PARIS - A new advance-funded pension fund for French insurance workers has been given a reluctant go-ahead by French unions.
The adoption of the ground-breaking plan, first announced in February 1995, signals a significant crack in the traditional pay-as-you-go retirement income system in France.
What's more, the plan will help French insurers build their expertise in managing funded schemes in anticipation of a broader shift to a private, funded pension system.
Retroactive to Jan. 1, the new retirement scheme will create a 14 billion French franc (U.S. $2.77 billion) pension fund to cover benefits accrued by French insurance workers through Dec. 31, 1995, under a pay-as-you-go system.
Three billion francs now are reserved; insurance companies will have to ante up the additional 11 billion francs.
The new advanced-funded scheme will be overseen by a specially created insurance company. Assets will be outsourced, although investments will have to adhere to insurance industry rules that favor bonds.
An additional pension fund will be created to cover future contributions, amounting to roughly 200 million francs a year. Each of the insurance companies that signed the pension agreement will contribute 1% of pay for the 100,000 industry workers to the new fund. Additional employer and employee contributions eventually might be allowed, but complex rules make that unlikely at this time.
Assets under the latter scheme either will be outsourced or managed through a "co-insurance" system, under which participating insurance companies would guarantee benefits. The industrywide scheme covering future contributions should be in place by the end of June.
Five of the insurance industry's six unions relented in their opposition to creation of the advance-funded system, which will provide a third layer of retirement income security on top of state pension benefits and secondary benefits provided by AGIRC and ARRCO, the existing industry pension plans.
French unions traditionally oppose advance-funded schemes for ideological reasons, believing they favor management, and because unions have a vested interest in managing the pay-as-you-go schemes.
Unions finally conceded their opposition for fear of losing their place at the table at the new schemes. Under the system for the 14 billion franc scheme, workers will be equally represented on the fund's board of directors.
The Confederation Generale des Travailleurs was the last of the unions to sign on.
"The CGT rallied to the new system for that reason. Failing to sign the agreement would have precluded any inclusion on the board for CGT members," said Patrick Lefas, director for European and international affairs for the Federation Francaise des Societes d'Assurance.