Employee savings schemes reformed

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A law to reform France's employee savings schemes was presented to parliament in October-November 2000. There are two parts to the law: the first overhauls the existing company savings scheme and extends it to cover smaller companies; while the second creates a new voluntary longer-term savings scheme. The new provisions have met with little enthusiasm and have, indirectly, reawakened the debate on pension funds.

In October-November 2000, the Minister for the Economy, Finance and Industry, Laurent Fabius, presented to the National Assembly and the Senate a bill, many months in the making, aimed at reforming France's employee savings schemes.

Wage-based savings

Until now, employee saving has centred on the "company savings scheme" (Plan d'épargne entreprise, PEE). Under this scheme, money saved in various company savings plans is paid into individual workers' accounts. In companies employing over 50 workers, a universal profit-sharing scheme (participation) is mandatory, while company performance-related pay schemes (intéressement) are voluntary, subject to collective bargaining. Sums earned under these two systems may be paid into a PEE, where they are locked in for a period of five years. Workers may add to their account with additional voluntary deposits and the company may opt to top up a particular sum invested. These funds are subject to the same lock-in criteria as monies earned through the profit-sharing or company performance-related schemes.

This system has been around for a long time but has only really gained momentum in the past three or four years. At the beginning of 2000, the government commissioned Jean-Pierre Balligand, a Socialist Member of Parliament andJean-Baptiste de Foucauld, a former director of the National Economic Planning Agency (Commissariat général du Plan), to produce a report on the current state of employee saving (FR0004159F).To a large extent, the government drew on the report's proposals in drafting its bill.

Making wage-based saving more accessible

The Balligand-de Foucauld report, which was submitted to the government in late January 2000, highlighted major disparities in access to savings schemes and laid out proposals to make them available to more workers. There is an obvious disparity between access in small and large companies. A mere 6% of workers in companies with a workforce of under 50 have access to employee savings schemes, compared with 71% in companies employing between 500 and 1,000 workers, rising to 76% in larger companies. There is also a significant disparity between the various employee categories. Only between 15% and 20% of blue- and white-collar workers have access to these schemes, compared with 35% of managerial and professional staff.

Apart from a few minor improvements relating to matters such as the provision of information to worker-savers, the main aim of the proposed new legislation is to expand employee saving. The law will makes it possible to create "inter-company savings schemes" (Plans d'épargne interentreprises, PEI s), set up on a geographical or sectoral basis. These new schemes are aimed at making employee savings plans possible in those companies which are too small to set them up on their own. The law also facilitates employee share-ownership, although the existing legal situation does not seem to have put a brake on this now well-established trend. In addition, the law provides that representatives of employee shareholders will be able to sit on a company's board of directors, where 3% (formerly 5%) of the company's shares are held by its employees.

Long-term savings

The establishment of a "voluntary partnership employee savings scheme" (Plan partenarial d'épargne salariale volontaire, PPESV) is the most innovative and controversial initiative in the proposed law. The new partnership scheme will function in much the same way as the existing PEE, but funds invested will be locked in for 10, instead of five years. It will still be possible to deposit the proceeds of profit-sharing or company performance-related schemes, as well as additional voluntary employee investments and company top-ups. In the case of company top-ups, any annual amount exceeding FRF 15,000 (up to a ceiling of FRF 30,000) will be taxable at 8.2%, or the equivalent of an employee's contribution to the state pension fund. The Minister accepted this measure at the last minute, but it is unlikely to have an impact in practice. In 1998, company top-ups averaged FRF 2,700 per saver and very few companies reached the FRF 15,000 ceiling provided for under the existing PEE.

The initial bill allowed individual savers to opt for annuity payments from their savings but the Minister was forced to compromise. Therefore, only lump-sum withdrawals will be allowed. However, the bill states that savers may make "staggered" withdrawals. Further regulation is required to clarify this option, which some trade unions and employers' associations see as a disguised form of annuity.


While the first part of the bill, seeking to expand the coverage of employee savings, is barely challenged, the PPESV has been a source of major controversy, breathing new life, in a rather roundabout way, into the debate on pension funds, which had been sidelined since the government led by Lionel Jospin came to office in 1997 (FR0001132F). The financial community considers that overall, the new mechanism is unnecessarily complicated and provides no new major innovations. Supporters of employee share-ownership are delighted to see the employee share option system made easier and the terms and conditions for the operation of Mutual Fund Monitoring Boards (Conseils de surveillance des Fonds communs de placement) clarified. Employers' associations appear more critical. They emphasise the fact that the bill, which in their opinion ignores the real implications of savings, does not deal with "pensions." The trade unions are divided but most are opposed to the government's bill. While the CFDT and CFTC confederations mostly support the bill, CGT, CGT-FO and the CFE-CGC fear any savings mechanisms exempt from social security contributions that might jeopardise pay-as-you-go pension schemes, which are the mainstay of the French pension system.

Debate on this issue was mainly confined to the governing left-wing parties, with the Socialists forced to compromise with their coalition partners. Right-wing parties decided to drop attempts to oppose the bill in the National Assembly in order to focus their efforts on the Senate, where they have a strong majority. Using ambiguities contained in the government bill, the Senate majority tabled several amendments seeking to turn it into a bill explicitly setting up pension funds. In an attempt to satisfy the "Green" Party, which is part of the governing coalition, the Minister of Finance agreed that the bill would explicitly state that all investments would be placed in "ethical" funds. However, the Green Party abstained in the final vote. Taxing, albeit lightly, all employer top-ups above FRF 15,000 per year gained the support of the Communists, who, eventually, accepted to the overall content of the Bill.


The new employee savings bill has not satisfied many, not even in the Socialist Party. A certain amount of scepticism has greeted the voluntary partnership employee savings scheme, because no-one really knows what companies expect or how they will react. Employee share-ownership as well as stock options offered to a small minority of employees (only 1% of the employees of the companies in the "CAC 40" list of top French companies quoted on the stock exchange) have been the driving force behind the expansion of employee savings mechanism to date. Following strong growth in employee savings in 2000, France appears firmly committed to developing secondary or alternative forms of remuneration. The bill reinforces the distinction between such forms of remuneration on the one hand and pay on the other. However, some research illustrates that employee saving is already acting as an alternative to pay increases. If this trend continues, it would have a negative impact wage-based social security funding. The debate continues. (Jean-Marie Pernot, IRES)

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