Company pension schemes at employer’s insolvency: Update 2025

1. Starting point: Insolvency scenarios, legal and economic impact of insolvency on company pension schemes

Insolvency proceedings against the employer's assets (insolvency debtor) are initiated if one of the grounds for insolvency as defined in Sections 17f et. of the German Insolvency Code (Insolvenzordnung, InsO) applies (§ 16 InsO), i.e. if the insolvency debtor is either unable to pay (Section 17 InsO), at risk of being unable to pay (Section 18 InsO) or is over-indebted (Section 19 InsO). When insolvency proceedings are opened, the right of the insolvency debtor to independently manage and dispose of the assets belonging to the company passes to the insolvency administrator (Section 80 (1) InsO). For claims arising from company pension schemes, this means that, from the time of the opening of the proceedings, the insolvency debtor can no longer legally fulfil the pension benefits due under any company pension commitments.

However, the employee with pension benefits under the company pension commitment is often affected by the insolvency at an earlier point in time: After receiving a petition for the opening of insolvency proceedings, the insolvency court will regularly order provisional protective measures and, in particular, a general prohibition of disposal (Section 21 (2) no. 2 InsO), which at this point in time already prevents the insolvency debtor from continuing to independently fulfil pension benefits under the company pension scheme. If, in addition, an application for insolvency proceedings is filed due to illiquidity, the insolvency debtor will often not have fulfilled the pension benefits due in the months immediately prior to the application being filed. From an insolvency law perspective, the pension entitlements earned by the beneficiary under the employment up to the opening of the insolvency proceedings that have not yet been fulfilled at the time of the opening of proceedings and that the beneficiary can claim as an insolvency creditor against the employer after the opening of proceedings when they fall due, constitute (mere) insolvency claims. After the insolvency proceedings have been opened, these are (only) to be fulfilled from the insolvency estate – initially in accordance with the ratio of the relevant assets of the insolvency estate to the claims of all insolvency creditors (Sections 38, 178 InsO) that the insolvency administrator has determined for the schedule.

The extent to which the pension beneficiary is actually affected by the insolvency – i.e. the question of how the insolvency affects the (subsequent) fulfilment of the pension claims of the pension beneficiaries for vested pension rights under the company pension commitment – depends on the specific way in which the company pension commitment is implemented:

Beneficiaries are directly affected in the case of company pension commitments in the form of a direct commitment, since in this case the insolvent employer is the sole direct debtor of the pension claims arising from the company pension commitment. In fact, in the insolvency scenario of over-indebtedness (Section 19 InsO), the obligations arising from the company pension commitment are sometimes the direct trigger for the insolvency proceedings.

By contrast, in the case of the indirect forms of implementation of direct insurance (Direktversicherung) and pension funds (Pensionskasse und Pensionsfonds), the beneficiaries of the pension commitments of the company pension scheme are generally not directly affected, at least if and to the extent that the employer (as the policyholder in the insurance contract with the external pension provider) has already fully funded the vested company pension entitlements by regularly paying the relevant contributions to the external pension provider and has already granted the beneficiary an irrevocable right to receive the pension benefits under the company pension commitment (Section 159 (3) of the German Insurance Contract Act (Versicherungsvertragsgesetz, VVG)). As a result, the beneficiary is entitled to a right of segregation (Section 47 InsO) against the insolvency administrator under the insurance contract, which they can assert with regard to the pension benefits. Exceptionally, however, the beneficiaries of the aforementioned indirect implementation channels may be affected if the employer has not paid the respective contributions in full and is directly liable to the beneficiary under company pension law (Section 1 (1) sentence 3 of the German Company Pensions Act (Betriebsrentengesetz, BetrAVG) to the extent of the shortfall in funding.

In the case of the support fund implementation option, the insolvency estate is initially liable to the beneficiaries for the fulfilment of further pension benefits. In this case, the insolvency administrator draws the assets transferred by the insolvent employer to the support fund for the purpose of financing the pension benefits to the insolvency estate.

2. Statutory insolvency protection for company pension commitments within the meaning of the BetrAVG and their distinction from unprotected benefits with a pension character

Company pension commitments that can be categorised as company pensions within the meaning of Section 1 BetrAVG are subject to statutory insolvency protection within the scope of Section 7 BetrAVG, which is provided by the Pensions-Sicherungs-Verein aG (PSV) as the statutory insolvency insurance institution (Section 14 BetrAVG).

