France: Employee saving schemes get off the ground

Within the framework of legislation passed in February 2001 that aimed to develop and diversify the range of employee saving schemes, new schemes are now being negotiated at sectoral and company level. Further, a joint union committee (CIES, Comite intersyndical de l'epargne salariale) has been set up to manage the funds of a new scheme that should allow employees to bolster their state pensions with proceeds from individual funds. In this feature, we look at the background to the existing schemes and the aims of the new legislation.

Introduction - employee savings schemes

Employee savings schemes are highly developed in France, in comparison with other EU countries. All employees in companies employing more than 50 people are legally entitled to a share in company profits (compulsory deferred profit-sharing - participation). A second system of profit-sharing - immediate profit-sharing (interessement) - is also available to employees on a voluntary basis. Proceeds from these schemes may be invested in a company savings scheme (plan d'epargne d'entreprise - PEE). Employees are then able to draw on these funds at a later date, either to supplement their state pensions or for other approved purposes, prior to their retirement. For more details, see the box below.

However, the French pensions system is struggling because France, in common with many other European countries, is suffering from the demographic trend towards an increasing number of people of, or nearing, retirement age - a boom which is expected to peak in 2005. The predominant system utilised in France for funding pensions is a "pay-as-you-go" system (repartition) - whereby those in work and paying contributions into insurance funds directly finance the payment of state pensions to the retired members of the workforce. This system is under pressure, due to the increasing number of retired people and persistently high levels of unemployment, and there is a pressing need to create additional sources of funding.

Accordingly, the government passed legislation - the loi Fabius - on 19 February 2001, which, among other things, provides the statutory mechanism for introducing new employee savings schemes in addition to the existing PEE. These new schemes comprise an inter-company savings scheme for small enterprises (plan d'epargne interentreprises - PEI) and a long-term plan (plan parternarial d'epargne salariale volontaire - PPESV). For details of these schemes, see the boxes below.

The creation of these new schemes is aimed at extending the existing arrangements for company-based savings funds, in which both salary and profit-sharing proceeds can be invested. According to union information, one employee in four in the private sector already benefits from some form of employee savings plan. The public sector has its own scheme, the Prefon-Retraite. The 2001 law thus allows an increase in the number of potential beneficiaries, which, it is hoped, will reduce the pressure on the state pension scheme over time.

The three main aims of the new law are as follows:

  • to improve existing measures that relate to financial participation;
  • to increase access to financial participation schemes for employees in small and medium-sized enterprises; and
  • to introduce the PPESV scheme, which is a new, long-term and voluntary measure.

Additionally, it aims to encourage more widespread shareholding among employees, to reinforce employees' rights in the area of saving plans, and to demonstrate inter-generational economic support.

The new law improves the previous measures relating to financial participation in a number of ways. These include a reduction to three months in the length of service required before employees can participate in a savings scheme, from previous qualifying periods of six months or longer. Employees changing jobs will henceforth receive a savings book, which will contain a statement of their savings account to date, and which will be transferable between different company schemes.

The new PEI (see the box below) will allow smaller companies to join forces to increase their individual investment power. Smaller companies are also permitted to join forces to invest in a long-term savings scheme, a joint PPESV (known as a PPESVI - plan parternarial d'epargne salariale volontaire interentreprises).

The PPESV is the new long-term investment plan for companies (see the box below). A minimum 10-year investment is required, and the annual maximum investment limit employers are permitted per employee per year is higher, offset by additional social security concessions.

Reaction to the law

The promulgation of the loi Fabius has sparked a debate which, in the run-up to the forthcoming elections, has also taken on political significance. Although, on the one hand, unions welcome the inclusion of employee savings schemes as part of the collective bargaining process, underlining the importance of trade union influence in this important area, there are, on the other hand, fears that the traditional pay-as-you-go pension scheme will gradually lose its dominant position in favour of the creation of UK- and US-style pension funds.

The law has thus been nicknamed a "Trojan horse" by those who fear that it will pave the way to pension provision dominated by funded measures. It has been estimated that the number of funds will double within four to five years. However, some right-wing politicians use the argument that it is only fair to extend the net of employees who may benefit from additional pension provision.

