Employee savings – PACTE Law
On 22 May 2019, a new law, entitled ‘PACTE’ as Plan d’Action pour la Croissance et la Transformation des Entreprises (PACTE – Action Plan for Business Growth and Transformation) was enacted after a legislative process that took nearly one year. This law includes numerous provisions relating to labour and employment, including an ambitious reform of mandatory profit-sharing schemes, employee savings schemes and optional profit-sharing schemes.
These new rules came into force on 1st January 2020.
- ‘PACTE’ Law as The Plan d’Action pour la Croissance et la Transformation des Entreprises (Action Plan for Business Growth and Transformation)
- Ordinance No. 2019-766 of 24 July 2019 on the reform of retirement savings
- Decree n° 2019-807 of 30 July 2019
- Order of 7 August 2019
- Decree n° 2019-862 of 20 August 2019
- On the issue of employee savings, the PACTE Law eventually harmonizes the various existing supplementary pension plans (PERCO, PERE, PERP, MADELIN) and creates, as from October 1, 2019, a new Retirement Savings Plan (“PER” in French). In particular, it organizes the transferability of rights from one type of plan to another, with a view to creating a “single” retirement plan.
AFG’s pratical guide (in French) on the new Retirement Savings Plan (“PER”) : J’épargne pour ma retraite – Comprendre le nouveau Plan d’Epargne Retraite – PER ».
Employee savings plan
- With regard to employee savings, the PACTE Law allows employers to make payments under an employee savings scheme and this even in the absence of any contribution from the employee, provided that these payments are allocated uniformly to all employees and that they are used to “acquire shares or investment certificates issued by the company itself or by a company within the same scope of consolidation or combination of accounts”.
Optional profit-sharing scheme – « Interessement »
- Article L. 3314-2 of the French Labor Code provides that, in order to qualify for certain exemptions provided for in Articles L. 3315-1 and L. 3315-3 of said Code, optional collective profit-sharing must be random and result from a calculation formula based in particular on the company’s performance over the year or over a period of at least three months.
- The PACTE law supplements this article by specifying that this calculation formula “may be supplemented by a multi-year objective based on the company’s earnings or performance”.
- In case of transfer of the company or business, “when there is a change in the employer’s legal situation”, which requires the establishment of a new Social and Economic Committee, Article L. 3314-4 of the French Labor Code specifies that the optional profit-sharing agreement remains in effect or may be renewed under the standard terms and conditions for concluding such an agreement. This clarification should not lead in practice to any changes, since the rule according to which the agreement ceases to be effective between the new employer and the company’s employees when this change makes its application impossible is maintained, thereby becoming the exception to the principle.
- The cap on the amounts that can be distributed to employees under an optional profit-sharing plan has been raised. For the same beneficiary and for the same financial year, it may not exceed three quarters of the annual social security ceiling, i.e. 30,393 euros in 2019 as opposed to half this sum previously, i.e. 20,262 euros (Article L. 3314-8 of the French Labor Code).
- Finally, the collective optional profit-sharing scheme may now provide that if sums could not be paid to an employee under the scheme because the applicable individual cap has been reached, the remainder may be automatically distributed, according to the same procedures as the original distribution, to employees who have received sums below this cap, up to the same cap (Article L. 3314-11 of the French Labor Code).
Mandatory profit-sharing – « Participation »
- The first impact of the change in thresholds is that the obligation to set up a profit-sharing scheme applies from the first financial year following a period of five consecutive calendar years during which the threshold of 50 employees has been reached or exceeded.
- In addition, the PACTE Law reduces the wage cap for distribution, which is now set at three times the annual social security ceiling, in order to promote a more equitable distribution proportional to the wage.
- The purpose of workplace savings is to give employees a stake in their employer’s performance, while enabling them to build up savings on advantageous terms. The system is based on incentives, profit-sharing and employee savings schemes. Workplace savings arrangements are eligible for relief on taxes and social security contributions – a benefit for both employees and employers.
Employee investment funds (FCPEs)
- Employee investment funds (FCPEs) are collective investment schemes for workplace savings.
They were created when the 1967 legislation on employee profit-sharing and employee savings plans was implemented. Access to FCPEs is reserved for the employees of one or more specific companies with a profit-sharing agreement or a savings plan. Employees can have their incentive payments and profit-sharing payments paid into these funds, and also make voluntary payments. The employer often provides matching payments.
STATISTICS & STUDIES
- The AFG publishes half-yearly statements of the assets under management in employee investment funds (FCPEs). For information concerning employee saving funds and employee pension schemes statistics, Please use the following links:
- Employee savings assets: Epargne salariale – Actifs gérés par les membres de l’AFG
- PERCOs (collective retirement savings plans) figures: Statistiques PERCO
- Employee investment funds (FCPEs) performance indexes: Indices de performance des FCPE