Information obligations of pensions funds

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Information obligations of pensions funds under the EbAV II-Act

Statutory provisions and liability risks, also for employers

1. The legal starting point and the existing regulatory framework

The IORP II Implementation Act implements the regulatory requirements of Directive (EU) 2016/2341 on the activities and supervision of institutions for occupational retirement provision (IORPs) (IORP II Directive).

In addition to the duty to provide information to beneficiaries, the IORPs II Directive contains, among other things, new requirements regarding the internal control system, risk management and the establishment of key functions (for more details, see the DPE Newsletter).

The IORP II Directive is largely implemented by amendments to the Insurance Supervision Act (VAG). The legislator will supplement the extended provisions of the Insurance Supervision Act on information obligations with a legal ordinance to further specify individual legal requirements (§ 235a ISA).

Since 2003, the Insurance Supervision Act (VAG) already provided for insurance-related information obligations of pension funds vis-à-vis their beneficiaries under pension commitments implemented by way of pension funds (§ 1b (3) BetrAVG, BAV commitments). Pension funds have already been obliged to inform pension beneficiaries about the contractual terms of the BAV commitment, the relevant tax regulations and the financial, insurance and other risks associated with the BAV commitment, as well as the nature and distribution of these risks. In addition, pension funds, jointly and severally with the contractual employer, are subject to the right to information under company pension law from § 4a BetrAVG.

2. The extended information duties under the EbAV II-Gesetz/IORPs II Act

With the enactment of the EbAV II-Umsetzungs-Gesetz (IORPs II Implementation Act), the legislator is concretizing and expanding the information obligations under insurance law. These additional obligations come on top of the information obligations anchored in the Pension Fund Supervision Ordinance by the Company Pension Strengthening Act for the so-called social partners model.

In § 234k VAG, the legislator for the first time stipulates general formal requirements for all circumstances and occurrences being subject to information obligations, pursuant to which requirements the information must be (1) in German, (2) clear, understandable, concise and conclusive and, as far as possible, formulated in general language, (3) presented in a reader-friendly form and (4) regularly updated.

The intention of this regulation, namely to ensure an understandable presentation of the necessary information, would in principle appear helpful. Nonetheless, these general requirements, laid down in law for the first time, present the practice with several challenges: The new regulations contain numerous indefinite legal terms (when is a presentation concise? which linguistic requirements must be met in terms of comprehensibility or even readability?). At the same time, they presuppose a homogeneity of the target group of the information, which in the current working environment no longer coincides with the reality of many employers already when looking at the origin and language group that workforces are composed of today. Therefore, in the case of employers with a working or company language other than German, for example, there is a risk that the information cannot be understood by the target group if written in German, to comply with regulatory requirements. From a legal point of view, greater flexibility with regard to the choice of language would have been desirable, as long as it was ensured that the information in the specific language (above all English) could be understood by the addressees within the relevant companies.

Also new are the legal requirements of § 234l VAG, according to which the pension fund must also provide general information on the relevant pension system. In addition, members and beneficiaries shall be informed of any changes to conditions relevant to them. The latter also applies to changes in methods for calculating provisions, whereby the effects for the beneficiaries must also be explained in this respect.

The legislator has extended the annual information obligations towards members to include the requirement that the documentation, now to be expressly referred to as "pension information", should take account of the special features of statutory pension systems and labour, social and tax law. The practice will have to clarify, among other things, which concrete implications arise from this extended requirement for the content of the information to be provided. The legislator generally requires that significant changes compared to the previous year's pension information must be clearly identified.

The EbAV II-Umsetzungsgesetz/IORPs II Implementation Act also stipulates additional regular information obligations towards pension recipients. Among other things, pension funds must regularly provide appropriate information on the investment status of BAV/IORPs commitments in which the pension recipient bears a significant investment risk during the payout phase. This applies to the pure defined contribution plan in the social partners model. The practice will ensure that both the specific information requirements of the social partners model and those of the IORP II Implementation Act are met efficiently and comprehensibly.

3. Legal consequences of a breach of the duty to provide information

In the event of a breach of the duty to provide information, the beneficiaries concerned may be entitled to damages in accordance with the general provisions if they have suffered damage as a result of the specific incorrect information in the implementation of the BAV/IORPs promise. Case law will have to clarify whether the causality which is decisive for the claim for damages and which gives rise to liability is already indicated in the case of a violation of the formal requirements of § 234k VAG. If the employer grants the beneficiaries an optional model in which in some of the individual options they bear part of the investment risk, they could take the view that they would have chosen the more risk-averse form of investment had they been properly informed, if the investment proves not be successful. They could also argue that the resulting benefits become part of the procurement claim against the contractual employer under § 1 (1) sentence 3 BetrAVG. Thus, contractual employers may also be indirectly affected by claims for damages.

4. Conclusion

Pension funds must carefully transpose the extended legal requirements into the existing documentation. This should be done taking into account the legal ordinance still to be expected to further specify the information duties. Employers under a contract should seek an active exchange with the pension fund if they have doubts, in particular as regards the fulfilment of the new formal requirements. Deloitte Pensions Experts will keep you up to date on further developments.

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