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BONN, Germany -- German Chancellor Helmut Kohl's government is pledging if re-elected to implement new tax incentives for employer-sponsored pension plans and to loosen restrictions on investing pension assets.
Finance Secretary Juergen Stark said if the ruling coalition Christian Democrat Party and Free Democrat Party survive September elections, the government would allow employers to make tax-free contributions for all of their pension liabilities to capital market investment vehicles.
Currently, employers cover their pension obligations by purchasing life insurance products, maintaining reserves internally that are reported on their balance sheets or by setting up restricted funds separate from the company to which they can contribute a portion of their pension liabilities. Contributions under all of these current arrangements are subject to taxes.
The change would cost the government between 2 billion and 3 billion deutsche marks ($1.10 billion to $1.65 billion) in tax revenues.
"Employers would have an incentive to use pension funds," Mr. Stark said, adding that the move would also help re-energize the country's capital markets.
The government's plan also would ease restrictions on multiemployer pension funds. Currently, employers can establish pension funds jointly with other companies, but cannot cover all of their liabilities through them.
The government's proposal would offer greater security and investment opportunity, particularly for smaller employers that cannot afford to maintain a pension plan on their own.