Deferred compensation

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The deferred compensation is a specific, state-sponsored form of company pension scheme in Germany. According to Section 1a BetrAVG, every employee has a legal claim against their employer to use part of their agreed remuneration for company pension schemes. This form of company pension scheme is promoted by levying no income tax (pursuant to Section 3 No. 63 EStG ) and no social security contributions (pursuant to Section 1 Paragraph 1 No. 4 + 9 SvEV ) on the converted portion of the earnings . In return, the later pension payment is subject to income tax and is generally subject to contributions to statutory health and long-term care insurance .

Definition of terms

In addition to the term deferred compensation, other terms with the same meaning are also used:

  • Depending on the type of remuneration converted, there is also talk of salary conversion (when converting wages ) or (less often) wage conversion (when converting wages).
  • Sometimes the terms are pay reductions , deferred compensation or wage cuts used. However, these terms are misleading because they are not actually a waiver.
  • In addition, there is the term gross salary conversion , with which it is emphasized that the conversion amounts reduce the gross salary and thus also the taxes and social security contributions. In contrast, a conversion from the net remuneration would not be a remuneration conversion, but a pure use of remuneration or salary.
  • Advertising also will pay optimization used.

Employment Law

If the salary is converted into a company pension scheme ( employee-financed pension scheme , also known as deferred compensation ), the employee waives part of his or her salary in favor of a pension commitment. Section 1 (2) no. 3 BetrAVG requires that remuneration components due in the future be converted into a commitment of equal value .

In Germany, according to Section 1a BetrAVG, employees are entitled to deferred compensation of up to 4% of the assessment ceiling in the statutory pension insurance . It has been clarified by the highest court since 2014 that the employer does not have to proactively inform the employee of this claim. In 2007 the Federal Labor Court ruled that the legal claim of employees against the employer to deferred compensation is constitutional and thus compatible with Article 12 of the Basic Law, provided that the employees have submitted an application for deferred compensation. However, the legal right to deferred compensation is subordinate to what is known as the priority rate. According to Section 17 (3) BetrAVG, collective agreements may include a. deviated from § 1a BetrAVG. Employees to whom such a collective agreement applies directly or via an individual contractual agreement can only convert their collective wages if the collective agreement allows this. For example, the collective agreement on a supplementary pension in the building trade (TV TZR) allows deferred compensation. According to Section 2 (6) TV TZR, however, conversion of the minimum wage is not permitted.

In addition, § 1a BetrAVG contains regulations on the possible implementation routes. In principle, the commitment to deferred salary can be agreed via any implementation method. The employer can specify the pension fund or pension fund as the implementation method. If he does not offer either of these two implementation methods, the employee can request implementation through direct insurance. With all three implementation methods , the employee can demand that the requirements for the so-called Riester subsidy are met.

The employer does not have to accept very small ( Section 1a (1) sentence 4 BetrAVG) or changing remuneration conversion amounts ( Section 1a (2) BetrAVG). In the case of an ongoing employment relationship without earnings (e.g. due to parental leave), the employee can continue converting remuneration with private contributions in accordance with Section 1a (4) BetrAVG. An entitlement to a company pension, which was financed through deferred compensation is immediately vested ( § 1b para. 5 sentence 1 BetrAVG), the amount depends on the already converted charges ( § 2 para. 5 BetrAVG). Only for commitments made before January 1, 2001 do different regulations still apply.

According to § 16 BetrAVG, special adjustment requirements apply to deferred compensation commitments. In principle, employers must check an adjustment every three years and increase the pensions as far as is reasonable. An adjustment in this sense is considered sufficient if the pensions rise at least as much as the prices or the wages of the company's employees. There is no obligation to check if the employer has undertaken to adjust the pensions by at least one percent annually. It also does not exist if, in the case of direct insurance or the pension fund , all surplus shares are used to increase benefits from the start of retirement. If a contribution commitment with a minimum benefit is granted, there is also no need for an adjustment review. In practice, employers usually take one of the three options to avoid the obligation to test.

A commitment that has been transferred from one employer to the next within the framework of Section 4 BetrAVG is also considered a commitment to deferred salary .

Differentiation from employer-financed pension schemes

There are differences between employer-financed and employee-financed pension schemes, for example in terms of vesting or the amount of pension provisions . It is therefore important to differentiate between the two forms of financing. Difficulties can arise, for example,

  • if the employer only pays certain remuneration under the condition that it is used in whole or in part for a company pension against deferred compensation,
  • if the salary conversion is topped up by the employer,
  • if a salary increase is not granted but is immediately converted into a company pension (opting-out).

