New Case Law On Company Pension Adjustments

Most types of German company pensions are required to be adjusted for the effects of inflation from time to time. The German Company Pension Act provides that, as a rule, every three years, the level of paid pensions is to be checked and adapted in line with "equitable discretion", taking into account both the interests of the pensioner and the economic situation of the (former) employer.

In the past year, there have been a number of decisions of the Federal Labor Court on the details of such adjustments.

Two particularly interesting decisions deal with the question of the circumstances under which a company is permitted exceptionally not to make an adjustment. A pension adjustment need not be made if the company's competitiveness would be jeopardized, measured by reference to the yield on the company's equity capital. An adequate interest on equity capital consists of a basis interest rate corresponding to the net yield of public loans, plus a risk surcharge of 2