Germany Update: Occupational pension scheme: Employer subsidy obligation in the event of deferred compensation

The employer subsidy obligation for deferred compensation introduced by the Occupational Pensions Strengthening Act with effect from 1 January 2019 continues to be a challenge in practice due to numerous unresolved legal issues. The problem of the employer subsidy obligation is currently becoming more topical again, as from 1 January 2022 the subsidy obligation will also apply to deferred compensation agreements concluded before 1 January 2019 (so-called old commitments). The article gives an overview of frequently asked questions in connection with the employer subsidy and shows possible solutions.

When does the employer have to pay a subsidy according to § 1a Abs. 1a BetrAVG?

Paragraph 1a(1a) of the Betriebsrentengesetz (Occupational Pensions Act, BetrAVG) provides that an employer is to pass on 15% of the converted remuneration in addition as an employer subsidy to the pension fund, the pension fund or the direct insurance company, insofar as he saves social security contributions through the deferred compensation.

Is there always an amount of 15% to be paid for every saving?

In some cases, a flat-rate 15% subsidy is advocated, while elsewhere the 15% subsidy is regarded as the maximum value and below that a precise subsidy (“pointed” billing) is considered correct. The Federal Ministry of Labour and Social Affairs (BMAS) considers both approaches to be equally justifiable and feasible. For reasons of practicability, a lump-sum subsidy is recommended from our point of view, as the savings are otherwise time-consuming to calculate and there is a risk of additional payment.

How often does a check of the actual savings have to be carried out in the case of “sharp” billing?

According to the circular of the umbrella associations of social security institutions, the question of whether social security contributions are saved must be assessed in the month in which the contribution entitlements arise; there is no legal basis for an annual review. This requires a monthly review and, if necessary, adjustment. A retroactive correction of the grant in the event of cancellation of a contribution saving as a result of later one-off payments subject to contributions (e.B. holiday or Christmas bonus) should not be possible.

Can the employer offset a subsidy previously paid on a contractual basis with the statutory employer subsidy?

Automatic offsetting is possible without any problems if a corresponding effective reservation has been agreed in the employment contract. Incidentally, the set-off probably requires the consent of the employee or the conclusion of an individual agreement with the employee, although this has not been clarified legally. This means that automatic crediting is legally risky, but not completely excluded until judicial clarification. Any other necessary requirements have not yet been conclusively clarified.

How is the forwarding of the employer subsidy to be implemented technically?

According to the BMAS, the technical implementation of the forwarding of the grant is the responsibility of the parties involved. If it is not possible to adjust the insurance contract or if the pension scheme refuses to adjust the contract, a new contract may be considered for the employer subsidy. An agreement with the employee on the replacement of part of the previous deferred compensation amount by the employer subsidy is also conceivable; the amount to be paid to the pension institution remains unchanged.

To which deferred compensation agreements does the subsidy obligation apply?

The grant obligation initially only applies to contracts concluded from 1 January 2019. However, § 26a BetrAVG also provides for the validity from 1 January 2022 for contracts concluded before that date (so-called old commitments). The question of whether this also applies to agreements concluded before 1 January 2002 and thus before the entry into force of § 1a BetrAVG has not yet been clarified. However, this is supported by the unrestricted wording of § 26a BetrAVG.

Practical note:

A flat-rate 15% subsidy avoids various legal uncertainties and considerable administrative costs and is therefore generally preferable to “peak” billing. Such an approach could also prove useful for attracting and retaining employees. With a view to the application of the subsidy obligation from 1 January 2022, employers should also take the necessary measures for old commitments until the end of 2021 to ensure smooth transmission of the employer subsidy from 1 January 2022 also for old commitments.

By Dominik Gallini, MELCHERS, Germany, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact germany@transatlanticlaw.com

Disclaimer: Transatlantic Law International Limited is a UK registered limited liability company providing international business and legal solutions through its own resources and the expertise of over 105 affiliated independent law firms in over 95 countries worldwide. This article is for background information only and provided in the context of the applicable law when published and does not constitute legal advice and cannot be relied on as such for any matter. Legal advice may be provided subject to the retention of Transatlantic Law International Limited’s services and its governing terms and conditions of service. Transatlantic Law International Limited, based at 42 Brook Street, London W1K 5DB, United Kingdom, is registered with Companies House, Reg Nr. 361484, with its registered address at 83 Cambridge Street, London SW1V 4PS, United Kingdom.