Basically, it can be assumed that deferred compensation exists if the employer and employee have concluded a conversion agreement and the converted amounts would have been paid out without the agreement.

Tax and social security assistance during the payment phase

The state promotes company pension schemes as part of deferred earnings by making the converted earnings up to 4% of the assessment ceiling of the statutory pension insurance free of social security contributions and up to 8% tax-free. Insofar as wages are paid on the basis of collective agreements, the conversion must also be provided for or permitted by collective bargaining agreements ( Section 17 BetrAVG).

Tax incentives

Different funding options are available depending on the implementation method. According to § 3 No. 63 EStG, contributions to pension funds , pension funds or direct insurance companies up to 8% of the contribution assessment ceiling are made tax-free. In accordance with Section 40b of the Income Tax Act (EStG), flat-rate taxable contributions to pension funds or direct insurances are offset against this. In addition, there is the Riester subsidy in accordance with § 10a , § 82 EStG for the implementation methods mentioned . The various grants can be used cumulatively.

In the implementation channels of direct commitment or support fund, a tax inflow through remuneration conversion is avoided. This also applies if contributions are paid to a reinsurance policy. Taxation only takes place when benefits are drawn.

Promotion under social security law

Conversion of remuneration for company pension schemes is free of charge up to four percent of the assessment ceiling for statutory pension insurance (Section 159 SGB VI) in accordance with Section 1 a of the Company Pension Act (BetrAVG) in conjunction with Section 1 of the Social Insurance Remuneration Ordinance (SvEV). Since the introduction of the Old Age Assets Act in 2002, this applies equally to the implementation channels of pension funds, pension funds, pension commitments and relief funds. Since 2005, contributions to company pension schemes in the form of direct insurance have also been exempt from tax and social security contributions. If the conversion amount for a direct insurance funded according to § 40b EStG is made from a special payment (e.g. vacation or Christmas bonus), this amount is also exempt from social insurance. Contributions that are funded according to § 10a EStG are always subject to social insurance.

If remuneration is converted to the extent of more than four percent of the assessment ceiling, the excess portion of the converted remuneration is in principle subject to social insurance again.

Insofar as remuneration components above the income threshold of the health or pension insurance are converted, and even after the conversion of the premium there is no undershoot of the respective income threshold, there is no social security effect, since no contributions would have to be paid on the converted income shares for the respective insurance branch anyway. If only parts of the converted remuneration are above the respective assessment limits, there would be no corresponding subsidy effect for this part.

Promotion of employer and employee-financed company pension schemes

There is no specific funding for deferred compensation commitments. The aforementioned tax and social security requirements apply equally to employee and employer-financed pension schemes. If the maximum amounts are already being used by an employer-financed pension scheme, they are no longer available for a deferred compensation commitment.

Tax and contribution obligation in the payment phase

Pension entitlements acquired as part of deferred compensation are generally taxable in the disbursement phase and, for those with statutory and voluntary insurance, contributions to statutory health and long-term care insurance. Whether there are overall tax advantages for the employee in the downstream taxed implementation channels depends in each individual case on the personal tax framework, the development of tax legislation as well as the chosen commitment / reinsurance variant and the conversion contributions.

Tax liability

The provisions according to the Old Age Income Act 2005 are fully taxed as other income within the meaning of Section 22 of the Income Tax Act for direct insurance companies, pension funds and pension funds , provided that the contributions are tax-subsidized in accordance with Section 3.63 or Section 10a of the Income Tax Act. Direct insurances and pension funds that have been taxed at a flat rate in accordance with Section 40b of the Income Tax Act are taxed with the income share when exercising the pension option and are tax-free when exercising the capital option .

For pension commitments and relief funds benefits do not flow to the employee during the qualifying period, because it can not dispose of it during the deposit period. The pension benefits are therefore fully taxable after the retirement period as (subsequent) income from employment within the meaning of Section 19 EStG. . According to § 19 para 2 EStG is to workers smoothing his tax obligation of care allowance (2019: € 1,320 maximum) and Price (2019: € 396) is available, unless the latter was otherwise exhausted. If the pension commitment or support fund provides for a lump-sum payment , the progression-mitigating effect of the one- fifth regulation regulated in Section 34 EStG can be used. However, in 2016 the Federal Fiscal Court decided in one case that such agreed capital payments are not to be regarded as extraordinary income within the meaning of Section 34 EStG, so that the one- fifth rule does not apply .

