Germany: First pure DC retirement plans established

Employer Action Code: Act

Recently the first pure defined contribution (DC) occupational retirement plans were established in Germany, five years after the German Pension Act was amended to permit the implementation of such plans if agreed on jointly by trade unions and employers/employer associations. The first two plans were implemented by the chemical and pharma sector and by the energy company Uniper. Employers within the chemical and pharma sector will need to determine whether they want to join the pure DC offering, while employers from other sectors will need to determine if they want to follow a similar route.

Key details

• The German Pension Act was amended, effective January 2018, by the Betriebsrentenstärkungsgesetz (BRSG). By means of the BRSG, the possibility of establishing pure DC retirement plans (in the sense of “pay and forget,” i.e., the company has no liability beyond the payment of a set contribution) was introduced in Germany for the first time. Prior to the BRSG, all DC-type plans were required to guarantee a minimum benefit based on contributions (and so possibly subject to accounting as a defined benefit plan); however, pure DC plans can only be introduced if both the employers/employer associations and the corresponding trade union or unions agree. Any implementation of pure DC plans can be either sector-wide or company-specific and must be approved by the supervisory agency BaFin. Further, the pure DC plan design is somewhat limited (e.g., regarding wage tax efficiency and payout options).
• Within the chemical and pharma sector, the employer association BAVC and trade union IGBCE agreed on implementing an option for a pure DC plan as of December 1, 2022, by amendment of the collective bargaining agreement TEA (Tarifvertrag über Einmalzahlungen und Altersvorsorge). Employers covered by the TEA are not required to adopt the pure DC plan, but they may opt to do so. While the TEA allows for an actual implementation by several pension funds, currently the first and only implementation is via the ChemiePensionsfonds, a sector-wide offering of the social partners run by the German insurer R+V. Implementation may be for new joiners only or possibly also for future service of existing participants, though the latter case is more complex and may require individual or collective consent.
• In contrast to the chemical and pharma sector, the energy company Uniper has implemented a company-specific solution with its trade unions ver.di and IGBCE starting as of January 1, 2023.
• Within other sectors (e.g., mechanical and electrical engineering, banking), the social partners are continuing to explore the opportunity to implement pure DC plans. Further, the departments of Labor and Finance have started a dialogue (Fachdialog) with pension stakeholders on improving the occupational pension system. In this context, pure DC plans organized by social partners will be one of the main topics.

Employer implications

Employers within the chemical and pharma sector should review their pension plans and decide whether they want to adopt a pure DC plan as offered under the TEA. Companies that already use an offering of the ChemiePensionsfonds will need to decide whether they want to switch to its pure DC plan option going forward.

It is recommended that all employers review their pension plans to position themselves regarding the option to introduce pure DC plans under the BRSG, either by a (potential) sector-wide or by a company-specific solution.