Occupational pension schemes in France

Occupational pension schemes

What are the main types of private pensions and retirement plans that are provided to a broad base of employees?

An employer may set up an occupational scheme, either for its entire workforce, or for one or more categories, based on objective criteria. There are defined contribution plans (the employer commits to a defined amount of contributions) and defined benefit plans (the employer commits to the size of the pension).

Further, the employer may choose to set up a collective retirement savings plan designed to allow the workforce to build up retirement savings. The employee will be able to choose to collect them as a pension or as a lump sum when he or she retires. The plan must cover the entire workforce. Each employee may pay optional or mandatory profit-sharing bonuses from the employer into the scheme, or pay in on a voluntary basis; while the employer may also pay in contributions, on which a statutory ceiling has been set.

Draft law No. 1088 aims to harmonise rules of all kind of defined contribution plans (including collective retirement savings plan). This law should be adopted in 2019.

What restrictions or prohibitions limit an employer’s ability to exclude certain employees from participation in broad-based retirement plans?

Collective retirement savings plans must, by law, cover the entire workforce. No category can be excluded. Failing this, any exemptions granted on national insurance contributions or taxes may be removed.

On the other hand, the employer may limit occupational pension schemes to certain staff categories, which must be defined in line with the criteria exhaustively listed by the Social Security Code. Failing this, any exemptions granted on national insurance contributions or taxes may be removed.

Can plans require employees to work for a specified period to participate in the plan or become vested in benefits they have accrued?

The arrangements defined for retirement savings plans may stipulate that each employee must have put in a minimum period of service (three months as a guideline) with the company before acquiring entitlements. Collective defined benefit policies require that the employee be in the company’s service at the time he or she retires in order to draw the pension (this requirement should be deleted by law project No. 1088. Indeed the European Union law has prohibited through directive 2014/50/UE the acquisition of pension rights beyond a period of three years).

Finally, to avoid liability for national insurance contributions arising from the employer’s payment into an occupational pension scheme, the employee’s retirement savings must be frozen until retirement, although exceptions do exist for circumstances such as disability.

What are the considerations regarding employees working permanently and temporarily overseas? Are they eligible to join or remain in a plan regulated in your jurisdiction?

It is critical to determine which body employs the workers and pays them. Should the employees continue to hold an employment contract with, and draw remuneration from, the company that set up their occupational pension arrangements or collective retirement savings plans, they should normally continue to be covered by the plan. However, one would need to see in which country they pay taxes and whether they are affiliated to a national insurance scheme. It would be unusual for employees who move abroad permanently to retain their former benefits.

Do employer and employees share in the financing of the benefits and are the benefits funded in a trust or other secure vehicle?

Defined benefit plans are financed by the employer. In a defined contribution plan, the employer and employee may share the financing.

Defined benefit plans set up since 1 January 2010 and defined contribution plans must be managed by a third-party agency (ie, by an insurance firm, a contingency firm or a mutual fund). These agencies can create a fund (named institutions for occupational retirement provision) dedicated to their pension activities, to which specific solvency rules are applied.

As for collective retirement savings plans, individual employees may pay optional or mandatory profit-sharing bonuses from their employers into the scheme, or pay in on a voluntary basis. The employer has the option to complete the employee’s payments, if it so chooses. The assets of collective retirement savings plans are invested into a variable-asset investment company or into a company’s mutual funds.

What rules apply to the level at which benefits are funded and what is the process for an employer to determine how much to fund a defined benefit pension plan annually?

In a defined benefit plan, the employer enters into an agreement with a third-party agency to finance its commitments and ensure that the employees will draw a pension at a predetermined level. Should funds be missing, the employer may have to top up its financing. It is recommended and critical to carefully study the ceiling of the employer’s commitments and the scheme’s financing requirements.

As for collective retirement savings plans, the Labour Code has defined an annual cap for contributions paid in by both employer and employee.

What are customary levels of benefits provided to employees participating in private plans?

On average, a beneficiary’s life annuity rent will work out at €7,130 per annum in a defined benefit plan, and €2,190 per annum in a defined contribution plan. The average capital obtained by an employee for a collective retirement savings plans is €8,950 (Directorate for Research, Studies, Evaluation and Statistics (DRESS in French), report, pensioner and pensions, 2018 edition, p. 204).

Are there statutory provisions for the increase of pensions in payment and the revaluation of deferred pensions?

In a defined contribution plan, the employer only commits to the amount of its contributions. It does not have to provide a guarantee in respect of how well the scheme will be managed financially. When the employee leaves the scheme, he or she will receive a pension from the insurance agency. The policies normally include an upgrading clause, generally linked to the plan’s financial health.