Obligation to contribute to statutory health and long-term care insurance

In the case of beneficiaries who have statutory or voluntary health insurance, the full contributions (employer and employee share) to the statutory health and long-term care insurance are due during the benefit payment phase.

There is also an obligation to contribute if the pension benefit is paid out in one sum (lump-sum option). To calculate the insurance premium, the capital amount is divided by 120 (10 years of 12 months) and multiplied by the full KV / PV premium rate. The resulting contribution is to be paid monthly for a period of 10 years. The minimum limit for the collection of contributions is the tax law minimum limit in the context of the KVdR contribution to the company pension scheme ( § 226 SGB ​​V). According to Section 18 SGB IV, this is 1/20 of the reference value, i.e. a monthly pension of € 148.75 (as of 2017).

If contributions above the income threshold are converted, no social security contributions are saved for health insurance. Nevertheless, when a pension is drawn, contributions to statutory health and long-term care insurance may arise, provided that the pension payments do not exceed the contribution assessment limit even at retirement age.

Business effects on the employer

As with employer-financed care, they depend on the chosen method of implementation . In the case of direct commitments in accordance with Section 6 a EStG, pension provisions must be set up. In the case of direct insurance, pension funds, pension funds and reinsured relief funds, the insurance contributions must be claimed as business expenses (§§ 4 b sentence 1 or 4 c paragraph 1 sentence 1 or 4 e paragraph 1 or 4 d paragraph 1 no .1 c EStG). In the case of the lump-sum support fund (Section 4 d, Paragraph 1, Number 1 b of the Income Tax Act), it is an amount related to the commitment that may be claimed as a business expense and that deviates from the converted salary components. This means that the deferred compensation is not neutral in income. In the case of a direct commitment and a lump-sum benefit fund, there are tax savings - regularly and for different lengths of time - that are higher than if the remuneration had been paid out. Common to all implementation methods is the relief from the social security contributions saved, provided that they are below the BBG .

Criticism of the deferred compensation

Since the conversion of earnings reduces the income subject to social insurance, it is viewed with skepticism not only by the statutory pension insurance providers. From the point of view of old-age security and distribution policy, the exemption of the converted wage components from compulsory social insurance is problematic because it leads to an additional pension gap in old age for the employees who make use of it, as they pay lower pension insurance contributions and thus acquire lower pension entitlements. This also reduces the amount of the disability pension and the transitional allowance.

As a result of the deferred compensation, the general pension level also falls . All pensioners are affected by this level reduction, regardless of whether they have deferred earnings themselves.

The value of the pension entitlement of all who do not convert is therefore reduced by the conversion of earnings. Whether the conversion is worthwhile for those who convert themselves depends largely on the profitability of the company pension scheme, the age of the insured at the start of the conversion, and the tax and social security contributions rates during the contribution phase compared to the payment phase.

The exemption from contributions in the other social insurances leads to similar problems. The conversion of earnings reduces the individual entitlement to unemployment and sickness benefits. At the same time, it reduces premium income and tends to lead to a higher premium rate. Since the taxable income is also lower, the parental allowance is also lower (provided the maximum amount is not exceeded anyway). At the same time, it reduces government revenues and indirectly leads to higher tax rates.

See also

literature

  • Wolfgang Förster / Roger Emmett, Deferred Compensation - Requirements and Optimization Options, RWZ 1995, p. 2 ff.

Individual evidence

  1. Appropriation of salary. In: u-di.de. u.di support and pension fund for the service sector eV, accessed on July 31, 2019 .
  2. ^ Judgment of the Federal Labor Court of January 21, 2014 - 3 AZR 807/11 according to the press release of the court of January 21, 2014
  3. BAG, judgment of June 12, 2007, Az .: 3 AZR 14/06; Discussion of the Cisch judgment in Labor and Labor Law 11/07, p. 693 f.
  4. BFH on the rule of fifths
  5. 2765 € for 2014
  6. Holger Balodis and Dagmar Hühne : The big pension lie. Why good and affordable old-age insurance is possible for everyone , Westend Verlag Frankfurt / Main, 2017. Chapter 5): The fairy tale of good company pensions , pp. 61–72.
  7. OPINION of the Social Association Germany eV on the draft law of August 8, 2007 ( Memento of June 5, 2012 in the Internet Archive )
  8. Expert opinion on deferred compensation, the effects on statutory pension insurance ( memento of the original dated November 8, 2008 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / www.infonetz-altersvorsorge.de