25. February 2020

Implementation routes

In the following, the individual ways of implementing the company pension scheme are briefly explained. You will find the topic of direct pension commitments to managing directors or members of the management boards of corporations under the link “Pension commitments” in the navigation bar.

Direct pension commitment (direct commitment)

A company can give its employees a company pension promise for the occurrence of certain performance scenarios. Since in this context the company provides the benefits directly to the employee, this is also referred to as a direct pension commitment. Also the term of the direct commitment is common.

In contrast to indirect pension commitments, the company therefore does not allocate its own premiums to a third party (pension institution). However, the company can reinsure the pension promise by paying contributions to an insurance or investment company in order to be able to finance the company benefits of the person entitled to receive the pension from these reinsured assets in the event of a pension.

Supplementary Fund Commitment

In the case of a provident fund commitment, the employer gives the employee a pension promise which is not fulfilled directly by the employer but by an intermediate pension institution. This is therefore an indirect pension commitment by the employer.

According to § 4d EStG, the employer endows the provident fund with so-called benefits. From these contributions and the income resulting from them, the provident fund is to be able to finance or pay the pension benefits in due time.

A provident fund can act as a legally independent pension provider for one or more employers. In this context, employers are referred to as the sponsoring company.

In addition, a provident fund, as well as a pension fund or a pension fund, must be a pension institution with legal capacity. Common legal forms here are a limited liability company (GmbH) or a registered association (e.V.). Occasionally, a provident fund is also operated in the form of a foundation.

Direct insurance commitment

In the case of a direct insurance commitment, the employer spends premiums for a life insurance policy in favour of an employee. The employee or his surviving dependants are granted a subscription right to the insurance benefit. The employee thus receives the pension benefit from an insurance company and not from the employer, as in the case of a direct pension commitment. The policyholder and contractual partner of the insurance company is the employer.

However, the employee can also participate in the payment of contributions to the direct insurance with his net remuneration. In this respect, own contributions within the meaning of the Company Pensions Act (“BetrAVG”) exist.

In the case of direct insurance financed by the employee’s deferred compensation, the employee waives part of his gross income and receives a pension commitment financed by the employer in return.

Pension fund commitment

A pension fund commitment is also an indirect pension commitment. This means that the employer does not provide the pension benefits himself, but calls in a third party, the pension fund, who provides the pension benefits to the employee.

For this purpose, the pension fund receives employer contributions in the form of contributions. These contributions represent operating expenses for the employer, provided that the requirements of § 4c EStG are fulfilled.

Pension fund commitments can also be made to persons who are not employees of the company making the commitment. These benefits always represent a deduction item relevant to operating expenses if a provision should have been recognised for the beneficiary group with tax effect if a direct pension commitment had been made.

Pension fund commitment

A pension fund commitment is also an indirect way of implementing a company pension scheme. In this context, the employer calls in the pension fund to meet the obligations of benefits from the company pension scheme. To enable the pension fund to meet its payment obligations, it also receives benefits from the respective employer company making the commitment.

The pension fund is explicitly defined in the Insurance Supervision Act, so that a distinction can be made between a pension fund commitment and a pension fund commitment.

In the case of a pension fund commitment, the employee is also granted a direct legal claim in the same way as in the case of a direct insurance and pension fund commitment. However, this does not mean that a pension fund may only promise guaranteed benefits. On the contrary, it is characterised by not granting insurance guarantees for all conceivable benefit cases.