Article

Current labour law judgements in company pension schemes

Legal framework in practice

In our current overview of labour law case law, we discuss rulings by the Federal Labour Court on the interpretation of age-related exclusion clauses in pension commitments, on the employee's right to a pension under Sec. 1 (1) sentence 3 BetrAVG in the event of reductions in benefits in the case of occupational pension commitments via a pension fund and on the scope of application of the facilitating legal requirements of Sec. 16 (3) No. 2 BetrAVG for pension adjustments, as well as a judgement by the LAG Berlin-Brandenburg on the (in)effective waiver by the pension recipient of the implementation of pension adjustments under Sec. 16 BetrAVG.

1. Entitlement of an employee initially employed in a fixed-term employment to the granting of a bAV commitment (BAG judgement dated 22 September 2020, 3 AZR 433/19)

In its judgement of 22 September 2020, the German Federal Labour Court (BAG) has decided that a pension provision contained in General Terms and Conditions of Business (Allgemeine Geschäftsbedingungen, AGB), according to which fixed-term employees and employees who are in an employment of unlimited duration are only entitled to company pension benefits, if they have not yet reached the age of 55 at the start of the employment, is to be interpreted as being based on the age of the employee at the start of the employment if an unlimited-term employment immediately follows a fixed-term employment.

The plaintiff employee, born in 1960, had established an employment with the defendant employer on 1 February 2013. The employment was initially limited in time and was terminated in 2016. The defendant grants its employees company pension benefits in accordance with a pension scheme which, during the period in dispute, included the following provisions ("VO"):

"1. Benefting employees
All employees who are in an employment of unlimited duration for six months after taking up work are entitled to a company pension, provided that they have not yet reached the age of 55 at the start of the employment. Employees who are in a fixed-term employment are not entitled to participate.

2. Eligibility requirements
To be entitled to benefits, an employee must (1) be 25 years of age or older, (2) have been employed for at least five years without interruption and (3) have a written agreement on the pension commitment.”

In its action filed on 7 September 2018, the plaintiff requested that the defendant accept its offer to enter into a pension commitment and that it establish that the defendant is obliged to provide him with pension benefits in accordance with the regulation in the event of a pension claim. He belongs to the group of participants entitled to pension benefits. Before reaching the age of 55, he had entered into an employment with the defendant which had already existed for more than five years without interruption. The fact that the employment was not terminated until after he reached the age of 55 does not exclude him from the group of participants. The defendant refused to conclude the pension commitment on the grounds that the employment was not terminated until after the age of 55 and that the plaintiff was not (no longer) able to meet the requirements for admission to the group of participants at the time of the termination.

The BAG granted the complaint. The VO - as general terms and conditions of business in accordance Sec. 305 et seq. of the German Civil Code (Bürgerliches Gesetzbuch, BGB), the regulation is to be interpreted as meaning that the maximum age at the start of employment is decisive. This applies irrespective of whether a fixed-term employment was initially agreed, provided that an employment of indefinite duration immediately follows the fixed-term employment. The requirement of a "written agreement on the pension commitment" is not constitutive for the applicant's pension entitlement. The written agreement has only declaratory effect. The "promise of a pension commitment" is already to be regarded as a pension commitment within the meaning of § Sec. (1) of the BetrAVG if and to the extent that the strengthening of a future right to full entitlement depends solely on the continuation of the employment and the occurrence of the pension case, i.e. the employer no longer has any scope for decision on the content and scope of the commitment to be made.

Conclusion

In view of the company pension schemes established in the company, the BAG's decision once again raises awareness in practice of the treatment of employments which the employer has initially concluded for a fixed term and later removed the fixed term: after the removal of the fixed term, such employments are generally to be treated as employments which are unlimited from the outset. An attempt by the employer to treat employments under labour law in a differentiated manner in terms of time between the period of the fixed-term contract and the subsequent continuation for an unlimited period does not generally lead to the objective pursued by the employer in this way - but to avoidable legal disputes which cannot normally be won by the employer.
 

