29. November 2020

Reversal of pension funds

In view of the persistently low level of interest rates, it will not be easier for pension funds and the insurance industry as a whole to generate adequate interest rates. The liberal investment rules of the pension fund can therefore quickly become a boomerang for outsourcing companies in the form of additional funding obligations. Kenston Pension GmbH, as your consulting partner, will show you the measures that can be taken in tax and business management consulting to react to this.

The continuing interest rate level presents the insurance industry with major challenges. It is becoming more and more difficult to keep the pension promises made. Above all, “older” tariff generations with guaranteed interest rates that are utopian from today’s point of view are a burden on life insurance companies. And last but not least, in July last year BaFin announced that it was in more intensive talks with 45 pension funds out of concern about benefit cuts. This development cannot leave the pension funds unscathed.

The question that companies that used to outsource now ask themselves as to the extent to which the pension fund can still provide the benefit obligation does not seem entirely unfounded. And also a threatening obligation to make additional contributions is certainly no longer as absurd as it was suggested when the consultants implemented the outsourcing. In its current consulting practice, Kenston Pension GmbH was able to record more than ten cases of additional funding obligations with clients in the 2018 financial year. Particularly serious are those cases in which the obligation to make additional contributions runs into nothing due to the insolvency of the sponsoring company which has occurred in the meantime.

But what to do if the child has already fallen into the well?

First of all, it is to be hoped for the company that the pension fund used has not (yet) fallen into financial difficulties, so that the cover assets are still (as far as possible) available.

Changes to the implementation method

In terms of occupational pension law, outsourcing to a pension fund is a change in the implementation method. Just as the company has changed the implementation route from a direct commitment to a pension fund in the course of the outsourcing, this is of course now also possible from a pension fund commitment to a direct commitment. Even though the operator of the pension fund will certainly not be enthusiastic about this and will have to fear a corresponding outflow of funds, it will have to agree to the change of implementation method from a legal point of view. With the change of the implementation channel back to the direct commitment, the obligation is back in the company. However, as the company will continue to be interested in a release from liability, it is only “parked” here.

Further outsourcing

For example, the “re-transferor” company can use the cash recovered from the pension fund to tackle a further outsourcing. This time, however, in the form of complete debt relief without additional funding obligations. Here, for example, an outsourcing in the form of debt assumption and debt assumption is to be considered, especially in the case of direct pension commitments to controlling shareholder-managing directors of corporations. In the case of larger workforces without corporations, solutions in accordance with the Transformation Act in the form of spin-offs or spin-offs should be considered (so-called pensioner companies). It is very advantageous that the price for the outsourcing of pension obligations with the help of debt assumption or debt assumption can be freely agreed. In addition, there are no operating, administration and administration costs known from the insurance sector. For this reason, transfer fees agreed between the contracting parties directly affected will be far below the amounts that insurance companies will demand.

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 services, we also administer and manage specially established pension companies for the direct assumption of pension obligations. Talk to us!