In principle, the company is obliged under the pension commitment must recognize its pension liability in the balance sheet by means of corresponding provisions. This is not only a requirement of the commercial law principles of proper accounting and bookkeeping, but also results directly from the provisions of the German Commercial Code (HGB) on accounting, in particular Section 249 HGB.
Medium-sized companies with pension commitments to the controlling managing partners often attempt to have their obligations fulfilled by a third party. Such a case can exist, for example, in the case of a planned sale of a company or a planned transfer of a business, if the acquirer makes the takeover dependent on a “pension exemption”. In the case of groups of companies and affiliated companies, the objective is often not to show the pension provisions in the main company obliged “under the commitment” but in another related company. This other company is then also to bear the corresponding pension payments on a regular basis. For this purpose of outsourcing the pension obligations from a company, the most suitable civil law instruments are, Schulduebernahme or Schuldbeitritt.
Ability to now put a value on the Pension Liability
The price selling the Corporate Pension obligations does not depend on actuarial principles and can be freely negotiated. Buyers and sellers can thus agree on a price that is agreeable to both parties quite quickly. Accordingly, there are no additional operating, or administrative costs that can often be extremely expensive when dealing with a company in the insurance sector. As a result, the fees agreed between the directly affected relevant parties for the transfer of (direct) pension obligations described above, will in most cases be far below amounts that an insurance company would require because of regulatory, structural and siginifcant overhead costs and requirments.
The outsourcing of direct pension commitments, e.g. to a pension fund, has a very high price for companies if it is really to lead to a far-reaching release from liability (i.e. if a pension fund with insurance-type guarantees is chosen) compared to “self-managed transfer”. In addition to these additional costs, there is also the residual risk that the employer will have to pay later if the pension fund is unable to provide the guaranteed benefits in full on a permanent basis. In the case of a so-called liquidity-saving transfer (Company Pension transfer) to a pension fund without an insurance-type guarantee of benefits, the “commitment” of the company may still exist if the pension fund goes under thus making this type of transaction not very attractive to the Corporate. This means there can be further recourse back to the corporate but this would not exist in a transaction with Kenston.
By executing a pension liability transfer of the Company’s controlling shareholders pension liability under the §§ 414 ff. of the German Stock Corporation Act (AktG) a full risk transfer of all pension liabilities including the controlling persions can then be achieved. By applying BGB a complete release of liability for the transferring company can be achieved.
In this context, KENSTON CORPORATE GmbH is your partner and service provider for all questions relating to the outsourcing of company pension obligations. In addition to the corresponding consulting support, we also administer and administer specially established pension companies for the direct assumption of pension obligations together with our partner companies of the KENSTON GROUP. Talk to us!