• Germany: Preconditions for Amendment of Occupational Pension Plans
  • September 9, 2015
  • Law Firm: DLA Piper (Canada) LLP - Vancouver Office
  • Whenever pension plans need to be amended, several general principles for the protection of employees must be adhered to. These include respecting justified levels of trust and the expectations of employees in the grant they have received earlier, as well as the principle of proportionality of the intervention.

    According to the established case law of the Federal Labor Court, there are three categories of reasons that justify intervention in an existing pension plan:
    1. compelling reasons;
    2. reasonable motives; and
    3. objectively proportionate reasons.
    Depending on the category, the degree of alteration which is permitted to grants given and thus to existing entitlements varies (the so-called 'three-level-theory' of the Federal Labor Court). The least protected component of pension grants are those which are not yet earned, i.e. which still have to be accrued during future tenure. Changes relating to such future accrual of pension entitlements require ‘objectively proportionate’ reasons only.

    In its ruling of 9 December 2014, the Federal Labor Court reiterated what the requirements are for such 'objectively proportionate reasons’. The parties were in dispute which of two pension plans was relevant for the plaintiff. Initially, there was a pension plan that had been established in the year 1997. In 2004, this pension plan was replaced by a new pension plan.

    The Federal Labor Court ruled that the pension plan of 2004 only affects pension accruals which are not yet earned. Hence the level of protection for the initial grant lies (only) on the third level of the ‘three-level-theory’ mentioned above. Therefore, there have to be objectively proportionate reasons in order to justify the pension plan amendment. The court ruled that this is always the case when the measures taken are appropriate and reasonable in the light of the unfavorable economic development of the employer or the group. The plan change should not be disproportionate, meaning that the change must be part of an overall concept aiming to improve the economic state of the firm. However, it is not necessary that all other possible measures to reduce costs are exploited first.