Statutory insolvency protection only covers pension commitments that:

• have been granted by the insolvency debtor in an employment or in an managing director employment with a managing director (third-party/minority shareholder) who is subject to instructions from the shareholders' meeting,
  
  
• have the character of a pension in terms of their content, and
  
  
• the benefits are geared to one of the biometric risks defined in Section 1 BetrAVG) (= death of the respective beneficiary/disability of the employee who is the beneficiary).
  
  

Applying these criteria, the German Federal Labour Court (Bundesarbeitsgericht, BAG) has ruled that the following benefit commitments of the insolvency debtor, among others, do not qualify as insolvency-protected company pension commitments under Section 7 et. BetrAVG:

• Early retirement/transitional benefits, since the primary purpose here is to bridge the period until the first claim to the statutory old-age pension.
  
  
• Death benefits, since the BAG views the purpose of the benefit as covering the costs incurred in connection with the death of the beneficiary employee (including for burial, etc.).
  
  
• Insurance-based inheritable benefits related to the death of the beneficiary employee, because these are often promised by the employer in the form of a (term) life insurance policy that is granted to the heirs of the beneficiary employee in the event of death. In view of the inheritability of the benefit (‘... and in case of doubt, the (federal) state inherits’ (Section 1936 of the German Civil Code (Bürgerliches Gesetzbuch, BGB)), these do not include any (so-called) biometric risk.
  
  
• Commitments to shareholders/majority or sole managing directors, because in these cases the commitment is not made in an employment /managing director employment with the managing director dependent on the instructions of the insolvency debtor's shareholders.
  
  

Claims arising from the aforementioned benefits that have not yet been fulfilled at the time of the opening of insolvency proceedings all constitute insolvency claims and are (only) to be registered in the insolvency schedule.

3. Detailed content of statutory insolvency protection

In detail, statutory insolvency protection includes the vested statutory company pension entitlements earned under company pension schemes in the following forms of implementation up to the opening of insolvency proceedings

• direct insurance (Section 7 (1) sentence 1 BetrAVG))
  
  
• direct insurance/support fund/pension fund
  
  

to the extent that the respective bAV entitlements are not fully funded and the beneficiary can therefore assert a (performance) claim against the insolvency debtor arising from the procurement claim under company pension law (Sections 1 (1) sentence 3, 7 (1) sentence 2 nos. 1 to 3 BetrAVG). Insolvency protection under the law is only provided for the pension fund implementation option if the pension fund belongs to the Protektor security fund in accordance with Section 212 of the German Insurance Law (Versicherungsaufsichtsgesetz, VAG) or a collective institution (tarifliche Einrichtung) in accordance with Section 4 of the German Collective Bargaining Act (Tarifvertragsgesetz, TVG).

From the point of view of company pension law, the PSV assumes the legal position of the insolvency debtor by way of statutory universal succession if one of the security cases specified in Section 7 BetrAVG occurs, which, in addition to the insolvency of the insolvency debtor (Section 7 (1) sentence 1 BetrAVG), includes the further cases specified in Section 7 (1) sentence 4 no. 1 to 3 BetrAVG, into the legal position of the insolvency debtor by way of statutory universal succession (Sections 7 (1), 9 (2) BetrAVG).

This universal succession essentially includes

• the assumption of the insolvency debtor's obligations arising from the company pension commitment in the legal status at the time of the opening of the insolvency proceedings (‘as they stand’), and
  
  
• the assumption of the legal position of the beneficiary (= including the position as (i) insolvency creditor for the entitlements earned prior to the opening of insolvency proceedings under the company pension commitment, (ii) beneficiary under private-law insolvency insurance).
  
  

The PSV fulfils the pension benefits subject to statutory insolvency protection when the relevant insured event occurs, whereby the fulfilment

• the amount is limited to the threshold values of Section 7 (3) BetrAVG) (= in the calendar year 2025, for old-age pension benefits, to a monthly pension amount of EUR 11,235 and, for capital benefits, to the amount of EUR 1,348,200),
  
  
• taking into account any acts of performance by third-party entities (e.g. under private-law insolvency protection, Section 7 (4) BetrAVG), and
  
  
• for retirement pension benefits does not include any obligation on the part of the PSV to review and possibly implement an adjustment in accordance with Section 16 BetrAVG.

