France: new ‘loi pacte’ boosts savings schemes, reforms pensions 

France: New ‘Loi PACTE’ Boosts Savings Schemes, Reforms Pensions
June 06, 2019

Measures that aim to boost employee share ownership and simplify supplementary pension scheme rules feature in the Action Plan for Business Growth and Transformation (Loi PACTE) (French). The law implements parts of the EU directive on pension portability, and most of the measures will take effect on 1 Oct 2019. Before then, the government will publish further clarifying details.

Changes to Employee Savings Schemes

The reduction or abolition of the “forfait social” for smaller companies. The “forfait social” is a contribution paid by employers on income subject to universal social security tax but exempt from normal social security contributions — such as profit sharing, shareholding and matching contributions. Changes to the forfait social aim to increase the number of supplementary profit sharing schemes (“intéressement”) offered by companies with fewer than 250 employees, and profit sharing arrangements (“participation aux bénéfices”) in companies with fewer than 50 employees. The proposed changes to the forfait social were part of the government’s proposals for the Loi PACTE, but they were included in the social security finance law (French) approved in late 2018 in order to accelerate their implementation from 1 Jan 2019.

Harmonization of employee thresholds. The mandatory employee thresholds triggering the establishment of profit-sharing plans will be harmonized. For example, companies employing 50 or more employees over a five-year period will have to establish a profit-sharing plan in the following financial year — the current law applies a three-year threshold.

Changes to Supplementary Defined Contribution Pensions

Pensions reforms will take effect between the end of 2019 and 2021 and will:

  • Harmonize the structure of PERCOs (collective retirement savings plans) and PEREs (company retirement savings plans). Each plan has three components: compulsory contributions, payments from payroll savings and voluntary employee contributions.
  • Allow retirees to receive their pension as a lump sum and/or an annuity. Individuals also can withdraw their pension funds early to buy their primary residence.
  • Reduce the forfait social paid on employer mandatory contributions to 16% (down from 20%) when the sums are assigned to the acquisition of shares including at least 10% of equities reserved for the financing of small and medium-size enterprises.
  • Improve pension portability for individuals who move jobs within the EU, requiring the transfer of vested sums without loss of accrued profits. 

Changes to Defined Benefit Supplementary Pensions Plans

The Loi PACTE includes measures to increase the portability of defined benefit supplementary pension plans that aim to implement the EU directive on pension portability. Further details will be included in an “ordonnance” to be finalized by the end of 2019, but draft measures would require that a percentage of base salary for each year of employment is vested — this would alter the premise of current defined benefit schemes because the payment of vested sums would no longer be conditional on individuals being employed at the time of their retirement. 

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