Company pensions are an important pillar of old-age provision in Germany and are of immense importance to both employees and employers. The implementation of occupational pensions is subject to the Occupational Pensions Act, which imposes various duties and obligations on employers. In recent years, the Occupational Pensions Act has undergone a number of changes, which entail new liability and obligation risks for employers. In this article, we will focus in particular on the risks that affect all employers, regardless of the size, sector or legal form of their company.

Specifically, the following changes have been made in recent years:

  • On 1 January 2019, the obligation was introduced for employers to make a contribution of 15% to the company pension scheme for new contracts (Section 1a BetrAVG).
  • With effect from 1 January 2022, employers must offer their employees a company pension scheme (Section 1a BetrAVG). In addition, there is a documentation requirement for informing employees about the offer of a company pension scheme (Section 1a (5) BetrAVG).
  • Since 1 January 2022, employers have also been obliged to grant an employer contribution of at least 15% for old contracts (Section 26a BetrAVG).
  • On 1 August 2021, an obligation was introduced for companies bound by collective agreements to structure the pension scheme (Section 17 (1a) BetrAVG).

Liability risks

If the employer does not comply with the obligation to make an offer in accordance with the ruling of 8 March 2022 (Federal Labour Court - 3 AZR 361/21), it is responsible for paying a reasonable amount for the resulting damages. A potential claim for damages can be asserted retroactively by affected employees or their relatives for up to 30 years. Liability is not limited to cases where the employer completely refuses to fulfil the obligation to offer a pension, but also extends to cases where the employer implements the prescribed regulations incorrectly or incompletely.

A further liability risk arises from the fact that employers must ensure that the products they offer comply with legal requirements and that employees are informed about the various pension options. This can result in a liability risk for the employer in the event of an incomprehensible explanation of company pension products by the employer or inadequate documentation of the advice given.

Employers are also responsible for ensuring adequate pension planning. This implies a regular review of the products on offer. In order to minimise liability risks, it is essential that employers seek professional advice immediately. A periodic, independent review of your own pension scheme can also help to minimise the liability risk. Often, the relevant insurance brokers and HR departments do not properly fulfil the above points.

Commitment risks

In addition to liability risks, entrepreneurs must also consider obligation risks in connection with company pension schemes. A recent ruling by the Federal Labour Court on 21 July 2021 has attracted a great deal of attention in this regard. The court ruled that the employer is liable for the fulfilment of the company pension scheme of its employees even after the insolvency of the implementation channel if it has not fulfilled its duties of care.

Specifically, this relates to the so-called subsequent liability of the employer in the event of the insolvency of the implementation channel. The Occupational Pensions Act requires the employer to provide a guarantee that the pension benefits will also be paid in the event of the insolvency of the implementation channel. To this end, the employer must fulfil various duties of care, such as carefully selecting a suitable implementation channel and regularly reviewing the financial situation of the implementation channel.

In this case, the employer had failed to fulfil these duties of care and relied on the guarantee of the implementation channel. When this became insolvent, the employer's employees were left with their pension entitlements. The Federal Labour Court ruled that the employer was liable for the fulfilment of the pension benefits even after the insolvency of the implementation channel, as it had breached its duty of care.

For companies that offer company pension schemes via an external implementation channel, this judgement means a considerable tightening of due diligence obligations. It is no longer sufficient to rely on the guarantee of the implementation channel; instead, regular reviews of the financial situation of the implementation channel must take place and, if necessary, a change to another implementation channel must be considered.

Conclusion

To counteract these risks, employers should familiarise themselves in detail with the Occupational Pensions Act or seek expert support. It is also essential that they fulfil their obligations as an employer when implementing company pensions and provide their employees with comprehensive information about the various implementation channels.

In addition, they should check at regular intervals whether their company pension schemes continue to meet the current legal requirements and make adjustments if necessary. Careful planning and implementation of company pensions can not only minimise liability and obligation risks, but also contribute to securing the long-term success of the company.

Overall, it is very important that entrepreneurs are aware of the importance of company pensions for their employees and their company and take appropriate measures to exploit the opportunities and minimise the risks of this form of pension provision.

For a risk analysis in relation to current legal developments, we are happy to provide you with an independent business appraisal.

Guest article by Rico Müller and Luka Trogrlic, Rettig Investment Consulting GmbH (rico.mueller@rettig-partner.com)