Church institutions in Germany are characterised, among other things, by their social welfare towards their priests and employees. This extends over the entire lifetime of the employees and also includes provision for old age. In addition to pension commitments, this includes above all promises of aid, i.e. the granting of financial support in cases of illness, childbirth, nursing care and death. The granting of allowances is usually governed by the diocesan allowance regulations. The granting of aid can be structured differently. While in the classic case the allowance is granted on application by the respective employer on a percentage basis or as a lump sum after submission of the invoices (previously paid privately by the person entitled to the allowance) for health-related expenses, the allowance can also be organised via lifelong contributions to an insurance company (allowance replacement insurance), which then covers the medical expenses of the person entitled to the allowance.
In both cases, the obligation to pay the allowance in retirement is economically caused by active service in the past. For this reason, a provision must be made for the obligation to provide aid to pensioners and active employees during their retirement. Payments during the active phase of the employment relationship are attributed to the current expenses of the respective financial year and are consequently not taken into account in the formation of the provision.
The Main Expert Committee of the Institute of Public Auditors in Germany (IDW HFA) clarified in March 2017 that regardless of their form, allowances are not pension obligations within the meaning of Section 253 HGB. Thus, in future, provisions for aid obligations are to be reported under other provisions in accordance with § 266 para. 3 B.3 HGB. The provision is to be recognised in the amount necessary to meet the obligation according to reasonable commercial judgement (§ 253 para. 1 p. 2 HGB) and (if the remaining term of the obligation is more than one year) discounted at the seven-year average interest rate (§ 253 para. 2 p. 1 HGB). The ten-year average interest rate to be applied to pension obligations may not be used.
As before, an assumed residual term of the obligations of 15 years can be applied as a lump sum when determining the actuarial interest rate. The actuarial interest rates are published monthly by the Deutsche Bundesbank. As of 31 December 2017, the actuarial interest rate to be used for the subsidies (with a flat-rate residual term of 15 years) is 2.80% p. a..
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KPMG AG Wirtschaftsprüfungsgesellschaft
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