On January 1, 2019, the German Act on the Strengthening of Company Pensions (Betriebsrentenstärkungsgesetz) leading to an amendment of the German Company Pensions Act (Betriebsrentengesetz), including its provisions regarding deferred compensation (Entgeltumwandlung), entered fully into force.

Deferred Compensation

Under the German Company Pensions Act, each employee is generally entitled to request from the employer that a certain part of the employee’s gross salary (up to an amount equal to 4% of the social security contribution ceiling (Beitragsbemessungsgrenze), i.e., currently EUR 3,216 per year) is used as deferred compensation for company pension purposes.  According to the newly implemented changes, employers are now obliged to provide their employees with an employer-paid top-up to the employees’ contributions to the deferred compensation. 

Background of the Changes

In case part of the employee’s gross salary is contributed for deferred compensation purposes, the employer’s and the employee’s social security contributions are reduced accordingly.  Thus, not only the employee, but also the employer benefits from a small financial gain.  Since deferred compensation was intended to provide employees with a chance to increase their pensions (and to compensate for the reductions in pension levels), but not to provide the employer with financial benefits, this result was considered inappropriate.

The newly implemented changes stipulate an obligation of the employer to pass on to the employee up to 15% of the deferred compensation amount as top-up, to the extent the employer saves social security contributions in connection with the employee’s participation in a deferred compensation pension plan.

Schedule for the Implementation of the Changes

In a first stage, only those deferred compensation agreements dating from January 1, 2019 onwards are subject to the new legislation; for those agreements concluded prior to January 1, 2019, the new entitlement will apply only as from January 1, 2022.

Agreements providing for (voluntary) employer-paid top-ups to deferred compensation remain unaffected.  However, if such agreements fall short of the amount which the employer is legally obliged to pay under the new legislation, the employer will have to increase the (voluntary) top-up amount to match at least the 15% statutory requirement.

Implications for Collective Bargaining Agreements

In connection with collective bargaining agreements with unions (which can take priority over most statutory provisions on deferred compensation) the following seems noteworthy:

  • Collective bargaining agreements may stipulate provisions that are different to the statutory provisions. For example, a collective bargaining agreement can change the amount of the employer-paid top-up (even to the employees’ detriment) or waive the employer-paid top-up entirely.
  • Collective bargaining agreements may set out the obligatory participation of all or certain groups of employees in a deferred compensation plan, however, with the possibility for employees to opt out. This is contrary to the basic approach of the German Company Pensions Act, which entitles the employees to request for deferred compensation from their employer (and does not impose deferred compensation on the employees unless they object).


It remains to be seen how employers and unions will react.  Ultimately, the cost of personnel will increase, as the employers’ savings in social security contributions will need to be passed on to the employees.  The newly implemented possibility to establish an obligatory deferred compensation plan (with the employee’s right to opt out) may be subject to debates with the unions.