New joint union committee

On 29 January, a joint trade union committee was set up by the CGT, CFDT, CFTC and CFE-CGC unions to manage the new funds (comite intersyndical de l'epargne salariale - CIES). The new committee has nominated four members to assess the appropriateness of the various investment funds to be considered for use. These are Nicholas Thery (CFDT), Bernard Saincy (CGT), Michel Lamy (CGC) and Gerard Deygas (CFTC). The CIES intends to publish the list of investments it considers will fulfil ethical/social and economic criteria by the end of March 2002, according to Mr Lamy. The CIES has been considering where to invest the money for several months, and also reserves the right to call hearings shortly before the announcement to enable a final assessment of potential funds for their suitability. Decisions about changing the investments will be made annually, on the basis of an assessment of the year's performance, specialist advice, and what is on offer to the beneficiaries. The CIES will base its decisions on what it considers to be best for employees and their savings.

CGT confederal secretary, Jean-Christophe Le Duigou, outlined the committee's three main objectives: to maintain pay levels and the pay-as-you-go pension system; to guarantee the highest level of security for the savings schemes; and to encourage the long-term growth of the savings funds. The unions remain firm that the new system should not endanger the existing system of providing for retirement.

Until now, trade unions have been solely concerned with setting wage levels for their members, which, according to Jean-Francois Trogrlic, CFDT national secretary, explains the reticence of many towards this type of return on capital. But this foray into managing investments significantly enhances and increases the unions' previous spheres of influence.


PEE company savings scheme

The PEE (plan d'epargne d'entreprise) was established by law in 1967, enshrined under Article L.443, 1-15 of the Labour Code. It may be set up at a firm by the employer or by an agreement with employee representatives, and provides a mechanism whereby employees who have been with a company for more than three months (before February 2001 it was six months) may voluntarily contribute up to 25% of their gross annual pay into the scheme, including benefits from immediate profit-share schemes. Benefits from compulsory profit-share schemes may also be paid into the PEE, in addition to the 25% limit.

When employees leave their job, they are allowed to continue paying into the company scheme providing they do not withdraw all their savings before they retire. The February 2001 legislation has widened the scope of the PEE, enabling company directors (dirigeants de l'entreprise) to save in these schemes. They may also save up to 25% of taxable income, benefiting from the same tax advantages as other employees. However, they are only allowed to participate if their companies employ up to 100 people.

The sums collected may be invested in a range of funds, including mutual funds (FCPE, fonds communs de placement d'entreprise) which spread the risk between different types of investments and take into account a number of criteria.

Once a PEE is set up, the employer's contribution is obligatory for those employees who have chosen to participate in the scheme. The employer is allowed to contribute three times the contribution level of the employee, up to a maximum of 2,286.74 per employee per year registered in the scheme. When, however, the investment is in company shares, the limit is raised to 3,430.10 per employee per year.

As stated above, employees may invest both salary and profit-sharing proceeds in a PEE. Providing the funds are established for at least five years, they are tax-free investments, although the gains are subject to some specific social security charges, amounting to a total of 10%. Profit-sharing proceeds are taxable if they are the equivalent of over half the level of the annual ceiling on income subject to social security payments. The tax advantage for the employer is that all contributions into the PEE scheme are tax-free.

Premature withdrawal of monies accruing is permitted for certain reasons, such as marriage, the birth of a third child, divorce, separation, disability, death, termination of employment contract, debt, or the acquisition or enlargement of the primary residence.

In cases where the employer has unilaterally decided to introduce a PEE scheme, and there are more than 10 employees, the works council or employee representatives (delegues du personnel) must be consulted within 15 days of the proposal being lodged.

PEI inter-company savings scheme

The inter-company PEI (plan d'epargne interentreprises) is aimed at promoting salary savings within smaller firms with fewer than 100 employees, allowing several smaller enterprises to join forces to increase their investment power. Companies may establish a PEI by a variety of methods, which include a collective agreement, an agreement with the works council or after it has been approved by at least two-thirds of the workforce.

