Statutory and regulatory frameworkPrimary laws and regulations
What are the main statutes and regulations relating to pensions and retirement plans?
French law acknowledges three levels of employee pensions, two of which are mandatory:
- a basic and public plan, known as the general social security plan (RGSP); section L351-1 et seq of the Social Security Code defines the rules for retirement plan.
- a complementary and occupational pension plan administrated by a complementary pension organisation, which can vary according to the occupation. This includes employees’ complementary plans organised by trade unions through the National Inter-branch Agreement dated 17 November 2017 and managed by the pension organisation Agirc-Arrco. This Agreement amends plans instituted by the Collective Bargaining Agreement dated 14 March 1947 for executives and the National Inter-branch Agreement dated 8 December 1961 for non-executives.
These plans are pay-as-you-go arrangements: the economically active labour force finances pensions, based on the principle of inter-generational solidarity.
The third level is optional. This consists of an occupational pension schemes, which employers may set up at their own discretion. The statutory provisions governing these schemes are found in the Social Security Code, the General Tax Code and the Labour Code. These schemes are funded pension schemes, organised in two steps - a period of accrual of assets during working life, then a period of consumption of assets after retirement.Regulatory authorities
What are the primary regulatory authorities and how do they enforce the governing laws?
The primary regulatory authorities are the state, notably Parliament, and the authorities that issue regulations that define the rules of the state schemes, and the procedures to set up occupational schemes. In addition to law and regulations, the Social Security Office and the Ministry of the Economy and Finance will often issue circulars.
Complementary pension schemes are instituted via a national collective bargaining agreement, and are managed by an organisation that can be different according to the occupation (eg, the Agirc-Arrco is the organisation for the employees’ complementary retirement).
The social security agencies apply the regulations. The Organisations for the Recovery of Social Security and Family Benefit Contributions (URSSAF) is the collection agency for contributions, while pension funds pay out pensions.Pension taxation
What is the framework for taxation of pensions?
There are exceptions, but retirement pensions will usually be subject to income tax. In some cases, occupational pensions will be taxed as though they were investment income.
State pension provisionsFramework
What is the state pension system?
In France, the RGSP is the state pension system. Employees aged 62 who meet certain requirements may draw a pension, paid out by regional employment pension and health insurance funds or, in Île de France (the Parisian area), the national old-age pension fund.
Thanks to the complementary schemes, employees may draw additional pension benefits from the complementary pension funds affiliated with Agirc or Arrco.
Employees are under no obligation to retire and draw their pensions.Pension calculation
How is the state pension calculated and what factors may cause the pension to be enhanced or reduced?
The following factors are taken into account while setting the amount of RGSP pension an individual can draw:
- the length of time the individual paid into the RGSP, expressed in quarters. There is an upper limit. The quarters that count are those during which the individual was in gainful employment, or the equivalent, such as military service, on unemployment benefit etc;
- the employee’s average salary, calculated from his or her 10 to 25 best-paid years. The number of years factored in depends on the individual’s date of birth; and
- the pension rate: to draw a full pension, the individual must have acquired a given number of quarters, depending on his or her date of birth (eg, employees must have paid in for 41.5 years if they were born in 1957) or must have reached a certain age (between 65 and 67, depending on their date of birth). Should they decide to retire without meeting those requirements, they will draw a reduced-rate pension.
A top-up on pension may be due, depending on how many dependants the individual has. Individuals who continue to work after having reached the statutory retirement age, or after having acquired enough quarters to draw a full pension, will enjoy an increase.
Complementary pension payments depend on how many points each employee acquires and on the value assigned to each point. The number of points depends on how much employees paid throughout their career (while in gainful employment or equivalent, such as while drawing unemployment benefits). A top-up may be due, depending on how many dependants they have. Should an individual choose to draw a pension before reaching the statutory retirement age, the pension will be reduced accordingly.
Subject to certain requirements, individuals may continue to work while drawing a retirement pension.Aims
Is the state pension designed to provide a certain level of replacement income to workers who have worked continuously until retirement age?
To draw a full pension, an employee born in 1957 will have to work 41.5 years.
