Employer subsidy for deferred compensation as of 2022

According to § 1a para. 1 BetrAVG, every employee who is compulsorily insured under the statutory pension insurance scheme is entitled to an occupational pension through deferred compensation (Entgeltumwandlung) beginning on the first day of employment. According to § 1a para. 1a BetrAVG, the employer has already been obliged since the 1st of January 2019 to pay an additional 15% of the deferred remuneration as an employer’s subsidy into the employee’s occupational pension scheme in the case of new contracts, insofar as the employer saves social security contributions through the conversion of remuneration.

From the 1st of January 2022 onwards, this obligatory contribution will also apply to contracts signed before the 1st of January 2019!

Employers must deal with this particular issue and, in case of doubts or uncertainties, should examine the matter more closely in order to avoid future disputes.

As a guideline, employers should check and answer the following specific questions:

• Is an employer subsidy already paid for deferred compensation contracts (Entgeltumwandlungsverträge) signed before the 1st of January 2019? If not, employers should implement this by the turn of the year and keep in mind the following in particular:
• The subsidy can either be precisely calculated for each employee on the basis of the social security contributions actually saved in the specific case or as a lump sum of 15 % of the respective deferred compensation.
• The subsidy should be paid into the same contract into which the employee’s deferred compensation is paid. If the specific deferred compensation contract does not allow for this, a solution should be found on a case-by-case basis with the insurer, with the help of legal advice.
• On one hand, the subsidy can be paid in addition to the compensation already deferred by the employee, so that the total amount increases. On the other hand, the same total amount as before can be paid in, and in future be partly borne, by the employer, so that the expense for the employee is reduced. However, the implementation of the second option must be explicitly agreed on with the employee in advance. 
• Can an already paid subsidy be deducted from the obligation to pay a subsidy under § 1a para. 1a BetrAVG? This is generally the case if (1) the subsidy is paid into the same deferred compensation contract, (2) there is an entitlement to deduction and (3) the subsidy is paid in order to pass on the saved social security amounts to the employee. If these conditions are not met, an examination should be made on a case-by-case basis. 

By the 1st of January 2022, all existing contracts for deferred compensation must be adjusted accordingly. This summary shows that employers must carefully examine what is permissible and possible in each individual case with regard to the amount, design and implementation of deferred compensation and the subsidy. In case of any open questions, companies should contact the insurers in advance or seek external legal advice.