PARIS - Sooner or later, French public pension plans will have to be revamped or go bust. The only question, say French pension experts, is when the state will tackle their yawning deficits.
While French Prime Minister Alain Juppe has retreated from his recent budget proposal to lower the cost of these schemes, pension experts say public pensions eventually must face their day of reckoning.
"Social security and special (pension) schemes must be reformed or else France will never manage to control its deficit," said Richard Deville, a director at Watson Wyatt Worldwide's Paris office.
Mr. Juppe had proposed eliminating the 64.5 billion French franc ($12.9 billion) social security deficit in two years. The deficit accounts for about 20% of France's budget deficit but threatens to balloon further. In 1994, health spending alone accounted for more than 50% of social security spending, while pensions represented a 14.7 billion franc ($2.9 billion) burden.
But Mr. Juppe has backed off from his proposal to lengthen the years of service required for a full public pension and proposals to restructure the rail industry in light of the strike by French rail and other public sector workers.
In addition, he suspended the commission he had just appointed to examine the workings of France's 20 special schemes, which include plans covering civil servants, members of the military, state and municipal workers, transport workers and employees of France's two giant utilities - Electricite de France and Gaz de France.
These public plans also cover staffers at the Banque de France, and actors and staff of the Comedie Francaise and the Opera de Paris. In total, they provide benefits for some 5 million active employees and more than 3 million retirees.
The problem is these schemes are extremely expensive and rely on subsidies from the private sector. In 1995, the government financed more than 28 billion francs in public pension costs, while transfers from other pension plans under France's complex retirement system amounted to 67 billion francs. In 1994, 234.9 billion francs were paid out in pension benefits.
Public sector employees tend to view their retirement benefits as an "acquired right."
"When I started working at the SNCF (Societe Nationale des Chemins de Fer) just after graduating from high school, I had in mind that I would retire at age 55. To me, the Juppe reform plan is treason," said Marc Carmetan, the head for SNCF of Force Ouvriere, one of France's largest civil-service unions. The SNCF is France's train system.
The topic long has been taboo. When the government issued a 1991 report on pensions in France, it dropped off the section relating to special schemes.
Resentment is building
But the strike focused public attention on the schemes. Private sector workers are beginning to resent the generous benefits afforded by the public schemes.
A truck driver who puts in 50 hours a week behind the wheel no longer is willing to foot the pension bill of his counterpart at the railroad. The truck driver knows he will have to work until age 60 and will have to contribute for 40 years to retire on a full pension. In contrast, an SNCF train driver will be able to retire with a full pension (75% of pay in the final six months of employment) at age 50 if he has worked for 25 years.
Demographics also are making the public sector plans increasingly unaffordable. Now, there is ratio of 2.5 civil servants for each retiree. By 2015, there will be one employee for each pensioner, according to projections of the Commissariat au Plan, France's planning agency.
The difficulty in tackling the special schemes is rooted in their tangled history. The plans usually have no distinct legal separation from the sponsoring entity. For example, at Electricite de France, the pension fund is part of the human resources department. The civil servants scheme - which paid out 130 billion francs in benefits this year - exists only as a budget line.
"In other words, there is no visibility. Who is accountable? Who controls a fund which does not legally exist," said Michel Piermay, president of Fixage, a Paris-based insurance consultant.
Nor are there accounting pressures to recognize these pensions costs. Financial statements reveal only contributions and benefits. The accrued liability is recognized only when an employee is ready to retire or when a state-owned company is about to be privatized.
Thus, France Telecom, which is preparing for privatization by no later than 1998, valued its pension obligations for the first time last year. They total 140 billion francs - almost equal to the telecommunications company's estimated market value.
Shrouded in mystery
In addition, these public pensions are often shrouded in mystery. "There are no less than 12 offsetting mechanisms and seven transfer schemes which foster a certain degree of arbitrariness in the functioning of social protection and blur results presented by each pension scheme," commented the Cour des comptes, a government agency that supervises public spending.
But the special schemes have good reason to obfuscate their situation. In 1992, the government raided the reserves of the municipal workers pension fund in order to finance its deficit.
Still, pension experts believe the government eventually will have to come to grips with the special schemes.
Patrice Cardon, an actuary with Arthur Andersen's Paris office, said differences between private and public sector benefits "will become socially unbearable in the years to come."
Plus, the European Union's deregulation program, which particularly will affect French electric, rail and telecommunications monopolies, will place more pressure on these pension benefits, he said.
Fixage's Mr. Piermay added: "What the riots made clear is that the government cannot decide independently of the unions how special schemes should be managed.
"If the government manages to sit down with the unions, it should try to work out a compromise whereby people close to retirement keep their benefits and younger generations are covered by schemes comparable to that of the private sector."