The German branch of an international bank had built up a highly complex company pension scheme over decades. The pension provisions made up a large proportion of the liabilities side of the German subsidiary's balance sheet. So large, in fact, that due to the valuation risks, the pension provisions often overturned the annual result plans. In his role as Head of Reward, the current interim manager was tasked with analyzing and realigning the company pension scheme.
Defining the goals: External funding and risk reduction
In order to set up a future-proof company pension scheme, the interim manager formed a project group with the CFO and an external consultant. The team agreed on the goal of reducing the balance sheet, i.e. removing pension provisions from the balance sheet and funding them externally. In addition, an effective reduction in valuation risks and a significant streamlining of HR processes were to be achieved.
Settlement offer reduces costs for start-up financing of the outsourcing
The project began with the selection of the provider for the outsourcing solution: the choice fell on an insurance company that organizes the company pension schemes of many private banks in Germany and through which some of the bank's pension commitments were already made. After the insurance company had calculated the costs of outsourcing, it was clear that the existing pension provisions were not sufficient for external funding and that a significant additional one-off contribution would be necessary. The project team developed measures to reduce the one-off contribution. Finally, they agreed on a settlement of company pensions.
Together with the bank's external actuary and an employment lawyer, the interim manager prepared the "settlement action". The eligible retirees were then offered severance packages. In addition to managing this sub-project, the HR project manager was heavily involved in the sometimes sensitive communication with those affected.
The sub-project turned out to be extremely successful: it was possible to significantly reduce the total number of pensioners to be transferred as well as the one-off contribution required for the outsourcing.
Transfer negotiated: Pension fund takes over the pension commitments
After the severance option, it was clear how many pensioners and prospective employees had to be included in the outsourcing. The interim manager updated the calculations accordingly - and presented the options and updated costs to the local and international management for a final decision.
Accompanied by detailed information for all members and pensioners, the insurance company's pension fund took over the pension commitments acquired on the transfer date after payment of the necessary one-off contribution (so-called past service). Past service), while the future entitlements to be acquired in the future (future service) were serviced via the provident fund for legal and tax reasons.
Equal-value conversion of the active defined benefit commitment to the defined contribution commitment
After outsourcing, the final step was now to be taken to achieve maximum efficiency for HR and transparency for the employees.
The interim manager agreed with the bank's works council on an equal-value conversion of the active defined benefit commitment to the defined contribution commitment (defined contribution commitment). A salary-based contribution rate was determined and set for each employee. The conversion was set out in a company agreement. A further company agreement on the pension scheme for new employees regulated a uniform contribution rate for this population.
Pension scheme transformation reduces annual costs by millions
The interim manager and works council representatives presented the transformation of the bank's company pension scheme to employees during roadshows.
Now that the transformation of the company pension scheme has been successfully completed, the valuation risks have been almost completely eliminated; they will be assumed by the insurance company. The additional one-off contribution for the funding has quickly paid for itself and the annual costs for the company pension scheme have been reduced by several million euros. The insurance company has taken over all administrative tasks, including the payment of pensions and the agreed pension adjustments. Employees benefit from greater transparency in the contribution phase and later receive all company pensions from a single source.