In a defined benefit plan, the employer commits to the size of the pension, so upgrading is critical. This ensures that the employer respects its initial commitment towards the employees. As a rule, the insurance agency will offer arrangements for upgrading pensions.

What pre-retirement death benefits are customarily provided to employees’ beneficiaries and are there any mandatory rules with respect to death benefits?

In a defined contribution plan, should employees die before retirement, the policy will stipulate that their own assignees, spouse or any individual they may have appointed can draw the retirement savings they had accumulated by the date of death.

In a defined benefit plan, the policy may stipulate that the spouse can draw a survivorship pension, should the employee die after retirement. Such pensions may also be provided when the employee dies before retirement, although in this case there will often be a length-of-service requirement.

In respect to collective retirement savings plans, should the employee die, his or her assignees may liquidate the scheme’s assets.

When can employees retire and receive their full plan benefits? How does early retirement affect benefit calculations?

Generally, the employee will be in a position to liquidate any rights he or she may have acquired under a company pension scheme only after having drawn the state pension. That is the precondition for enjoying exemptions from national insurance contributions: employees’ retirement savings must be frozen until they liquidate their pensions, exceptions aside. Moreover, under a defined benefit plan, there will usually be both a length-of-service requirement and a requirement that the employees be in the company’s service at the time of retirement.

For collective retirement savings plans, employees will liquidate their entitlement upon retiring.

The Labour Code and Insurances Code exhaustively define the cases where entitlement may be liquidated earlier, such as death or disability. Early retirement does not entitle the employee to liquidate the entitlement before retiring.

Are plans permitted to allow distributions or loans of all or some of the plan benefits to members that are still employed?

Not for occupational pension schemes.

For collective retirement savings plans, the Labour Code exhaustively lists certain cases where an employee may liquidate assets before retiring. These cases include situations where the individual is still employed (eg, disability, excessive debts, or the purchase of a primary residence).

Is the sufficiency of retirement benefits affected greatly if employees change employer while they are accruing benefits?

A change of employer may affect future pension rights, as far as company schemes are concerned.

In a defined benefit plan, employees must still be with the company when they retire. Should they change employers, they will lose their pension rights.

In a defined contribution plan, pension rights are definitively acquired, even when the employee leaves the company. This entitlement is deemed transferable: should the new employer set up a defined contribution plan, the employee may transfer his or her rights over to the new employer’s plan.

Similarly, for a collective retirement savings plan, the entitlement is definitively acquired, and the employees may transfer his or her acquired rights over to the new employer’s plan, provided there is one.

In what circumstances may members transfer their benefits to another pension scheme?

Transferring a plan is never mandatory. It is an option with collective retirement savings plans or defined contribution plans when an employee leaves a company.

Who is responsible for the investment of plan funds and the sufficiency of investment returns?

For occupational pension schemes, the insurance agency will manage the investments.

For company savings plans, the investment arrangements are defined in the deed that sets up the plan.

The asset management will generally be delegated to financial institutions, mainly banks or asset management companies, and will be invested in capital markets.

Can plan benefits be enhanced for certain groups of employees in connection with a voluntary or involuntary reduction in workforce programme?

French law does not allow this. Pension schemes must be across the board and collective - all beneficiaries must enjoy the same advantages.

Are non-broad-based (eg, executive-only) plans permitted and what types of benefits do they typically provide?

A collective retirement savings plan must cover the entire workforce. Tax and national insurance exemptions may be removed if some employee categories are excluded.

For an occupational pension scheme to benefit from tax and national insurance exemptions, it must be collective and mandatory.

Collective means that the entire workforce or an ‘objective’ category of the workforce must be covered. Categories are created according to criteria exhaustively listed by the Social Security Code (eg, executives and non-executives following the definitions of complementary pension plans and employees in certain wage brackets, with classifications laid down by the collective bargaining agreement).

How do the legal requirements for non-broad-based plans differ from the requirements that apply to broad-based plans?

From a legal standpoint, there is no difference between non-broad based plans and those that cover an entire workforce. In practice, higher benefits are drawn by employees covered by non-broad based plans.

How do retirement benefits provided to employees in a trade union differ from those provided to non-unionised employees?

No distinction is made between pension benefits drawn by trade union members and other employees. To do so would violate the principle of non-discrimination.

How do the legal requirements for trade-union-sponsored arrangements differ from the requirements that apply to other broad-based arrangements?

In France, the trade unions do not offer pension benefits. An economic and social council may, however, decide to cover the employee’s share of contributions, which will in turn raise issues as to the national insurance treatment of that benefit.