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Adjustment of company pensions

Identical audit period for adjustment requirement and real–wage-related cap
(Federal Labour Court, decision dated 19.06.2012 – 3 AZR 464/11)

In order to avoid inflation-related erosion of company pensions and to restore the original benefits/equivalents ratio, §16 (1) Company Pensions Act (BetrAVG) requires employers to adjust current company pensions at their reasonable discretion every three years. In so doing, the employer must especially take into account its own economic situation as well as the concerns of the pension recipient.

The pension recipient‘s concerns are determined by the loss of purchasing power occurring (adjustment requirement), which the employer may however limit by means of the real–wage-related cap (development of the net income of its active employees) (in this regard, cf. §16 (2) BetrAVG). This is because if the active employees do not receive a full cost-of-living adjustment, but instead their salaries do not keep pace with inflation, company pensioners will also have to make do with a corresponding pension increase.

If the employer wishes to impose an effective limit by means of the real–wage-related cap, it must apply the same audit period to determine it as applied when determining the loss of purchasing power. Otherwise, the limitation attempt will come to nothing and the company pensioner will be entitled to demand an adjustment in the full amount of the loss of purchasing power. In both cases, the audit period is the period from the (individual) starting date of pension payments to the adjustment cut-off date. The Federal Labour Court recently expressly adhered to this jurisdiction and substantiated its decision in detail.

Practical recommendations

Particular care is required when adjusting a company pension for the first time if the employer bundles the audit deadlines and wishes to invoke the real–wage-related cap. Such bundling is permissible if the first-time adjustment of a company pension is delayed by no more than six months as a result (cf. Federal Labour Court ruling of 30.11.2010 – 3 AZR 754/08). Having said that, when grouping audit deadlines it must not be ignored that in individual cases, the audit period can and indeed must be up to 3.5 years, namely for both parameters: the loss of purchasing power and the development of the net income of the active employees. In the case adjudicated by the court on 19.06.2012, the employer had overlooked this.

Sandra Schug
Lawyer and certified specialist
for labour and employment law
Sandra Schug

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