The reform of retirement saving
Newsletter - September 2019
The PACTE law of 22 May 2019 created a new legal framework for retirement savings plans. The application procedures of the new rules to apply as of 1 October 2019 are defined by three texts issued by the executive.
The new legal framework of the retirement savings plans (PER)
On and after 1 October 2019, companies will be able to set up:
– a group retirement savings plan (Pereco), which takes from the Perco its availability to all staff members and the voluntary membership for employees;
– a mandatory retirement savings plan (Pero) which all employees must join or one or more objective categories of them, as is the case for the defined contribution plans;
– a retirement savings plan that includes the features of the previous two depending on the funds that are contributed to it.
The new regulation also terminates defined-benefits schemes (referred to as “Article 39 schemes”) which were starting to be challenged by EU law (Directive 2014/150/EU), by restricting employees’ mobility within the EU, since the employee had to be still employed by the company when s/he retired to be eligible to claim payment of her/his pension.
The Pereco, which includes the key features of the Perco, is intended eventually to replace it. Essentially, it is governed by the same provisions as the Company Savings Plan (PEE). It is required to benefit all employees of the company. The plan’s rules, however, may contain a length-of-service condition, which can only be a maximum of three months. It is introduced by a collective bargaining agreement or a group agreement (“accord collectif”), by an agreement between the employer and the trade unions, by an agreement entered into within the social and economic committee (CSE), or by a two-thirds majority ratification by the staff of the draft plan proposed by the employer. It may be introduced at company level or in the form of an inter-company plan.
Unlike the Pereco, the Pero is mandatory and may be restricted to one or more categories of employees. However, for this restriction to be valid, it must conform to one or more objective criteria, including:
– membership of the executive/non-executive categories;
– a compensation threshold (set by the calculation of the contributions payable for the former Agirc and Arrco schemes);
– a specific place in the professional classifications of the collective bargaining agreements and/or the sub-sector agreements;
– the level of responsibility, the type of duties, the degree of independence or length of service;
– membership of the categories that are defined clearly and not restrictively on the basis of the consistent, general and determined practices in effect in the profession as well as in the relevant scope.
The plan’s rules must explicitly state that membership by the relevant employees is mandatory. The Pero may be introduced by a collective bargaining agreement or a group agreement (“accord collectif”), by a simple majority ratification by the parties involved of the draft plan proposed by the manager or by unilateral decision of the employer. It should be noted that the Pero can also be created via an inter-company Pero.
The retirement savings plan covering both the Pereco and the Pero
It is also possible to introduce a retirement savings plan that includes the features of the Pereco and the Pero. The employer may introduce mandatory payments by itself and by the employees to the Pereco. The payments must involve all the employees or one or more objective categories of employees. The rules must include, for the employees targeted by these mandatory payments, the condition that their membership of the plan is mandatory until the legal retirement age is reached or until their entitlements under a mandatory pension scheme are paid out. The decision to bring the Pereco and the Pero together must be the outcome of a group agreement (or be entered into with the trade union representatives or the CSE).
The sources of funding of the retirement savings plans
The payments that can fund the retirement savings plans include:
– voluntary contributions by the holder: Pereco and Pero
– mandatory and voluntary profit-sharing: Pereco and Pero (if the Pero is of benefit to all the employees or if a Pereco is in place)
– days off registered in a time-banking account (CET): Pereco and Pero
– employer matching of the employee’s contribution: Pereco
– initial and periodical matching by the employer without any contribution by the employee: Pereco, subject to uniform allocation to all employees who fulfil the length-of-service condition
The exemptions from social security contributions
The exemptions that apply to the Perco and to the “Article 83” retirement schemes apply to the Pereco and to the Pero. There is no capping of the exemption from contributions, but the employer payments are capped. The exemption applies up to the higher of 5% of the value of the annual social security cap (PASS) (€ 2,026 in 2019) or 5% of the compensation withheld up to 5% of five times the PASS (i.e., € 10,131 in 2019).
The Pereco and Pero payments that are exempted from social security contributions are subject to the forfait social (payable by the employer) at the rate of 20%. Under certain conditions, the rate may be reduced to 16%.
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