Usually, the level of pension drawn will depend on how long individuals have paid their contributions (generally, periods of employment). However, to take into account periods during which the individual was unable to work (eg, unemployment, military service or illness), some periods are considered equivalent to employment, such as times when the individual drew unemployment benefits, allowing him or her to acquire further quarters. Under specific conditions, the individual may also ‘buy back’ quarters (eg, to cover years of study).
Overall, individuals who have worked a little and part-time workers will draw lower pensions. (See question 43.)Current fiscal climate
Is the state pension system under pressure to reduce benefits or otherwise change its current structure in any way on account of current fiscal realities?
Because of the social security deficit, the high proportion of retirees and the number of unemployed compared with active contributors, the French pension scheme is now facing serious problems.
To deal with them and ensure that the pension system survives, reforms have been adopted - notably Law No. 2010-1330 dated 9 November 2010, which gradually increases the retirement age from 60 to 62.
Under Law No. 2014-40 dated 20 January 2014, to ensure a just and continued retirement system, individuals will gradually have to pay in longer to draw full pensions. In addition, a new reform covering all mandatory plans (basic and complementary), called the Delevoye reform, is being prepared and is expected to be discussed before the Parliament in 2019. This reform aims to harmonise all mandatory plans to create a universal plan with identical rules and operating by the acquiring of points.
Occupational pension schemesTypes
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.Restrictions
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.Overseas employees
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.Funding
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.Level of benefits
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).Pension escalation
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.Death benefits
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.Retirement
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.Early distribution and loans
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).Change of employer or pension scheme
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.Investment management
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.Reduction in force
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.Executive-only plans
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.Unionised employees
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.
EnforcementExamination for compliance
What is the process for plan regulators to examine a plan for periodic legal compliance?
URSSAF is in charge of ensuring that occupational pension schemes and collective retirement savings plans are compliant with the Social Security Code. Collection inspectors regularly audit companies to check whether national insurance contributions are being paid lawfully. The inspectors will also monitor arrangements that may generate exemptions, and check whether the requirements are met. Failing this, arrears may be called in for the current year and for the previous three years.Penalties
What sanctions will employers face if plans are not legally compliant?
National insurance exemptions may be removed by URSSAF.Rectification
How can employers correct errors in plan documentation or administration in advance of a review by governing agencies?
Prior to a review, the employer may submit questions to URSSAF through what is known as an advance ruling procedure, which the agency must answer. Should an audit be performed - assuming there has been no change of situation - it may not call in arrears. The employer must comply with the guidelines provided in URSSAF’s answer(s), unless it decides to appeal to the Social Security Tribunal.Disclosure obligations
What disclosures must be provided to the authorities in connection with plan administration?
Collective retirement savings plans must be filed with the Regional Directorates for Enterprises, Competition Policy, Consumer Affairs, Labour and Employment (DIRECCTE).
If an occupational pension scheme is set up via collective agreement, it must be filed with DIRECCTE and the clerk of the Industrial Tribunal.
What disclosures must be provided to plan participants?
Beneficiaries must be informed of the occupational pension plan’s existence, as well as of the collective retirement savings plan. The occupational pension plan must be displayed in the workplace, and each employee must be given a copy of the plan, along with a memorandum that summarises the plan’s details (eg, the beneficiary, guarantee, contributions, etc).
In order to ensure transparency to occupational pension plans, the insurance agency managing them has the duty to provide participants with specific information on an annual basis (that includes notably pension rights earned during the year).Enforcement mechanisms
What means are available to plan participants to enforce their rights under pension and retirement plans?
Employees have to bring their cases before the courts.
Plan changes and terminationRules and restrictions
What restrictions and requirements exist with respect to an employer’s changing the terms of a plan?
In every situation the economic and social council must be consulted first.
The arrangements for amending or terminating a plan depend on how the scheme was set up.
A collective agreement must be revised with the agreement of the representative trade union. The signatory union must be representative of the workforce and have garnered at least 30 per cent of the vote in the first round of staff elections. Further, the agreement will not be valid if opposed by trade unions that have garnered at least 50 per cent of the vote.
