Employers operating company pensions through pension funds or direct insurance must, under circumstances, assume additional liabilities. This has arisen from a recent decision of the Federal Employment Court on adjustments to company pensions (case number: 3 AZR 617/12).
This affects payments out of pension fund tariffs for which up until now the employer has not carried out any pension adjustments pursuant to § 16 Employers’ Retirement Benefits Act (BetrAVG), because the surplus generated from the pension fund is already used for increases of payments. Corresponding tariffs in particular are also used in the field of company pensions through deferred compensation (so-called “Entgeltumwandlung”). This arrangement can be found more frequently in the case of tariffs which have been introduced in the last ten to fifteen years.
The above decision of the Federal Employment Court clarifies an often overlooked aspect in relation to the release from the adjustment obligation pursuant to § 16 BetrAVG: The use of all the surplus shares for the increase of ongoing payments alone does not release the employer from its obligations to check for adjustments. It is only if, in addition, the guaranteed interest of the pension fund tariff did not exceed the interest rate decisive for the calculation of actuarial reserves for life insurances pursuant to the Premium Reserves Order (DeckRV) – currently 1,25% p.a. for example. For many pension funds this was not the case at least continuously.
For this reason, the employer must adjust the pension fund payments like other pension payments, generally in the form of an adjustment for inflation, unless the necessary adjustment amount cannot be met by the surplus of the pension fund. Up until recently, this was not generally a problem in practice, but due to the currently low yields on the market, it is increasingly difficult since surpluses are very low or non-existent. The adjustment gap is no longer covered by this and the employer must compensate for the difference under circumstances in relation to the pension beneficiary. “In relation to these adjustment payments the employer can be called upon to pay not just additional claims of pensioners but to also set aside reserves for adjustments to be made in the future”, says Miroslaw Staniek, Senior Manager at Lurse AG.
Direct insurance commitments can likewise be affected by this problem if they were issued before the entry into force of the DeckRV, namely before 16 May 1996.
It makes sense for companies to check whether this problem arises in its pension scheme and if applicable, companies should seek ways which can alleviate the additional liability through a rearrangement of the pension commitments.