25. February 2020

Assumption of indebtedness / joining the indebtedness

In principle, the company obliged under the pension commitment must recognize its pension liability in the balance sheet by means of corresponding provisions. This is not only a requirement of the commercial law principles of proper accounting and bookkeeping, but also results directly from the provisions of the German Commercial Code (HGB) on accounting, in particular Section 249 HGB.

Medium-sized companies with pension commitments to controlling managing partners often attempt to have their obligations fulfilled by a third party. Such a case can exist, for example, in the case of a planned sale of a company or a planned transfer of a business, if the acquirer makes the takeover dependent on a “pension exemption”. In the case of groups of companies and affiliated companies, the objective is often not to show the pension provisions in the company obliged under the commitment but in another group company. This other company is then also to bear the corresponding pension payments on a regular basis. For this purpose of outsourcing the pension obligations from a company, the most suitable civil law instruments are, in particular, the assumption of debt or the assumption of debt.

On the following subpages, the main regulatory backgrounds of debt assumption and debt accession are then set out.

However, the following conclusion is already drawn at this point:

The price for the outsourcing of pension obligations by means of debt assumption or debt contribution is freely negotiable and does not depend on actuarial principles. Buyers and sellers can thus agree on a price that is in line with the market for them on their own. Accordingly, there are no operating or administrative costs known from the insurance sector. As a result, the fees agreed between the directly affected market participants for the transfer of (direct) pension obligations described above will in some cases be far below amounts that require insurance solutions.

The outsourcing of direct pension commitments, e.g. to a pension fund, has a very high price for companies if it is really to lead to a far-reaching release from liability (i.e. if a pension fund with insurance-type guarantees is chosen) compared to “self-managed transfer”. In addition to these additional costs, there is also the residual risk that the employer will have to pay later if the pension fund is unable to provide the guaranteed benefits in full on a permanent basis. In the case of a so-called liquidity-saving transfer to a pension fund without an insurance-type guarantee of benefits, the “commitment” of the company required at the outset is attractively low. On the other hand, the margin risk is very high. In fact, there is only a partial outsourcing. Only by an outsourcing of pension obligations for controlling shareholder-managing directors of corporations in the context of a assumption of debt according to §§ 414 ff. of the German Stock Corporation Act (AktG), a complete release of liability for the transferring company can be achieved.

In this context, Kenston Pension Ltd is your partner and service provider for all questions concerning the outsourcing of company pension obligations. In addition to the corresponding consulting support, we also administer and manage specially established pension companies for the direct assumption of pension obligations. Talk to us!