German companies use defined benefit plans to meet more than 50 per cent of their company pension requirements. As pension obligations are debt and as pension commitments rise, a company’s equity capital ratio falls. If no ring-fenced assets are available, companies have to meet future commitments out of cashflow, which could affect their ratings and increase their costs of finance.
In recent years, many companies have opted to show assets (plan assets) on the assets side to balance their pension commitments on the liabilities side of their balance-sheets, make those assets over to outside trustees and grant their eligible employees rights of access to the assets on trust should they become insolvent (Contractual Trust Arrangement / CTA).
With such trust models, international accounting rules (IFRS, US-GAAP) allow the pension obligations on the liabilities side to be netted against the assets ring-fenced for pension purposes on the assets side of balance-sheets. This compresses balance-sheets and improves key indicators such as equity ratios and gearing. Financing out pension obligations also avoids encumbering income and expenditure accounts and cashflows in the future.
With the passing of the Accounting Law Modernisation Act (BilMoG) in Germany, the regulations under commercial law for valuation and statement of pension liabilities were extensively revised. Contrary to the previously valid "gross" principle in the commercial balance sheet, which excluded the netting off of assets against debts, the BilMoG requires asset backing to be netted off. The result is a shortening also of the commercial balance sheet in the annual financial statements. Trust arrangements can however still be advantageous, especially in an international context, because they are commonly used in Anglo-Saxon countries. Pension liabilities and fund assets still have to be stated and valued separately in the taxation accounts.
To make such constructions also available to small and medium-sized enterprises (SMEs), accounting according to IFRS, US-GAAP or HGB, DekaBank has set up DekaTreuhand GmbH. Using such a group trustee is precisely what SMEs need, as the setup costs are much less than companies having their own trustees. DekaBank’s group trustee is suitable both for outsourcing and insolvency protecting pension commitments and for commitments from working hours accounts and partial retirement schemes.
Capital is invested in selected Deka Investment funds, providing an attractive combination of returns and security. A range of investment models are available to suit your commitments and individual preferences.
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