitment, i.e., to pure defined benefit plans, defined contribution plans, defined contribution plans with a minimum benefit and pure defined contribution plans (Section 1 (2) no. 2a in conjunction with Section 23 (2) of the German Occupational Pensions Act (BetrAVG)).
According to the transitional provision in Section 26a of the German Occupational Pensions Act (BetrAVG), the employer subsidy initially applies to deferred compensation agreements concluded as of January 1, 2019. For reasons of trust protection, deferred compensation agreements concluded prior to 2019 will not be subject to the subsidy until 01.01.2022. The definition of when such a “new agreement” exists is controversial. In our opinion, the determination of applicability must be based on the time at which the individual deferred compensation agreement was concluded. Neither the date of conclusion of an underlying pension plan (collective bargaining agreement, company agreement or overall commitment) nor the first contribution payment (which may only be made at a later date) is relevant. In individual cases, a fundamental change to a deferred compensation agreement that has already been concluded may also be deemed to be a new agreement. With regard to legal certainty and personnel policy considerations for the uniform promotion of employees, a uniform subsidy can already be considered from 2019.
3. calculation of the amount of the obligatory employer’s contribution.
The amount of the employer contribution is based on two variable parameters:
(1) It includes 15% of the converted remuneration, (2) if and to the extent that the employer actually saves social security contributions. Thus, the amount of the subsidy depends on the actual amount of the conversion itself. Another decisive factor is whether the employer saves on social security contributions (to AV, KV, PflV, RV, but not UV, insolvency allowance) as a result of the deferred compensation. According to the GKV Spitzenverband in its circular of 21.11.2018, whether social security contributions are saved is to be assessed in the month in which the contribution claims arise. Whether a calendar-year approach is preferable is currently under discussion.
A subsidy obligation may apply in cases of conversion of remuneration above the contribution assessment ceiling or, for example, in cases of conversion of remuneration above the contribution assessment ceiling. of conversion within the framework of a Riester pension are partially or completely omitted. The wording of § 1a para. 1a BetrAVG suggests that the employer is only obliged to make a subsidy in the actual amount of its savings. Based on the statement of the BMF on tax incentives for occupational pensions dated December 6, 2017 (“BMF Statement”), it is therefore possible to choose between a “pointed” settlement with individual review and calculation of the subsidy or a lump-sum passing on of the subsidy. For reasons of accounting efficiency and to avoid error-proneness and legal uncertainties in view of further detailed questions (observance of the BBG for different SV branches?, consequences of exceeding the BBG due to payment of the subsidy?), we generally consider a flat-rate subsidy to be reasonable.
4. legal classification of the employer’s allowance and handling of collisions with other allowances
The employer’s contribution based on the legal obligation is generally not to be regarded as a new commitment, but as an increase of the previous commitment and shares its legal fate. Accordingly, the entitlement from the employer subsidy is immediately vested by law, as is the subsidized deferred compensation itself, cf. section 1b para. 5 BetrAVG. In contrast, contractual (voluntary) allowances are generally to be treated as employer-funded pensions (and may, for example, also contain different provisions on non-forfeitability).
The question arises as to whether employers who already promote the deferred compensation of their employees on the basis of a contractual agreement in the form of matching contributions or other voluntary subsidies can apply this promotion to the employer subsidy from Section 1a (1). 1a of the German Occupational Pensions Act (BetrAVG). This casts doubt on the phrase “in addition.” Is there a risk of double grant obligation here? If additional contributions already paid by the employer represent a recognizable passing on of the savings in social security contributions, it does not appear impossible that in a specific individual case the provision is to be interpreted to the effect that the additional contribution may be credited. If a subsidy was previously paid as part of a direct commitment or support fund, it is generally not taken into account. Insofar as the employer cannot rely on already existing crediting clauses for this purpose, a supplementary clarification of the purpose of the subsidy in the legal basis is generally conceivable.
Pursuant to Section 19 of the German Occupational Pensions Act (BetrAVG), collective bargaining parties may allow deferred compensation in derogation of Section 1a (1). 1a BetrAVG regulate. For employers bound by collective bargaining agreements, it is important to check the applicable collective bargaining agreement. Whether a hitherto missing treatment of allowances in collective agreements now without further ado as an exclusion of the employer’s allowance from § 1a para. 1a BetrAVG must be critically questioned.
5. incorporation of the employer’s contribution into an / the existing contract?
Incorporating the subsidy into the existing contract with the pension provider is made more difficult if the provider refuses to accept the additional contributions at unchanged rate terms. This may force the employer to examine whether it can find a solution with the pension provider or whether it may select a different pension provider, implementation path or tariff. Whether he has to proceed in a graduated manner or whether there is a need for consent has to be considered. According to the BMF statement, the “technical implementation” of the forwarding of the employer’s allowance is the responsibility of the parties involved and thus the decision as to whether an adjustment or the conclusion of a new contract should be considered. Accordingly, an agreement with the employee is also conceivable, according to which the amount to be paid to the pension fund remains the same and in the future includes the employer’s allowance in addition to a reduced converted remuneration.
As always, opportunities and challenges in the occupational pension system are close together: We recommend that employers review their existing pension arrangements to determine whether there is a need for specific adjustments. The introduction or adjustment of the employer’s allowance should be made in compliance with the works council’s co-determination rights under Sec. 87 (87) of the German Stock Corporation Act (AktG). 1 No. 8 and 10 BetrVG and after joint discussion of administrative issues with the pension providers.
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