Occupational Pensions: Employer’s obligation to carry out pension adjustments according to occupational pension law does not apply to non-occupational pension benefits

By judgment of 19 November 2019 (docket number: 3 AZR 281/18) the Federal Labour Court (Bundesarbeitsgericht – BAG) has ruled that, in the event that an employer has granted a total pension (Gesamtversorgung) which consists of both occupational pensions and other types of pension benefits, the employer’s obligation to carry out pension adjustments according to Section 16 of the German Occupational Pensions Act (Betriebsrentengesetz) does only apply to occupational pensions.

The employer and the former employee were in dispute over the level of pension adjustments. The employee had been granted a special pension commitment according to which he received a total pension, comprising both statutory and occupational pension benefits. Such type of pension commitment (Gesamtversorgungszusage) provides that non-occupational pension benefits (such as the statutory pension) are taken into account for the determination of the occupational pension benefit level. In other words: The occupational pension benefit level is the difference/gap between the level of the total pension and the level of the non-occupational pension benefits.

The employee argued that the total pension was subject to Section 16 paragraph 1 of the German Occupational Pensions Act and, thus, had to be increased according to that regulation.

The Federal Labour Court rejected this view, stating that Section 16 paragraph 1 of the German Occupational Pensions Act does not apply to a total pension (which, i.a., can comprise a statutory pension) but only to occupational pensions. The court argued that the wording of Section 16 paragraph 1 of the German Occupational Pensions Act only refers to occupational pensions („Leistungen der betrieblichen Altersversorgung“) and not to further (non-occupational) pension benefits which are provided by a third party.

With this ruling the Federal Labour Court confirmed its earlier ruling of February 2014 (docket number: 3 AZR 685/09) and ensures legal clarity. However, pension adjustments are often a complex issue and require a thorough examination of the individual case. Also, it is possible to deviate from Section 16 of the German Occupational Pensions Act by means of a collective bargaining agreement. Thus, there is at least a certain degree of flexibility with regard to the design of adjustment regulations in pension schemes.