Booking.com case emphasizes importance sectoral pension funds in the Netherlands

The Booking.com case is not the first in its kind. Throughout the years, many pension funds and companies have been engaged in similar legal discussions. However, the Booking.com case made headlines because many people are familiar with this company and because of the amounts involved. This court case also emphasizes the importance of proper research into the possibility of mandatory participation in one of the sectoral pension funds In the Netherlands. In this article, we will discuss the main features of a mandatory participation in an sectoral pension fund. 

Brief explanation of the system of sectoral pension funds.

According to the Act on Mandatory Participation in an Industry Pension Fund 2000, participation in an industry pension fund can be made mandatory at the request of the social partners in a particular sector. Social partners are representatives of employees and employers. A request to this effect may only be submitted to the Ministry of Social Affairs and Employment if a majority of employees working in the sector in question are in favour of it. If the request is granted, this will result in a Decree on mandatory participation in an sectoral pension fund.

There are currently approximately 40 mandatory sectoral pension funds in the Netherlands. According to the most recent figures, 87% of all employees in the Netherlands participate in an pension scheme. Over 75% of those pensions are administered by an sectoral pension fund. 

The average pension contribution at an sectoral pension fund equals 25% of the pensionable base. The pensionable base generally consists of the annual salary minus a state pension component of approximately EUR 16.000. Pension contributions in the Netherlands are internationally perceived as ‘high’.

Is my company obliged to participate in an sectoral pension fund?

A decree on mandatory participation in an industry-wide pension fund specifies which companies must participate in that pension fund. This decree mainly focuses on the activities of a company. For example, companies that are active in the construction industry are generally obliged to participate in the pension fund for the construction industry. A decision with respect to mandatory participation is generally made per legal entity. Furthermore, for most sectoral pension funds, a principality criterion applies. This means that only when a company is mainly engaged in activities as mentioned in the Decree on mandatory participation, the company is obliged to participate in the pension fund concerning.

If a company is obliged to participate in an sectoral pension fund according to a decree on mandatory participation, this company can apply for an exemption in a limited number of cases. 

An numerical example of participation with retroactive effect

What if a company does not participate in an sectoral pension fund, while there is a legal obligation to do so? In that case, the sectoral pension fund can successfully claim that this company has to participate in its pension scheme with retroactive effect. This means that this company has to pay pension contributions for all employees with retroactive effect. This retroactive effect is generally set at a maximum of five to twenty years, depending of several circumstances. The Booking.com case proves that the retroactive effect can reach much further than five years, in this case even 25 years (!). It should be noted that in some circumstances and after consultation with the sectoral pension fund, the pension fund concerning is willing to claim participation in its pension scheme for future years only.

The consequences of participation in an sectoral pension fund with retroactive effect are significant, as the following example will show. A company has 200 employees. The average annual salary of the employees equals the Dutch average at EUR 40.000 per year. The pension contributions equal 25% of the pensionable salary. The pensionable salary equals the annual salary minus a state pension component of EUR 16.000, so the average pension contributions equal EUR 6.000 per year. If the applicable sectoral pension fund claims participation in its pension scheme with a retroactive effect limited to five years, this would imply that pension contributions in total of EUR 6 million will be due.

When do I need to verify whether my company is obliged to participate in an sectoral pension fund?

If one of the following three events occurs, a company may be obliged to participate in an sectoral pension fund. This first event is the incorporation of  a new legal entity. Most Decrees on mandatory participation in an sectoral pension fund must be analysed per legal entity. As a result, it is possible that this new legal entity has to participate in an sectoral pension fund. The second event is a change in the  activities of the company. If for example the company initially was involved in sales of equipment, but at some point expands its activities to repairs and maintenance of this equipment, this may trigger mandatory participation in an sectoral pension fund. Thirdly, in the event off a merger or acquisition, it is possible that the company activities change and that this company can no longer apply for an exemption on mandatory participation in the applicable sectoral pension fund.

If any one of the aforementioned events occurs  at your company,  we strongly recommend that you analyse whether an obligation to participate in an sectoral pension fund exists.

Questions?

Please reach out to Eric Bergamin or Bas Dieleman if you have any questions regarding mandatory participation in an sectoral pension fund.

1.Court of Appeal of The Hague, 30 January 2024, case no. ECLI:NL:GHDHA:2024:73
2.PensioenPro, Hof: Booking.com moet aansluiten bij PGB, 30 January 20224