2. Employer's obligation to assume liability for reductions in pension fund benefits pursuant to Sec. 1 (1) sentence 3 BetrAVG (BAG judgement dated 12 May 2020, 3 AZR 157/19)

In its judgement of 12 May 2020, the BAG made it clear that if a defined contribution plan (Beitragsorientierte Leistungszusage, BOLZ) is promised in the pension fund implementation path, the employer only has to take account of any benefit reductions of the pension fund (in the specific case: reduction of the imputed interest rate used in the specific tariff for the annual pension module from 4% to 0.9%) on the basis of its entitlement under company pension law to a pension from § 1 (1) sentence 3, BetrAVG, in the event of a benefit claim.

In the facts of the case relevant to the decision, the defendant employer had promised the plaintiff employee a company pension promise as BOLZ in the pension fund's implementation channel via BVV Versicherungsverein des Bankgewerbes a.G. (BVV). The company pension scheme was based on a company collective bargaining agreement concluded between the defendant and the competent trade unions, under which the content of the undertaking was to be determined by the specific insurance tariff (DN) in accordance with BVV's articles of association and BVV's insurance conditions. BVV's insurance conditions for the DN insurance tariff originally provided for a calculatory interest rate of 4% for the calculation of the annual pension module. In 2016, the general meeting of BVV members decided that from 2017 onwards, pension modules under the DN insurance tariff would only be subject to an imputed interest rate of 0.9%. BVV enabled the employers concerned to compensate for the reduction in pension benefits due to the reduction in the actuarial interest rate by increasing contributions. The defendant did not (initially) make use of this possibility. In his action, the plaintiff sought an order that the defendant pay this increased contribution to BVV, with reference to the right to the procurement of company pension benefits under Sec. 1 (1) sentence 3 BetrAVG. Pursuant to Sec. 1 (1) sentence 3, BetrAVG, the employer is responsible for the fulfilment of the benefits promised by him even if the implementation is not carried out directly through him.

The BAG dismissed the complaint. The BAG pointed out first of all that the employer can only implement a reduction in benefits implemented by the pension fund in the insurance relationship directly in the company pension scheme - by virtue of the dynamic reference clause to the insurance conditions for the relevant tariff - if the associated changes in the content of benefits meet the requirements of proportionality under company pension law in accordance with the BAG's three-stage theory. If this is not the case, the employer is liable for the coverage gap resulting from the reduction of the actuarial interest rate directly to the pension beneficiary from the procurement claim under Sec. 1 (1) sentence 3 BetrAVG. However, the employer's obligation arising from the procurement claim under Sec. 1 (1) sentence 3 BetrAVG does not exist until the pension case occurs. It is only from this point in time that the employer must fulfil the company pension commitment and grant the specific pension benefits. It is only at this point in time that a binding decision is made as to the difference between the benefits provided by the indirect pension provider in the performance relationship on the one hand and the benefits promised by the employer in the value ratio on the other hand, for which the employer is directly responsible under Sec. 1 (1) sentence 3 BetrAVG.

Conclusion

This is a helpful decision in practice, particularly in view of the continued mixed financial situation of the individual pension funds in a low-interest environment. It leaves the employer the autonomy and flexibility to decide whether to compensate immediately for any gaps in coverage in the financing of the company pension schemes made by the external pension provider by means of a corresponding additional contribution to the external pension provider - as tendered by BVV in the case of the facts relevant to the decision - or only to finance them in the event of a pension payment to the individual pension beneficiary.
 