4. Private-law insolvency protection: CTA and RIC

In practice, the (subsequent) insolvency debtor has often established private-law insolvency protection for the company pension commitments not covered by the statutory insolvency protection, which is intended to ensure that the beneficiary of the pension can be economically satisfied from the pension commitment in the event of insolvency. This applies in particular to commitments to majority/sole shareholder managing directors, to company pension entitlements that have not yet vested by law at the time of the opening of insolvency proceedings (but are only contractually designated as vested), as well as to pension benefits from the company pension commitment that exceed the maximum limit of Section 7 (3) BetrAVG.

The most common instruments of private-law insolvency protection are the double-beneficial contractual trust arrangement (CTA) and re-insurance contracts (RIC).

In the event of a claim, the PSV takes the place of the pension beneficiary in relation to the insolvency debtor.

CTAs are now the market standard for the private-law insolvency insurance of individual employees' company pension entitlements. For the current framework conditions and action required by individual employers, please refer to our Client Alert “The CTA in the event of insolvency” (https://www2.deloitte.com/dl/en/pages/legal/articles/cta-insolvency.html).

In individual cases, company pension law practice also uses the assumption of debt, the letter of comfort and the guarantee as further instruments of insolvency protection under private law. What these instruments have in common is that the third party (in group matters often the group parent company of the insolvent debtor) assumes liability for the fulfilment of the insolvency-protected company pension entitlements.

5. Options for action with regard to the status of the pension commitment after the opening of insolvency proceedings

The options for action depend on the specific framework parameters of the insolvency proceedings and the continuation of the employment relationship of the individual employee with pension entitlement after the opening of insolvency proceedings:

• Employees entitled to benefits can continue to earn further entitlements from the relevant company pension scheme if the employment relationship is continued during the insolvency. These entitlements constitute preferential liabilities and, in the event of the insolvency debtor's business being acquired, must be continued by the acquirer (due to a transfer of business in accordance with Section 613a BGB, transferring reorganisation). In the case of existing company pension commitments via an indirect implementation channel, the acquirer will regularly agree with the respective external pension provider on the possible continuation of these company pension commitments. In practice, company pension commitments are often restructured and recognised as an expense before being transferred to the acquirer. Overall, the acquirer is liable for all entitlements arising after the opening of insolvency proceedings.
  
  
• On the other hand, if the insolvency administrator notifies the insolvency court of insufficient assets (Sections 207 et. InsO), the beneficiary of the pension plan cannot earn any further company pension entitlements, even if the employment relationship is continued.
  
  
• If the company is closed down completely, the insolvency administrator can unilaterally compensate the pension beneficiary for the entitlements earned during the insolvency proceedings (Section 3 (4) BetrAVG).
  
  

In the case of an asset transfer, the acquirer can also take the general action options for restructuring the company pension scheme (up to and including the amicable cancellation of the company pension scheme in return for a severance payment during the current employment relationship, with the necessary involvement of the works council).

If the insolvency debtor's business is continued under an insolvency plan in the context of self-administration proceedings, a special group for the PSV must be formed in this plan in accordance with Section 9 (4) BetrAVG.

6. Conclusion

The treatment and execution of company pension commitments in the event of employer’s insolvency can involve many pitfalls in individual cases. At the same time, it can be carried out transparently and largely ‘smoothly’ if the legal and insolvency conditions are carefully observed. The statutory insolvency protection and the point in time at which insolvency proceedings are opened as the temporal point of intersection for statutory and private insolvency protection can be used by all parties involved, and especially by the acquirer in the case of a transferring reorganisation, as an opportunity and option for action for a needs-based treatment of the relevant company pension commitments and their tailor-made continuation after the execution of their takeover (‘back to go’).

At the same time, all companies should regularly review whether their existing private-law insolvency protection measures (in particular CTA structures or reinsurance policies) are still effectively designed, implemented in an insolvency-proof manner and adapted to the current legal and economic conditions. This will enable the early detection and rectification of any gaps in security, particularly in the case of commitments outside the scope of statutory protection or above the security limits of Section 7 (3) BetrAVG.

Published: April 2025