Developments in employee savings plans

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After a rather slow development up to the end of the 1990s, some momentum has been injected into the development of employee savings plans in France on two occasions in recent years. The 2001 'Fabius law' aimed primarily to facilitate such schemes through opening up new options, while the 2003 'Fillon law' bolstered the existing 'pension savings' strand of employee savings plans. Trade unions are split in their views on employee savings schemes, but most of them been attempting jointly to influence the investment of these savings since 2002. This article reviews the situation in 2004.

Employee savings plans (épargne salariale) include several types of schemes that have emerged at various times, geared to specific ends. Profit-sharing (participation) and pay related to company performance (intéressement) are the two oldest forms, and they are still the main sources of employee savings plans. In 1994, a law implemented a - principally tax-related - framework in the form of the 'company savings scheme' (plan d’épargne entreprise, PEE), in which profit-sharing and company performance-related payments could be saved (and locked in for a period of five years). The PEE also enabled employers and employees to make additional contributions. These funds are managed by third parties as 'joint corporate investment funds' (Fonds communs de placement d'entreprise, FCPE).

Originally a simple tool for managing aspects of remuneration, employees savings plans have over the years been used to achieve a number of objectives, including the development of employee shareholding (stimulated by privatisations) and more recently, have been a method for boosting retirement savings with a view to compensating for an expected drop in the substitution rate of compulsory pension schemes. The context is that there have been only a few funds handling retirement savings that could be defined as pension funds. In addition to some rather under-utilised schemes available to civil servants (such as Préfon and CREF), several types of pension savings contract have been set up in the private sector for the use of senior managers. In general, however, pensions cover is, for the time being at least, the preserve of compulsory schemes. As of 2002, pensions paid out of non-mandatory funded pension schemes accounted for only 2% of all pensions, and the value of monies held in this form of savings was equivalent to 2% of the average household’s financial assets.

Fabius and Fillon laws

The 'Fabius law' of 19 February 2001 (FR0102129N and FR0011103F) established a 'voluntary partnership employee savings scheme' (Plan partenarial d’épargne salariale volontaire, PPESV) with the sums invested frozen for a 10-year period (as opposed to the five years in the usual PEE scheme). It thus began to develop a long-term perspective on savings. This path was institutionalised by the 'Fillon law' on pensions of 21 August 2003 (FR0309103F) which turned the PPESV into the PPESV Retraite, or collective pension savings plan (Plan d’épargne retraite collectif, PERCO). The funds accumulated in this type of plan are released only when the individual retires. There is no obligation for the company to set up such a fund, or for the employee to join the scheme if there is one. Moreover, the Fillon law established a 'people’s pension savings plan' (Plan d’épargne retraite populaire, PERP) unconnected to a company (though with the option of combining with other plans), but with a maximum upper limit on the total tax breaks involved.

Legislation thus appears to have opened up a broad spectrum of savings instruments oriented toward pensions, of which employees savings plans are just one of the options. Time will tell whether these schemes lead to significant amounts of savings being transferred to such 'tunnel' investment products, which are not generally favoured by the French. The idea of increasing overall total savings is rarely mentioned, as the French savings rate is particularly high already. Indeed, such an increase is not even seen as desirable at a time when the government is encouraging consumption to galvanise a rather lifeless economy.

Trends in employee savings plans

In 2002, the value of 'joint corporate investment funds' (see above) felt the effects of the stock market slump as, despite the increase in the number of investment options available, it fell from EUR 53.2 billion as of 31 December 2001, to EUR 47.4 billion on 31 December 2002. The sums distributed as company performance-related bonuses and profit-sharing, however, stayed in line with a fairly upbeat economy. Yet only part of this money was channelled into PEE schemes: 6% of collective agreements on profit-sharing in 2001, for example, provided for payment into PEEs, and even in the new agreements on company performance-related bonuses reached in 2001, the option of investing the proceeds into a PEE was available for only 53% of the employees covered, despite the establishment of inter-company schemes.