3. Company pension schemes via pension fund: Employer's reference to § 16 (3) no. 2 BetrAVG in the event of primary allocation of surplus shares by the pension fund to the loss reserve and (no) employer's obligation to pay contributions if the pension adjustment is not made (BAG judgement dated 3 June 2020, 3 AZR 166/19)

In its judgment dated 3 June 2020, the BAG decided that the employer is already exempt from the obligation to make adjustments (audits) in accordance with Sec. 16 (1) BetrAVG in accordance with Sec. 16 (3) no. 2 BetrAVG if the pension fund initially transfers profit shares from the capital investment to the loss reserve in accordance with the provisions in its articles of association and does not carry out any pension adjustment at the respective adjustment date in view of the consumption of profit shares by the transfer to the loss reserve, provided that the further conditions set out by the employer in its judgements dated 18 June 2020 (3 AZR 137/19) and 10 December 2019 (3 AZR 122/18) have been fulfilled for the application of Section 16 (3) No. 2 BetrAVG (above all contractual commitment to use the surplus share to adjust pension benefits, clear allocation of the surplus share to the cohort of pension recipients and the employee's claim as a pension beneficiary against the pension fund to enforce legally compliant surplus calculation and use).

In the facts relevant to the decision, the defendant employer had given the plaintiff company pensioner in the employment running from 1978 to 2003 a company pension scheme in the pension fund's implementation path at VDU Versorgungskasse VVaG (VDU). VDU's articles of association stipulated that (1) a loss reserve was to be formed to cover deficits from the capital investment, to which the surplus from the capital investment was to be allocated until the loss reserve reached at least 5% of the actuarial reserve, and (2) any surplus remaining thereafter was to be allocated to the reserve for premium refunds, which was to be used to increase benefits (pensions and vested rights). From 2006, the plaintiff received pension benefits from the company pension scheme commitment in the amount of EUR 604.60. From 2006 onwards, VDU's loss reserve never reached a value of at least 5% of the actuarial reserve. VDU allocated all surpluses from the investment to the loss reserve and did not increase the plaintiff's pension benefits. In 2017, the plaintiff requested that the defendant adjust the pension in accordance with Sec. 16 (1) BetrAVG with effect from 1 April 2015, specifically as a retroactive adjustment to be made on 1 April 2009 and 1 April 2012. The defendant rejected the pension adjustment with reference to Sec. 16 (3) No. 2 BetrAVG. In accordance with Sec. 16 (3) No. 2 BetrAVG, the employer has fulfilled its obligation to carry out the pension adjustment (audit) if the pension adjustment (audit) commitment is carried out via a pension fund and, from the start of the pension, all profit shares attributable to the pension portfolio are used to increase current benefits. The defendant justified its reference to Sec. 16 (3) No. 2 BetrAVG by stating that, in accordance with the statutes, VDU was able to allocate the surpluses primarily to the loss reserve and that this earmarked use of the surpluses was suitable for dispensing with the employer's adjustment review under Sec. 16 (3) No. 2 BetrAVG.

The plaintiff thereupon brought an action for pension adjustment. He denied the application of Sec. 16 (3) No. 2 BetrAVG, since the use of the surplus share specified in Sec. 16 (3) No. 2 BetrAVG did not take account of any loss reserve that might have to be formed. The employer can only rely on Sec. 16, (3) No. 2, BetrAVG, if all profit shares are actually paid out to the beneficiary company pensioners. In any event, the defendant's obligation to adjust the pension on the basis of the right to a pension under company pension law to make a procurement claim pursuant to Sec. 1 (1) sentence 3 BetrAVG.

The BAG dismissed the legal dispute on factual grounds to the second court instance. The BAG followed, with regard to the legal issue of the scope of the content of Sec. 16 (3) No. 2, BetrAVG, the defendant's view that the employer's obligation to make adjustments under Sec. 16 (3), No. 2, BetrAVG can also be waived if the pension fund initially transfers profit shares to the loss reserve - to the extent that no adjustment payments to company pensioners are granted as a result of such complete use of the profit shares for a specific purpose. The BAG bases its opinion on the insurance law provisions of Sec. 139 (1), 140 (2) sentence 1, 141 (1) sentence 5, No. 4 of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz, VAG), which are decisive for the use of the profit participation, according to which profit participation can only be considered to the extent that the permanent ability of the company to meet its obligations arising from the insurance contracts is observed. In order to ensure that the pension obligations can be met on a permanent basis, the pension fund may therefore initially allocate profit participation to the loss reserve at the minimum level determined by the VDU.

