Tax optimization with employer contribution reserve
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The employer contribution reserve (ECR) is a voluntary contribution made by the employer to the pension fund. The ECR exceeds the contributions that are owed annually anyway. With the formation of an ECR, the employer can invest a "cushion" with the pension fund in financially strong times. In economically worse times or in case of possible larger investments, he can use the ECR to pay the annual employer contributions owed.
Only employer contributions can be financed with the ECR. A refund to the employer is not possible.
From the employer's point of view, ECR is a business-related expense, which can therefore be deducted from the taxable result. This results not only in a lower tax on the profit, but also on the capital to which the profit is attributable.
The maximum amount for the ECR is five times the regular annual contributions. This maximum amount can be accumulated both by a single payment and over several tax periods. The maximum amount must be calculated each year to consider any reduction or increase in employer contributions. Therefore, it is advisable to ask the pension fund for the maximum amount of employer contributions to be paid in and have it confirmed in writing. If the number of employees decreases or the employer contributions to the pension fund are reduced, the ECR must be partially dissolved in the form of extraordinary income.
If you wish to use this tax optimization option for the 2020 tax year, but have not yet taken any action, you can rest assured. You can make the contributions latest on June 30 of the following year.
Already on March 25, 2020, the Federal Council adopted various emergency law measures to mitigate the economic consequences of Corona. One of these was the "Ordinance on the use of employer contribution reserves for the remuneration of employee contributions to occupational provisions". This was valid for six months until November 26, 2020. On November 11, 2020, the Federal Council decided that employers may again use the accumulated ECR for the payment of employee contributions to the occupational pension plan (see Federal Council media release). This is now temporarily possible until 31.12.2021.
