Deferred compensation

The deferred compensation is a specific, state-sponsored company pension in Germany. Every worker has to be used according to § 1a BetrAVG a legal claim against his employer, a part of his agreed salary for occupational retirement provision. This form of occupational pension schemes, adding to the converted portion of pay no income tax (pursuant to § 3 para. 63 Income Tax Act) and no social security ( in accordance with § 1 para 1 no. 4 9 SVeV ) is sponsored levied. In return, the eventual pension payment is taxable and subject in principle also contributions to the statutory health and nursing care.

• 5.1 Tax Liability
• 5.2 obligation to pay contributions to the statutory health and nursing

Distinction between

In addition to the concept of deferred compensation and other terms with the same meaning are used:

• Depending on the type of the converted pay is also talk of salary sacrifice (for converting an earnings) or (more rarely) pay conversion (for conversion of wages).
• In some cases, the terms pay reductions, salary cuts or wage cuts are used. These terms are misleading, however, because it 's not really a sacrifice.
• In addition, the term is deferred compensation, is highlighted with the that the conversion amounts reduce the gross pay and thus the taxes and social security contributions. A conversion from the net earnings would be no salary, but a pure fee using the contrast.
• Promotionally also charge optimization will be used.

Labour

With a salary for occupational retirement provision ( employee-funded pensions, deferred compensation also called ) the employee forfeits part of his salary in favor of a pension commitment. § 1 Section 1 No. 3 BetrAVG urges that in future due fee components are converted to a value equal commitment.

In Germany, according to § 1a BetrAVG employee is entitled to salary sacrifice up to 4% of the contribution assessment limit in the statutory pension insurance. The employer does not have to point out on this claim of the employee. The legal right to deferred compensation, however, is subordinate to the collective so-called precedence. According to § 17 paragraph 3 BetrAVG may be waived in collective agreements, inter alia, of § 1a BetrAVG. Employees, for which such an agreement applies, directly or through individual contractual agreement can only convert their standard wage, if the collective agreement permitting. For example, allowed the Collective Agreement on a supplementary pension in construction ( TV TCR ) a deferred compensation. According to § 2 para 6 TV TCR but is a conversion of the minimum wage inadmissible.

In addition, § 1a BetrAVG regulations on possible implementing ways. Basically, the salary commitment can be agreed on every invested. The employer may specify the implementation method as pension fund or pension fund. He does not offer any of these two methods of implementation, the employee may require the application of a direct insurance. In all three implementing Because the employee may request that the conditions for the so-called Riester are met.

The employer must not have a very small ( § 1a paragraph 1 sentence 4 BetrAVG ) and no varying amounts deferred compensation ( § 1a paragraph 2 BetrAVG ) accept. In the case of a continuing employment relationship without pay (eg due to a parental leave), the employee may continue the salary with private contributions pursuant to § 1a paragraph 4 BetrAVG. A defined benefit occupational pension scheme, which was funded through salary, vests immediately ( § 1b paragraph 5, sentence 1 BetrAVG ), the amount depends on the already converted charges ( § 2 para 5a BetrAVG ). Only for commitments that were issued before 1 January 2001, still subject to different regulations.

For deferred compensation commitments special adaptation requirements apply according to § 16 BetrAVG. Basically, the current benefits are at least 1 % annually adjust. In the case of direct insurance or the pension fund all bonuses are to be used to increase power from retirement.

Also as deferred compensation promise applies a commitment that has been transferred from one employer to the next in the context of § 4 BetrAVG.

Definition of the employer-funded pension

Between employer and employee contribution pension benefits, there are differences, for example, in the vesting or the amount of the pension provisions. Therefore, it is important to distinguish the two forms of financing from each other. Difficulties may, for example,

• If the employer pays only a certain compensation under the condition that it is wholly or partly used for company pensions against deferred compensation,
• If the salary will be increased by the employer,
• When a salary increase granted, but immediately converted into occupational pensions ( opting out ).

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

Tax and social security funding during the deposit phase

The state promotes the company pension scheme in the framework of remuneration, in which the transformed fees are payable by 4% of the income limit up to tax and social charges. This principle is subject to that collective agreements do not preclude.

Tax incentives

Depending on the implementation method, different funding options available. According to § 3 No. 63 of the Income Tax Act contributions to pension funds, pension funds or direct insurance up to 4% of the earnings ceiling of the statutory pension insurance is tax- free. Under certain conditions, the amount increases still around 1800 €. § 40b German Income Tax Act allows the flat-rate income tax on pension commitments under the transitional arrangements to the old version even in direct insurance. Then there are the Riester subsidy pursuant to § 10a German Income Tax Act for the said execution paths. The various promotions can be used cumulatively.

Granting a pension plan or a pension fund (known as deferred compensation ) as well as contributions to a reinsurance lead to no flow of benefits to the employee. During the qualifying period, so it lacks the basis for taxation.

Legal social promotion

Deferred compensation for occupational pensions is up to the amount of 4 % of the income threshold ( pension ) in the statutory social -contributory ( § 1 para 1 no. 4 9 SVeV ). This is true since the introduction of the Old Age Pensions Act 2005 for the implementation routes direct insurance, pension funds and pension funds, pension and provident funds alike. If the conversion amount is carried out for a subsidized under § 40b German Income Tax Act direct insurance from a special payment ( for example, holiday or Christmas money), this amount is also exempt from social security. Posts that are funded pursuant to § 10a German Income Tax Act, are always subject to social insurance.

