What obligations does the employer have in the event that its group insurance is underfunded? Find out in this article.
The minimum return guarantee or the WAP guarantee is the minimum return the employer is required to guarantee according to the Supplementary Pensions Act (WAP) on the employer’s and employee’s contributions in a group insurance of the defined contributions and cash balance until the employee has left the organisation or has retired. The WAP imposes this obligation on the organiser of the group insurance, i.e. the employer, and not on the pension institution. If the return of the insurer is insufficient, the employer will have to make up the difference from its own funds.
In a defined benefit group insurance, this minimum return guarantee only applies to the employees’ contributions, while the employer should ensure that the reserves are adequate, according to legal requirements, in terms of the promised performance.
Up until 2016, this guaranteed return was equal to a fixed percentage: 3.25% of the payments by the employer and 3.75% of the payments by the employee. Since 1 January 2016, this return guarantee can vary annually and is established by the National Bank of Belgium based on the average percentage of Belgian OLOs over 10 years with a minimum of 1.75% and a maximum of 3.75%. This has resulted in the statutory minimum return guarantee or WAP guarantee amounting to 1.75% ever since 2016, for both employers’ and employees’ payments.
The employer’s return obligation regarding the group insurance has two parts to it:
- In terms of employer contributions, the employer has to guarantee a minimum return of 1.75% on the premiums paid for the pension element after deducting a maximum of 5% in costs and any risk premiums. Capitalisation at 1.75% may be replaced within the first five years by an indexation linked to the pivot index – based on the consumer price index for health care – if this leads to a lower result.
- In terms of employee contributions, the employer has to guarantee a minimum return of 1.75% on the premiums paid, without deducting costs and after deducting any risk premiums.
The mandatory minimum return must be collectively financed at any time on employee contributions only. However, finances should not be provided to cover a shortfall in employer contributions in every instance, but only in the following situations:
- for affiliated individuals on retirement;
- for affiliated individuals in the event of a withdrawal accompanied by a transfer of reserves;
- for all affiliates in the event of collective termination of the pension commitment.
The majority of insurers calculate whether the group insurance is sufficiently financed in relation to the minimum return guarantee at least once a year. A shortfall in employee contributions is always queried immediately. In the event of a shortfall in employer contributions, the insurer will often ask for additional financing from the employer, taking into account the balance of the financing fund.
As stated above, the employer is not obliged to provide additional funds to cover a shortfall in employer contributions immediately. If the employer does not do so, however, it will be noted in the affiliated individuals’ pension files that the financing level of their group insurance is not at 100%. For this reason, employers do sometimes opt to finance group insurance in all instances to the level of the minimum return guarantee despite not being legally obliged to do so.
In practice, it is often the case that your company auditor will query the financing level of your group insurance (based on the calculations of the insurer). They may then decide that additional financing to cover a shortfall is not necessary immediately, but that it would be worth making an accounting provision for this.
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