Employer liability for company pension schemes

Contradictory reports on the issue of liability in the case of deferred compensation within the framework of occupational pension schemes are causing uncertainty among employers in the skilled trades.

This article is part of the special feature on retirement planning – what's worthwhile for tradespeople.

According to the ZDH experts, employer liability is likely to arise only in very few cases. Read here for explanations of the legal and factual situation and tips on how you can minimize the liability risk for your company. 

1. What are tiered tariffs?

With Zillmerized plans, the insurance acquisition costs are not spread over the entire policy term, but are allocated entirely over the first few years of the contract. These plans are called "zillmerized" in reference to the mathematician Dr. August Zillmer, who developed this cost allocation method.

2. When does a company face liability risk?

For employers, a liability risk can exist, particularly during an employee's first few years of employment, if the salary conversion is based on a front-loaded (Zillmerized) tariff. If an employee leaves the company after a short time and terminates the contract, the surrender value is often lower than the value of the contributions paid in from the converted salary, since the insurance's acquisition costs are spread over the first few years of the contract in front-loaded contracts. The employer may be liable for the difference between the surrender value and the converted salary amounts. This liability is sometimes justified by the argument that the converted salary and the acquired pension commitment (here, the surrender value upon leaving the company) are not equivalent in value as defined by the German Occupational Pensions Act.

3. What does case law say?

There are now several labor court rulings dealing with the admissibility of Zillmerung and the employer's liability in the case of salary conversion. The most recent ruling by the Hamburg Regional Court of November 20, 2009, assumes that

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Ineffectiveness of the Zillmerungs clauses. DThe Federal Labor Court (BAG) was unable to make a final decision for formal reasons. However, the reasoning behind the ruling indicates that the BAG considers a Zillmerization approach, with the acquisition costs spread over five years, to be appropriate (case number: 3 AZR 17/09). Otherwise, unreasonable discrimination could occur.
More importantly for you: The employer's duty to provide information and liability are assessed differently.

4. Recommendations for practice

• When taking out new policies, choose plans that do not include zillmerization, if possible. Those who opt for zillmerization should inform their employees of the risks in writing and request a release from liability from the insurer.

• For existing contracts (old contracts), the initial deduction of acquisition costs is now more relative due to the term. The longer these zillmerized "old contracts" run, the lower the risk that the surrender value will be lower than the value of the premiums paid.
• The initial allocation of acquisition costs only takes effect if the contract is terminated early. However, there are several alternatives for termination. In the event of a change of employer, the company pension plan can usually be transferred to the new employer and continued there – without additional acquisition costs. The employee can also continue the insurance privately.

Should the contract nevertheless be terminated prematurely, resulting in financial disadvantages for the employee, the employer should first clarify the matter with the insurer and request that the insurer release them from liability.