The BAG has also recognised that in the event of the permissible primary allocation of the surplus share to the loss reserve by the pension fund and the associated omitted profit participation (s)an adjustment claim, the pension beneficiary cannot enforce a claim for adjustment "through the back door" of the employer's procurement claim under Sec. 1 (1) sentence 3 BetrAVG.

Conclusion

This decision, which is helpful in practice, completes the canon of conditions determined by the BAG in its judgements of 18 February 2020 and 10 December 2019, which the employer must observe in order to make use of Sec. 16 (3) no. 2 BetrAVG to waive the obligation to adjust pension benefits in accordance with Sec. 16 (1) BetrAVG. At the same time, it makes it clear that if these conditions are met, the pension beneficiary cannot use the right to a pension against the employer under Sec. 1 (1) sentence 3 BetrAVG to derive more extensive rights. Employers should take the decision as an opportunity to examine the current insurance rates for their company pension schemes granted to the pension fund in the implementation path for their compatibility with the canon; here in particular with regard to the clear allocation of the surplus share to the pension beneficiaries already specified in the insurance contract conditions (and not their use to fulfil obligations for any death benefits promised in individual insurance rates in practice in the past) and the pension beneficiary's claim to enforcement of proper surplus calculation and surplus use.
 

4. No unilateral waiver by the surviving dependant of an increase in company pension benefits pursuant to Sec. 16 BetrAVG (LAG Berlin-Brandenburg judgement dated 7 August 2020, 2 Sa 165/20)

In its judgement of 7 August 2020, the Higher Regional Labour Court (Landesarbeitsgericht, LAG) Berlin-Brandenburg ruled that a surviving dependant of an employee receiving survivor’s company pension benefits cannot unilaterally waive an increase in company pension benefits by the employer.

The plaintiff widow of the employee benefiting from the company pension scheme received monthly company pension benefits as a survivor's pension of EUR 151.60 gross up to and including March 2018, on which no social security contributions were payable. In April 2018, the defendant increased the monthly pension benefits to EUR 156.91 gross as part of the adjustment under Sec. 16 BetrAVG. Since the tax-free allowance under Paragraphs 226(2) and 229(1), first sentence, point 5 of the German Social Code, Book V (Sozialgesetzbuch V, SGB V), was EUR 152.25 in 2018, the defendant paid social security contributions of EUR 26.91 for health and nursing care insurance as of the reference period April 2018, so that the monthly pension benefits paid to the plaintiff as of April 2018 amounted to (only) EUR 130 net. In a letter dated 6 April 2018, the plaintiff "irrevocably" waived the increase in the survivor's benefit. The defendant did not accept this waiver. In its action, the plaintiff requested - with reference to the waiver declared by the plaintiff to implement further pension adjustments pursuant to Sec. 16 BetrAVG) - that the defendant be ordered to pay a monthly company pension in the maximum amount of EUR 151.60 per month.

The Labour Court Berlin (as fist court instance) dismissed the action. The LAG Berlin-Brandenburg dismissed the appeal brought by the plaintiff against the first-instance judgment. In support of its appeal, it stated that the plaintiff could not unilaterally bring about the waiver of the pension adjustments. Moreover, the employer had to take into account the interests of the pension beneficiary by means of an objective assessment criterion when carrying out its decision on the adjustment in order to weigh up the interests to be carried out and therefore did not need to take into account the subjective interests of the pension beneficiary in order to continue to be exempt from social security contributions in respect of pension benefits.

Conclusion

Even though it may be tempting on the surface - from an economic point of view - in individual cases, employers are well advised not to pursue any possible waivers by the pension beneficiary with regard to pension benefits and/or their increase due to an adjustment under Sec. 16 BetrAVG. This is because pursuant to Sec. 19 (3) BetrAVG, even amicable agreements on a waiver by the pension beneficiary of an adjustment of his or her pension benefits pursuant to Sec. 16 BetrAVG are invalid. A waiver can only be effectively agreed with pension beneficiaries if a collective agreement applicable to the company pension relationship provides for such a possibility (Sec. 19 (1) BetrAVG) or with (former) board members of a corporation. 

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