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France: Legislation brings significant changes for retirement savings plans

Recent legislation introduces significant changes for DB and DC plans

Health and Benefits
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By Mourad Bentoumi and Pierre Wendling | October 3, 2019

PACTE reforms aim to make it easier for companies to offer employee retirement savings plans and encourage employees to voluntarily save more.

Employer action code: act

Under the PACTE reform project (the French government’s Action Plan for Business Growth and Transformation), approved legislation will create a new vehicle for defined contribution (DC) plans by merging the frameworks for PERCO, PERP, Article 83 and other plans into single tax-favored vehicles, or PERs. *(A glossary of terms is provided below for these plan descriptions.) In doing so, the government hopes to substantially increase the number of small and midsize enterprises that offer retirement savings plans to their staff members. In turn this would also encourage employees to voluntarily save more by making it easier to manage and consolidate savings accrued with multiple employers.

Existing Article 39 plans are required to close to new entrants by the end of 2019 and freeze future accrual.

The October 2018 Global News Brief summarizing PACTE’s provisions for retirement savings can be found here.

The government has also passed legislation that transposes the 2014 European Pension Mobility Directive into local law, effectively closing existing defined benefit (DB) plans (Article 39 plans).

Key details

  • Effective October 1 2019, PERs will replace the other existing savings plans currently available to employers and individuals. The previous plans will no longer be available as of October 1 2020. PERs establish a harmonized taxation, investment, portability and payment framework for all of the different retirement/savings vehicles available to private-sector employers. It also reduces social solidarity taxes on profit-sharing plans for companies with fewer than 250 employees (subject to certain conditions).
  • Existing Article 39 plans are required to close to new entrants by the end of 2019 and freeze future accrual. The only exception is for plans that were closed to new entrants before the EU Directive (May 2014), in which case, beneficiaries can continue to accrue future benefits. The same legislation also establishes new Article 39 plans that have clear vesting requirements (old Article 39 plans did not require vesting) and funds that are fully transferable.

Employer implications

While the current French supplemental retirement and pension market is relatively small compared with the life insurance market, the tandem of changes stemming from PACTE and the EU Mobility Directive are likely to impact most multinational employers. This is particularly true in the case of PACTE due to the prevalence of retirement savings plans. The majority of companies surveyed by Willis Towers Watson currently have one or more types of tax-favored savings plan. In addition, while not widespread among multinational companies, those employers with Article 39 plans will need to consider alternative arrangements for future service (either through a new Article 39 plan or a DC arrangement). In both cases, employers will need to replace their existing plans and consider their options carefully.

Glossary of terms
Terms French English
PACTE Plan d'Action pour la Croissance et la Transformation des Entreprises Action Plan for Business Growth and Transformation
PERCO Plan d’Epargne pour la Retraite Collectif Collective Plan for Retirement Savings
PERP Plan d’Epargne Retraite Populaire Popular Retirement Savings Plan
PER Plans épargne retraite Retirement Savings Plan

Endnote
*Common plan types include PEEs (Plan d'Epargne d'Entreprise), PERCOs (Plan d'Epargne pour la Retraite Collectif) and PEREs (Plan Épargne Retraite d'Entreprise — referred to as Article 83 plans) as well as those available to individuals (e.g., Madellin, PERP) and type 26 branche products (e.g., Prefon, Corem).

Authors

Mourad Bentoumi
Retirement - Non Actuarial

Pierre Wendling
Retirement - Actuarial

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