Minimum guarantees for defined contribution plans (BOLZ)

When regulating defined contribution plans of the bAV (BOLZ), employers regularly strive to distribute the investment and earnings risk with the beneficiary employee in line with requirements. This goes hand in hand with the question of which minimum guarantees BOLZ must contain.

The legal starting point

The Occupational Pensions Act (Betriebsrentengesetz) does not specify a minimum level of pension benefits resulting from contributions for BOLZ. The supervisory regulations also do not contain any provisions for a minimum level of pension benefits for the insurance-based implementation routes.

According to the legal definition in § 1 para. 2 no. 1 BetrAVG, the employer undertakes, in the case of a BOLZ, to convert certain contributions into an entitlement to old-age, invalidity or survivor benefits. The legal definition is originally based on the acquired pension rights, not on the resulting benefit, in order to determine the amount of benefit. The pension benefit is calculated from the pension capital made available. The employer's obligation under § 1 para. 2 no. 1 BetrAVG therefore includes a double obligation as a commitment to a pension expectancy, the amount of which is determined by the contribution promised. The employer is free to calculate the benefits resulting from the contributions.

The Federal Labor Court’s positioning to date and its partial reception in practice

To date, the Federal Labor Court (BAG) has only set out requirements for the minimum level in its judgment of 30 August 2016 (3 AZR 361/15), which was based on an employer-financed BOLZ in the direct commitment implementation route. In order to qualify as a direct commitment, the BAG demands that a direct link between the financial contribution and the amount of the benefit must be maintained. The employer must design the benefit plan such that the minimum amount of the pension benefit be immediately known at the time the contributions are converted into the pension expectancy. This goes hand in hand with formal requirements for transparency and a usage-relatedness for the contributions: It must be possible for the employee to plan his or her pension provision in a way that allows it to be paid on a reliable basis, and for this purpose, a distribution of the investment risk between the employer and the employee must be carried out with respect to the contributions made, which distribution must reflect the legitimate interests of the parties involved. In the opinion of the BAG, these requirements are (only) fulfilled if the minimum amount of the benefit resulting from the contributions has been determined.

In practice, someone to deduce a general net contribution guarantee for BOLZ from these guiding principles of the BAG, according to which the pension benefits should at least reach the amount of the contributions paid. Based on this guiding principle it is postulated that a commitment with a guarantee "far" below the level of the sum of the net contributions is not recoverable; in that context, reference is made to the case law of the BAG (e.g. from 15.09.2009, 3 AZR 17/09) on recoverability in the case of the zillmerisation of insurance contracts for employee-financed company pension schemes via a direct insurance. The BAG, however, only referred the recoverability of zillmerized insurance tariffs to the zillmerized amount, according to which zillmerized insurance contracts in the first years of the pension commitment - after deduction of the zillmerized costs - create only relatively low pension entitlements. BOLZ, on the other hand, generally remains constant for the duration of the establishment of pension entitlements.

The practical way: typifying equity consideration with differentiated design for employer- and employee-financed BOLZ

From a practical point of view, there is much to be said for determining the minimum level on the basis of a typifying equitability assessment and the interests of the employer and the employee that can be taken into account. The equitability assessment ensures BOLZ's purpose in providing benefits and takes into account the fact that the legislator has not determined an absolute minimum level for BOLZ.

The employee's eligible interests include BOLZ's purpose-built guarantee as an additional pension from the employment relationship with remuneration character. The fairness assessment also covers the transparency and appropriateness of the contributions to be made to the pension entitlements so that the employee can derive the pension benefits resulting from the contributions for himself from the benefit plan. He may also expect the employer to participate in the investment risk.

The employer's interests that can be taken into account include a reliable predetermination of the (fulfilment) risks associated with BOLZ; this also applies with regard to his liability for the implementation and fulfilment of the pension benefits from the procurement claim pursuant to § 1 para. 1 sentence 3 BetrAVG.

From a practical point of view, the minimum level must be differentiated according to BOLZ's financing, taking these equity criteria into account:

In the case of employer-financed BOLZ, the minimum benefit level corresponds to the total capital to be determined on the basis of actuarial calculations and expected to be certain, taking into account the default risk to be recorded for the specific investment of the insurance product. The minimum benefit level must take a EUR amount to be formed on the basis of the individual case assessment in order to do justice to the character of BOLZ as an additional pension and remuneration component of the employment relationship. There is no mandatory absolute minimum level of benefits. An employer-financed BOLZ is not a remuneration in the narrow sense that is synonymous (exchange relationship) with the employee's performance. BOLZ's parameters must be documented in such a way as to enable the employee to make a reliable calculation of pension benefits. The employer must prepare and maintain the actuarial calculation in transparent documentation.

In the case of employee-financed BOLZ, the minimum level shall be determined taking into account the principle of equal value under company pension law (Section 1 para 2 no. 3 BetrAVG). In the case of a singular BOLZ offer, this corresponds to the fulfilment of the statutory entitlement to deferred compensation pursuant to § 1a para 1 BetrAVG and the total amount of the net contributions. If such a minimum commitment of net contributions is offered to the employee, there is a strong practical case that the employer can offer the employee a BOLZ with a lower minimum benefit level as a freely selectable alternative in accordance with the criteria for the employer-financed BOLZ, as long as it uses the contributions financed by the deferred compensation in full to finance the pension entitlements from BOLZ and draws the employee's attention comprehensively and transparently to the opportunities and risks of this option. From an employment law perspective, an anchor of at least 80% probability can be set for an expected return at least equal to the net premiums, taking into account all risks to be taken into account for the implementation of the insurance product linked to BOLZ according to actuarial calculation. In this case, the employee has a free choice between the two investment forms for the amounts converted by deferred compensation. In view of the employee's free choice, the principle of equality of value can be modified in such a way that equality of value is ensured by ensuring that the converted contributions are fully transferred to BOLZ. The degree of probability of 80% can be derived from the case law of the BAG on the effective flat-rate compensation of overtime with the basic remuneration in an amount of up to 20% of his/her regular working hours. This case law of the Federal Labor Court shows the legal concept that the employee is granted a self-determined scope of assessment for the economic evaluation of his work performance - in the form of the remuneration of the work performance by the employer - to the aforementioned extent.


Employers with a corresponding risk profile can implement a practice-oriented distribution of the investment and success risk by making use of such a differentiated BOLZ structure. The legal uncertainty that has will remain with respect to the minimum level until the issue be clarified by the Federal Labor Court must be controlled in individual cases by a balanced provisioning policy. In the case of insurance-type implementation routes, the BaFin must also be included in the insurance product if such a differentiated structure is adopted.

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