Servus from Munich!
Germans adore rules and laws. This has also been the case in the last few months which brought many changes around company benefits with them.
As a consultancy with more than 20 years of experience, our expertise includes the design and administration of company benefits in conformity with the law. We would like to give you a snapshot of the new rules and regulations that apply to you. Due to the plethora of the new regulations, we will not refer, in this newsletter, to court decisions.
The Law to Strengthen Occupational Pensions (BRSG)
The Law to Strengthen Occupational Pensions which came into effect on January 1, 2018, did not usher in the long awaited momentum to company pensions in Germany. Of the 6 significant areas of regulation, just 1 is of relevance for some of our clients: the mandatory subsidy to salary sacrifices.
Over the last couple of months, we have communicated on this topic with and many clients have concluded corresponding agreements. Our concern, as for all other consultants, was: the devil hides in the details and this particular law shows many discontinuities and ambiguities. The advice we have given so far avoids all known pitfalls.
General Data Protection Regulation (GDPR)
The GDPR is a European regulation that came into effect in the whole of Europe at the end of May 2018 and a result of which the processing of personal data by private and public enterprises was made stricter and uniform. In conformity with the GDPR, we supplemented our contracts with existing clients and service providers on a gradual basis. We also introduced physical measures such as “clean desk”, entry controls and IT security to ensure an increased level of security in the processing of personal data. For this reason, we have also incorporated the double opt in subscription for our newsletter.
The Portability Directive is a European directive that made its way into the German Company Pension Act on January 1, 2018. There are 4 issues relevant for our clients:
- The reduction of the vesting period to 3 years and the termination age to 21 – §21 of the German Company Pension Act.
The statutory vesting periods were reduced even further. Significant changes in the future are the reduced benefit promise duration of 3 years (from 5 years) and the age on termination to 21 from 25. We have adjusted our processes and will, in the future, administer more vested rights, i.e., where possible, make more payment settlements.
- Indexation of vested Rights – § 2a Company Pension Act
In order to avoid disadvantaging employees who have terminated, employers are required to index the vested rights of terminated employees, just as those of active employees. This applies to benefit promises such as the income related risk benefits of many of our clients. We comply with the requirement to adjust benefits by indexing those portions of vested rights earned from 2018 by 1% per year.
- Payout of Minimal Vested Rights – § 3 Company Pension Act
Small amounts of vested rights and pensions can generally be paid out by the employer, without the employee’s consent (§ 3, Para. 2 Company Pension Act). As of 2018, the employee’s consent is required if said employee informs the employer within 3 months of new employment in another EU member state. Even if, according to our view, it is highly unlikely that an employee will not desire the payout of the smallest amount of his vested right, we have changed adjusted our administration process.
- Employer and Insurance Carrier’s Obligation to provide Information – § 4a Company Pension Act
According to § 4a Para. 1 of the Company Pension Act, as amended, an employer is required to inform an active employee upon their request, whether and how a company pension can be received, how much the entitlement amounts to and how much they can expect on attaining the retirement age, the repercussions of termination on this entitlement and how the vested rights will progress after termination of employment. Terminated employees and survivors have the right to know how much the vested company pension rights amount to and how these will progress in future. In order to comply with the requirements in written form, the information can also be transmitted by email. We will inform your current/former employees on request.
Insurance Distribution Directive
The European Insurance Distribution Directive (IDD) provides a regulatory framework for the quality control of insurance distributors. This framework was transposed into German law in February 2018.
The following regulations are relevant for us:
- Regular and documented training for consultants in order to guarantee an ongoing high level of service quality
- Setting up of a complaints register to ensure transparent and focused handling of complaints
- Minimum content of the initial information and the consultation protocol during the proposal process, in order to document transparent advice in the interests of clients
All three topics have been an important component of our company philosophy for a long time. A part of that is a culture that allows mistakes because it is also by making mistakes that we can learn and grow.
Paying Agency Processes
Due to a statutory regulation which entered into force in July 2019, all benefit providers are obliged to withhold the social security contributions on occupational pension benefits and transmit them to the health insurance funds. Until now, it was sufficient, in case of an insured event, to inform the health insurance fund, which would then contact the recipients.
We have changed how we administer pension payments and informed all our pensioners.
At this point, we would like to tell you a bit about what has been going on behind the scenes.
We are constantly growing (we currently have 22 employees from 6 different countries) and have started on a modernization campaign: from process description, to developing an administration program especially for pension (retirement) funds, so as to be able to work faster and with fewer errors. This will keep us very busy during the next months. Last but not least, we have significantly revised our internet page and we already have more projects in the pipeline; such as an employee only communication interface and becoming a paperless office. It is quite helpful that the government is working on doing away with requirement of a signature in the realm of occupational pensions.
In Conclusion: Nothing is more certain than change
Hearty regards from Profion