A unilateral decision may also be amended. If so, the employer has to withdraw the original decision and adopt a new one. The amendment may also be done via collective agreement, but whether it may be amended by a referendum remains uncertain.
Lastly, an agreement ratified by a referendum must be amended by referendum or via collective agreement.
As the scheme will generally be tied to an insurance policy, the latter will have to be amended according to its terms, especially as far as the notice is concerned.
The workforce must be given advance notice of termination and any amendments. The length of advance notice may vary depending on the circumstances, and will normally be defined in the scheme.
One should also check whether the advantage to be terminated or amended qualifies as a contractual item. If so, the employer will have to comply with the formal procedure laid down for amending employment contracts.
What restrictions and requirements exist with respect to an employer terminating a plan?
The rules are as defined above.Insolvency protection
What protections are in place for plan benefits in the event of employer insolvency?
Under section L913-2 of the Social Security Code:
No clause may appear in the agreements or unilateral decisions that fall within the purview of section L911-1 (on instituting collective guarantees for employees), further to which clause, pension rights that are being, or have been, acquired would be lost [. . .] in the event the employer were to become insolvent, or the company, establishment or parts of an establishment were to be transferred to another employer, failing which [said clause] shall be null and void.
How are retirement benefits affected if the employer is acquired?
The impact of a change to an employer’s legal situation will depend on how the pension scheme is set up.
A scheme set up through a collective agreement will be terminated as of the day the new employer takes over. It will remain in force, on a temporary basis, for 15 months. Within that stretch of time the new employer must enter into a replacement agreement. Failing this, the Labour Code provides that the employees will keep their previous remuneration within the meaning of section L242-1 of the Social Security Code (which may not be less than the remuneration of the past 12 months). How this provision applies to retirement benefits remains a uncertain.
In other cases, the scheme transfers over to the new employer, which may choose either to amend or to terminate it.Surplus
Upon plan termination, how can any surplus amounts be utilised?
This issue does not arise with collective retirement savings plans. Should an employer terminate the plan, each employee will have acquired individuals entitlements, which will be managed by insurance or investment agency until their retirement. Accordingly, there will be no surplus.
Dealing with surpluses is far more complicated insofar as occupational pension schemes are concerned. It is entirely dependent on the insurance policy’s terms, notably whether there exists a transfer clause. In a defined benefit scheme, most policies nowadays will allow the employer to transfer the assets from one insurance agency to another, subject to certain requirements (deadlines, charges, and amounts involved).
Under defined contribution schemes, should the employer terminate the policy, the insurance agency must continue to manage the entitlement of any employees who have acquired pension rights.
Fiduciary responsibilitiesApplicable fiduciaries
Which persons and entities are ‘fiduciaries’?
Under French law, the issue is not pertinent to pension plans.Fiduciary duties
What duties apply to fiduciaries?
Not applicable.Breach of duties
What are the consequences of fiduciaries’ failing to discharge their duties?
Legal developments and trendsLegal challenges
Have there been legal challenges when certain types of plans are converted to different types of plan?
There has been some litigation. Employees have sought to protect their entitlements by claiming that they have acquired rights that cannot be altered.
Have there been legal challenges to other aspects of plan design and administration?
Major litigation puts employers in opposition with the URSSAF. The latter will seek to challenge exemptions, on the basis that the employer has failed to comply with various requirements. A large amount of litigation involves notably the objective categories to which the employer may grant extra pension benefits.Future prospects
How will funding shortfalls, changing worker demographics and future legislation be likely to affect private pensions in the future?
For some years now, the authorities have sought to reduce the deficits that have struck both basic and complementary pension schemes. A number of avenues are being explored, such as raising the statutory retirement age, increasing contributions paid into the schemes or cutting back pensions.
Retirement savings schemes have become more attractive, as the deficit of the basic and complementary schemes has increased. Since the act of parliament on pension reform was adopted in 2003, the authorities have encouraged such arrangements through social and fiscal exemptions as well as through a rationalisation of types of pension schemes.
Update and trendsHot topics
Are there any current developments or trends that should be noted?No updates at this time.