In July 1998, Germany's third Act on "capital participation" was passed, partially amending the provisions of the Act Promoting Capital Formation by Employees. The new provisions aim at increasing the share of employees in productive capital.
In July 1998, the third Act on "capital participation" (Vermögensbeteiligung) was passed. The new provisions aim at increasing the share of German employees in productive capital and will come into force on 1 January 1999. The new Act partially changes the provisions of the Act Promoting Capital Formation by Employees (Vermögensbildungssgesetz).
Asset formation or capital-forming benefits are money payments to employees that are not at their free disposition but are - for their benefit - invested long term, eg through deposit account saving, a life insurance contract, acquiring shares of equity capital, or a limited number of other purposes. According to the Act Promoting Capital Formation by Employees (Vermögensbildungssgesetz), the tax office pays the employee's saving premium in respect of asset formation benefits to the employee once a year if these benefits have been used to acquire shares of equity capital (eg corporate shares or certain investment fund certificates), to save in building societies or to build or purchase a house directly or reduce the debt on it. In any event, the employee has the right to choose the kind of investment and the bank, savings bank or building society in which the asset formation benefit is to be invested, within the limits imposed by the law.
The most important new substantive provisions are as follows:
According to the Federal Ministry of Labour and Social Affairs, at present 11% of blue-collar worker households and 18% of salaried employee households in western Germany own shares. The respective figures for eastern Germany are 3% and 6%.
Capital-forming payments (vermögenswirksame Leistungen) may be introduced by individual contract, works agreement and collective agreement. There are a number of additional provisions in the new Act which will promote investment by employees in shares. All employee share-ownership programs have to be insured against the risk of insolvency of the employer. Furthermore, pension or investment funds which have been agreed by the social partners are included in the kinds of investments which are treated preferentially. The saver's premium will also be paid if the collective agreement restricts the choice of investment by the employees to saving in building societies or acquiring shares. This should boost collective agreements on asset formation benefits.