“KENSTON NEWS” – Neue Zeitschrift für Arbeitsrecht (NZA) 21/2020 Editorial: Pensions and “Outsourcing”

Sebastian Uckermann comments on the current situation regarding pension obligations in German companies during the Corona crisis

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The “Corona crisis” is omnipresent. While major epidemiological protection measures have been taken at the private level, companies are largely defenceless against the financial consequences of the pandemic. For even with all due respect for the – depending on one’s point of view – enormous state aid for German corporations, the state can only extinguish short-term sources of fire; the wildfires that occur are virtually unstoppable. Pension obligations in particular are therefore coming under even greater scrutiny. Historically, pension commitments have been and still are the expression of a high level of corporate solvency. Former employees receive company pension benefits that are financed by the company’s business development and thus “from its own resources”. Saved taxes did and do the rest. This resulted in pension payments that were difficult to withdraw under labor law, and their counter-financing, which had to be carried as liabilities within the company in the form of pension provisions, presumably became the largest component of the balance sheet total.

Global companies such as “Lufthansa” or “ThyssenKrupp” have pension liabilities which are above the value of their market capitalization, i.e. goodwill. But it does not have to go that far. Every mid-sized company with pension accruals and backward economic development is in a similar situation. The provisions burden the result and reduce or even eliminate the possibilities for necessary borrowing. The statement of the CEO of a world market leader describes the matter aptly: “Currently we are a pension insurance company with a little bit of other business.”

Whether the acting political forces have given thought to this when each individual corona protection measure was imposed is hardly likely. The unprotected pandemic impact has also pulled previously flourishing companies into the same downward spiral. Pension obligations are therefore being emotionally increased de facto to the extent that the core operating business is declining in percentage terms. The pressure to free oneself from pension burdens thus becomes emphatically visible. Solutions to this are available. A look at the German Reorganization Act is the key. Through spin-offs or outsourcing to “third” companies, corresponding pension provisions can be “bought out” of the company balance sheets in a legally secure manner. The costs to be estimated are partly far below the mostly advertised insurance-based pension funds. The resulting implementations are economically and legally unbeatable. Nevertheless, caution should be exercised when using service providers who have not been active in this market for long. Seriousness is a virtue here. So the solutions mentioned are indispensable, but it is imperative to ensure that only those service providers are used who know that German pension money must not be allowed to migrate abroad to the fund manager. For the protection of confidence this would be a disaster. Irrespective of this, a “big-four society” propagates such a questionable implementation. This should prevent the critical application of the law necessarily by involving independent service providers. This is the only way to ensure that the necessary outsourcing of pension obligations to third parties can be carried out in the long term and on the basis of trust.

Sebastian Uckermann, Kenston Pension GmbH, Cologne