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If the pension funds cannot meet employees’ pension rights – employers’ obligation to assume liability

Following a recent judgment by the Federal Labour Court (Bundesarbeitsgericht, BAG), employers may be liable for reduced pension entitlements (judgment dated 2 February 2015, docket number 3 AZR 65/14).

The parties disputed whether and to what extent the defendant, an employer, was liable to the applicant, the pensioner/employee, for pension reductions made by the pension fund. As the pension fund had suffered financial difficulties, it made use of its statutory right to reduce pension payments. The pensioner/employee challenged this and argued that the employer should be held liable for such a reduction.

The Federal Labour Court ruled that the employer was liable for the benefit that had been promised even if the employer used an external vehicle like a pension fund, thus creating an obligation to assume liability irrespective of any fault. This concerns in particular cases in which the external vehicle cannot meet employees’ pension rights.

In the case at hand, the Federal Labour Court found that the legal prerequisites for the employer’s obligation to assume liability were fulfilled. However, the employers’ liability does not cover private contributions which have been paid to the pension funds by the employees themselves.