The number of agreements signed in this area has risen noticeably, particularly those on company performance-related bonuses, which now cover more small and medium-sized enterprises (SMEs) than they used to. The effect on the number of employees covered is clear, even though the precise number of those who have actually entered the system is not known. The way in which the agreement have been concluded indicates penetration into companies without trade union representation, or even works councils - agreements ratified by a union or works council make up only 19% of the total. The setting up of 'inter-company plans' (Plans interentreprises, PIEs) has enabled SMEs to join broader schemes, either at sector level - as for companies in the pharmaceutical and retail food industries, vehicle repair and the liberal professions - or on a regional basis - as in the Vosges and Alsace. According to a report by the National Council on Profit-Sharing (Conseil national de la participation), three-quarters of the new PEEs set up in recently have been in companies with fewer than 10 employees, with the retail, agriculture and construction industries accounting for 40% of this total. Some of these plans include the option of a long-term plan (PPESV interentreprises), as is the case for the vehicle repair industry. In terms of the percentage of employees involved, however, this option is still more 'virtual' than real, at least according to the latest available figures (from 2002). The number of employees actually participating in these schemes has in fact remained stagnant at around 30%, working in about 3% of all companies.

Overall, trade unions in the larger companies have gone along unenthusiastically with the growth of savings schemes, which they see as competing with pay increases. Employers show ready support for company performance-related bonuses, and PEEs are attractive for companies listed on the stock exchange, in which there is always a fund set aside for holding only company or group shares. In those industries mostly made up of SMEs, it appears that PIEs have quickly been taken up, on either a sectoral or regional basis. Their growth is certainly due in part to the fact that the owners of small companies may join the plans, but it is still too soon to get an overall view of this still embryonic process.

Inter-Union Employee Savings Committee

In 2002, four trade union confederations - the French Democratic Confederation of Labour (Confédération française démocratique du travail, CFDT), the French Confederation of Professional and Managerial Staff-General Confederation of Professional and Managerial Staff (Confédération française de l'encadrement-Confédération générale des cadres, CFE-CGC), the French Christian Workers’ Confederation (Confédération française des travailleurs chrétiens, CFTC) and the General Confederation of Labour (Confédération générale du travail, CGT) - set up an Inter-Union Employee Savings Committee (Comité intersyndicale de l’épargne salariale, CIES) (FR0203103N). The unions' positions on employee savings schemes varied from merely noting their existence to welcoming their growth, but by creating the committee they aimed jointly to assess and approve savings products publicised as 'ethical' or 'socially responsible'. The General Confederation of Labour-Force Ouvrière (Confédération générale du travail Force Ouvrière, CGT-FO), is the only union confederation with representative status to refuse to join up, as it wants to avoid endorsing a system it has been severely critical of.

Over the two years that the CIES has been in operation, it has approved 12 financial products from institutions, banks, mutual and profit-making insurance companies. The problem now facing the CIES and its participating unions is to ensure that these products are the ones chosen by the monitoring boards of the joint corporate investment funds. In theory this is easy, as the 2001 Fabius laws made it obligatory to reserve a majority of the seats on these boards for the savers’ representatives. In practice, it is less straightforward, since the employers’ representatives on the boards often hold, de facto, a significant advisory role vis-à-vis the union representatives who are less well-informed on these matters.

Commentary

Employee savings plans seem to be highly susceptible to the winds of change. Highly valued until very recently, employee shareholding appears to have been relegated to a secondary position, or at least no longer figures as a desirable social goal. The stock market crash of 2001 has cooled enthusiasm for investment for the time being. The current trend towards pinning employee savings plans to long-term investment products is a gamble. For the moment, employees use such plans as sources of readily available savings, and many savings are withdrawn as soon as it becomes possible. Withdrawals in 2002 were worth 88.6% of the total contributions, after having reached 97% in 2001, which means there was little increase in savings. Some are now even questioning the legitimacy of the tax and social benefits granted to holders of this type of savings plan. Company performance-related bonuses, which come under the definition of employee savings plans, are for the most part actually cashed in immediately by employees and their role as a source of savings is only a secondary one. This is hardly surprising, as the savings rate is already very high. The many low-income households scarcely have any leeway in this area and those on high incomes are already abundantly provided for in terms of life insurance, whose paper value is around 10 times higher than that of work-related savings plans. Insurers, aware that life insurance is coming to maturity as a financial product, put a lot of pressure on the government to establish the PERP, which turned out to be a close competitor of the PERCO. We are therefore witnessing the enactment of a proactive public policy, against a backdrop of fierce competition between financial institutions, a process whose relevance can only be properly understood in the relatively distant future. (Jean-Marie Pernot, IRES)