WOLFSBURG, Germany - Volkswagen AG has opted out of the German pension reform proposals even before they become law.
The automaker has rejected the government's proposals because of limited tax advantages and uncompetitive fund structures. Company officials agree with the banking and investment industries' stance that the proposals are too closely linked with insurance products and are uncompetitive.
Instead, Volkswagen is taking the traditional German pension model - called direktzusage - and adding a twist. Under the direktzusage system, firms agree to pay a certain amount of money to their workers when they retire. In the past, companies have had to set aside tax-exempt pools to do this. VW's provisions stand at 16.5 billion deutsche marks ($7.74 billion).
Taking advantage of a change in accounting requirements, VW doesn't have to build those direktzusage pools and can put its contributions into an external trust. The trust will be legally independent of the company and have professionally managed funds, with a portfolio of 50% stocks and 50% bonds. Returns above the company's target of 10% will be used to finance the company's guaranteed 3% rate of return during periods when market performance is below average.
Assuming an average rate of return of 10%, VW will be able to cut its pension contributions by half, to 1% of a worker's gross pay, without having to lower the employees' pension fund payouts.
The government plan to have workers set aside up to 4% of their gross pay tax-free is unattractive to VW, as that plan has a ceiling of around 4,000 marks, and doesn't offer an option for workers who earn above-average salaries.
"We're giving more than the government is proposing," said VW spokesman Hans-Peter Blechinger. "Maybe our new system is so good it could be a model. ... The government could see how we're doing it and it could be a good model for proposals from the government."
