Effective denial of pension adjustments for pension fund commitments

Judgment of the Federal Labour Court of 3 May 2022 in Case No. 3 AZR 408/21

The Federal Labour Court (Bundesarbeitsgericht, BAG) has provided clarification with respect to the adjustment of pension benefits for pension fund commitments based solely on profit sharing pursuant to § 16 (3) No. 2 of the Act for the Improvement of Operational Pensions (Gesetz zur Verbesserung der betrieblichen Altersver-sorgung, BetrAVG). With this judgment, the Third Senate provides employers with the opportunity to assess existing pension fund commitments for risks with respect to pension adjustments.

Facts of the case

The Court was asked to consider the employer’s obligations to adjust the employer-financed portion of the company pension, which the employer had drawn from a regulated pension fund since 1 October 2011. The pension fund had established separate assets and liabilities for different wage categories, in particular for new and legacy tariffs. A further distinction is made within these categories for profit classes. The pension fund entitlements of the Claimant were therefore determined by two tariffs. The Claimant took the view that the employer had illegally failed to adjust the pension fund annuities in 2014. In her view, the pension should have been adjusted based on the developments in the consumer price index (CPI) over the three previous years and the employer also had a duty to assess whether adjustments should be made in the future. According to the Claimant, § 16 (3) No. 2 BetrAVG did not abolish this duty as the applicable transitional rules in § 30c (1a) of the BetrAVG constituted inadmissible retroactivity and the pension fund illegally used surpluses to build accruals for losses.

The judgment

The BAG held that the employer-financed part of the Claimant’s pension was subject to pension adjustments based on the CPI for only one of the two tariffs applicable to the Claimant. The other tariff fulfilled the conditions of the exception in § 16 (3) No. 2 of the BetrAVG, so that all pension fund surpluses related to that bond portfolio had to be used to increase the pension benefits. The BAG also held that the exemption clause did not infringe the prohibition against allowing property to deteriorate under the EU Mobility Directive, as the new rules in § 16 (3) No. 2 of the BetrAVG do not lower the protection existing under national law, but instead makes a correction. The Court held that there was also no inadmissible retroactivity of the transition provision in § 30c (1a) of the BetrAVG for this exemption, arguing that the legislator adopted an effective date rule that is both justifiable and fact-based.

Consequences for practice and practical tip

Where the employees failed to bring a claim before 1 January 2016, the transitional provision in § 30c (1a) of the BetrA will protect employers committed to providing a company pension plan against employee demands for adjustment.  Employers should therefore review the contracts with their pension fund and check whether the contracts deal with the use of surplus in line with § 16 (3) No. 2 of the BetrAVG, which protects employers against further demands for adjustment from employees under § 16 (1) of the BetrAVG.

Julia Meler