If payment in the amount of more than 4% of the income threshold converted to DRV ( increase amount of 1800 € p a.), So the excess portion of the converted pay is basically back to social security.

Where charge constituents are converted above the income threshold of the sick or pension, and even after post conversion will not be below the relevant income threshold, no social security law go into effect as at the relevant class of insurance anyway no contribution obligation.

Promoting employer-and employee-contribution occupational pension

A specific funding of deferred compensation plans do not exist. The above-mentioned tax and social security regulations apply to employee and employer-funded pensions alike. If the maximum amounts already used by an employer-financed retirement benefits, they are no longer available, therefore, for a salary commitment.

Control and obligation to contribute to the payout phase

As part of the deferred compensation vested pension claims are basically in the payout phase tax and law as voluntary members contributions to the statutory health and nursing care. Whether there is overall tax advantages in the downstream taxation is implementing ways for the worker, in an individual case depends on the personal tax environment, the development of tax legislation and the selected Zusage-/Rückdeckungsvariante and the conversion from contributions.

Tax liability

The supplies according to the Retirement Income Act 2005 are taxed in full at Direct insurance, pension funds and pension funds as other income within the meaning of § 22 Income Tax Act, provided that the contributions referred to in § 3.63 and § 10a of the Income Tax Act were tax-favored. Direct insurance and pension funds, which were taxed a flat rate according to § 40b German Income Tax Act are taxed upon exercise of the right to choose annuity with the share of earnings and are tax-free upon exercise of the capital suffrage.

For pension and provident funds benefits accrue to the workers during the qualifying period, not because it can not dispose of it during the payment phase. The retirement benefits are therefore in the pension time as (later) income from employment within the meaning of § 19 of the Income Tax Act fully taxable. According to § 19 para 2 German Income Tax Act is available to workers to smooth their tax obligation of care allowance (2014: a maximum of € 1,920 ) and a supplement (2014: € 576 ) is available if the latter has not used elsewhere. Does the pension plan or pension fund a capital payment before that in § 34 of the Income Tax Act regulated, progressionsmildernde effect of the fifth control can be used.

Obligation to pay contributions to the statutory health and nursing

For beneficiaries who are insured by law or voluntarily incurred during the performance phase reference to the full contributions (employer and employee's share ) to the statutory health and nursing care.

A contribution is mandatory even if the benefit is paid in a lump sum ( lump-sum option ). For the calculation of the insurance premium of the principal amount is divided by 120 (10 years of 12 months) and multiplied by the full KV / PV contribution rate. The resulting contribution is payable for a period of 10 years monthly. Minimum limit for the collection of contributions is the tax de minimis threshold under the KVdR - Verbeitragung for occupational retirement provision ( § 226 SGB V). This is according to § 18 SGB IV in 1/20 of the reference value, and therefore at a monthly pension of € 138.50.

If contributions above the income threshold were converted, so there is no social security contributions have been saved. Nevertheless, if a pension may result in a contribution obligation for the statutory health insurance and pensions, provided pensions not exceed the income threshold at retirement age.

Business impact of the employer

They depend as for the employer- financed benefit from the chosen implementation method. In the direct commitment under § 6a German Income Tax Act pension provisions must be made. In direct insurance, pension fund, pension funds and provident fund covered back the insurance premiums are claimed as business expenses to make (§ § 4 b and 4 c, paragraph 1 p.1 p.1 and 4 e, paragraph 1 or 4 d, paragraph 1 No. .1 c Income Tax Act). In the flat-rate doped provident fund (§ 4 Paragraph 1 No. 1 d b Income Tax Act) there is a commitment to standing relative amount that can be claimed as a business expense claims and deviates from the converted content proportions. Thus, the deferred compensation is not income. In direct commitment and sweeping doped provident fund arising - regularly and vary in length - Steuerereinsparungen that are higher than if the compensation had been paid. Common to all implementing Because the relief provided by the savings in social security contributions.

Criticism of the deferred compensation

Since the deferred compensation reduces the social insurance income, it is seen by the holders of statutory pension insurance skeptical. Old- assurance and distribution policy perspective, the liberation of the converted salary shares from social security is problematic, because it would lead to an additional pension gap among the employees that make use of it because they paid lower pension contributions and thus purchasers of lower pension entitlements. Likewise, the amount of the disability pension as well as the transitional allowance will be reduced.

As a result of deferred compensation and the general pension level falls. From this level of reduction all pension policyholders are affected, regardless of whether they operate deferred compensation.

The value of the pension rights of all who will not convert so reduced by the deferred compensation. Whether the salary for those worth, which convert itself, depends essentially on the Rentierlichkeit of occupational pensions, the age of the insured at the beginning of the transformation as well as the tax and social security contribution rates during the contribution phase compared to the payout phase.

The premium waiver in the other social causes analogous to similar problems. Thus, the deferred compensation reduces the individual claims for unemployment and sickness benefits. At the same time it reduces the premium income and results in relative terms to a higher contribution rate. Since taxable income is lower, also the parental benefit will be lower ( unless the ceiling is exceeded remains ). At the same time it reduces government revenues and leads to relatively higher tax rates.