A PEI may be created at sectoral level (for instance, in the metalworking industry), or across a region (for instance, in the Rhone region). It will subsequently benefit all the employees in that particular industrial branch or geographical area. As with the PEE, employees must have worked for three months before they can qualify for participation in the scheme. However, since it is an agreement for a sector or a geographical region, employees are entitled to join such a scheme, even if their company does not wish to participate, as all companies are covered by agreements signed by professional organisations of which they are a member.

Employees may invest up to 25% of their gross salary in a PEI; employers are permitted to contribute up to three times the employees' contributions, or 2,300 per employee per year. Managers are also permitted to join a PEI, with an employer contribution of up to three times their individual contributions, up to 4,600 allowed per employee per year. Employees in the smallest companies, with 50 or fewer people, and which have a deferred profit-sharing agreement in place, or which conclude one during the two years following the law, are permitted to invest up to 50% of their salary. Similarly, companies with fewer than 100 employees which are contributing immediate profit-share payments into savings accounts may invest up to 50% of salary if they already have an immediate profit-share accord in place or conclude one within two years.

As with the PEE, the beneficiaries have to wait five years before they can access their share of the money in the fund, with similar exceptions permitted to those applicable to a PEE or a PPESV. As with PEE schemes, PEI schemes offer a number of social security and tax advantages both to employees and employers.

Additionally, it is possible for companies to join forces and invest in a PPESV (see box at right), which may then be called a PPESVI (plan partenarial d'epargne salariale volontaire interentreprises).

PPESV partnership savings plan

A PPESV (plan partenarial d'epargne salariale volontaire) may only be set up at an enterprise by agreement between the social partners, and only in companies that do not already have PEE or PEI schemes operating. It is a voluntary scheme, designed to encourage long-term savings, with the funds accessible only after a minimum 10-year period (apart from in certain exceptional cases, agreed collectively). Employees will be able to save up to 25% of their gross annual pay, while employers will be allowed to contribute up to 4,573 per employee per year.

Investments into PPESVs can be made from deferred and immediate profit-share payouts, from voluntary payments and transfers from PEE and PEI schemes - these latter sums do not count towards the ceiling of 25% of remuneration as long as they have been invested less than five years before the PPESV matures.

The first PPESV

Unilever Bestfoods France

The first PPESV has been signed by the social partners at Unilever Bestfoods France, which employs 8,500 people, of whom 3,000 are participating in the savings plan. Employees will be able to invest proceeds from both deferred profit-share (participation) and immediate profit-share (interessement) schemes. They will also be able to transfer PEE proceeds into the schemes in addition to making voluntary contributions. Thus, employees in companies participating in the scheme may make payments amounting to 0.5% of gross pay into the scheme, up to the social security ceiling of 2,352 per month, and 3% of the part of pay which is above this ceiling. Further, employees may make lump-sum payments twice a year of a minimum of 80. Total employee contributions may not exceed 25% of annual gross pay.

Employers will finance the running of the scheme and will make payments amounting to three times the contribution made by employees on pay below the social security ceiling; they will match all payments on pay above the ceiling. Employers will not match any lump-sum payments.

Employees may also use the scheme to finance a supplementary funded pension scheme. In this case, the employee has the option of managing the fund themselves or entrusting it to an organisation - in the case of the Unilever scheme, BNP Paribas.

"Inter-Auto-Plan": the first PEI

On 17 April 2002, if all goes according to plan, a branch-level PEI in the motor services industry will be signed. This will be the first PEI since the promulgation of the loi Fabius, and it will cover 437,000 employees working in 80,000 diverse motor service businesses (such as garages and car rental firms). Negotiations are also under way for a PPESV. Michel Huc, general secretary of the metalworking federation of the FO, stated that this scheme will be very attractive since it will be open to managers, who are generally more interested in these types of savings schemes. However, many questions have yet to be settled, not least the issue of employer contributions to the savings schemes. The negotiating parties are aware that a solution has to be found which suits both small and large employers.