PSA Peugeot Citröen, France’s leading car manufacturer, is introducing an Article 83 defined contribution pension plan this month in a move designed to raise the retirement benefits of its employees.
The plan will cover all employees of the PSA group’s French automobile, logistics and transportation businesses whose earnings are above the current social security ceiling of E28,224. The company will pay two thirds of the contributions and employees will pay one third.
Thierry Debeneix, deputy director of human resources at PSA Citröen Peugeot, says the plan is an attempt to fill the widening gap created by the lack of a proper pension in France. “We are waiting for a clear pension scheme which doesn’t really exist today. But we can do something with Article 83.”
PSA’s introduction of an Article 83 plan is an extension of the company’s policy of improving employee retirement benefits by topping them up with supplementary DC schemes. In 1990, PSA introduced a Plan d’Epargne Entreprise (PEE), a company savings plan similar to the US401(k) DC in the US.
The standard PEE has a minimum duration of five years. PSA turned its PEE into a long term savings plan by barring withdrawal of benefits for 40 years, other than in cases where the law allows earlier withdrawal - buying a house, for example.
However, the problem of a PEE scheme for PSA is that it is voluntary. “Today there are only 7,000 people in this plan. We consider that this is not sufficient for a work population the size of Peugeot,” says Debeneix.
Only a third of the members of the PEE scheme are executives or ‘cadres’ defined as people with salaries of more than E30,000 a year. PSA has around 20,000 such cadres in France, and it says that these are the most vulnerable to a reduction in the replacement ratio - the percentage of salary they can expect as retirement benefit.
“We have considered the present situation, and past reforms of 1993 and 1996, when ARRCO and AGIRC decided to reduce the benefits of their system, and we think that the level of pension as a percentage of final salary will decrease for all employees, but particularly for employees whose gross salary is higher than the social security ceiling.”
Employees with a starting salary of E21,000 and a final salary of E30,000 can currently expect 70% of their final salary – that is, about E21,000. However, an employee within this salary band entering the company today and retiring at 2042, excluding any reform, can expect only a 63 % replacement rate.
“This is a diminution but not a dramatic diminution. But for an executive who starts at E34,000 and with a final salary of E84,000 the replacement rate is currently 54% . In the year 2042, if there is no reform, the rate will be 42%. So because of the limitations of the PEE scheme we have decided to implement an Article 83 plan,” he says.
An Article 83 plan is mandatory for a defined population of employees. Normally, this will be a company’s executives. However, PSA has chosen to cast its net more widely, Debeneix says. “We have decided to define our population as all our employees – workers, executives, any category – whose gross annual salary is higher than the social security ceiling. When an employee now or in the future has a gross salary which is higher than the social security ceiling there will be a contribution for the employee and for the company.”
The contribution will be 6% of the portion of the salary above the social security ceiling. A third will be paid by the employee and two thirds by the company. PSA plans to increase the contribution for some employees in 2005. “We will probably increase this rate of contribution for top executives because we consider 6% is not enough to prepare for the retirement of executives. There will then be two rates - 6% for the portion between social security ceiling one and social security ceiling two and 8% for the portion in excess of social security ceiling two.”
PSA expects about a third of the workforce to contribute to the plan: 25,000 employees whose basic salary is already higher than the social security ceiling, and another 10,000 people who will rise above the ceiling when they receive supplementary payments and bonuses.
Employees will have no choice of investment. PSA has chosen the unit-linked ‘lifecycle’ policy where assets are allocated between stocks and bonds according to the number of years before retirement. PSA is calling on independent actuarial advice to decide strategic asset allocation. PSA’s chosen insurer, AXA, is required to use these strategic asset allocations. AXA will choose the fund manager initially (Axa Investment Managers), says Debeneix, although PSA will have a say in the choice later on. “At the beginning of the scheme it is logical to use the insurance company because the funds are small. But in two years’ time the funds will be large enough for diversification and we will be able to choose the fund managers we want for specific mandates.”
PSA has also set up a control committee on paritarian principles, with representation split equally between company and employees. Representatives of the six trade unions in PSA - CFE-CGC, CFTC, CGT-FO, GSEA, CFDT and CGT, will sit on this committee. Two CFDT and CGT have so far refused to sign their agreement to the Article 83 plan, arguing that PSA should wait until the national pensions reform is implemented. However Debeneix says that this need not be a problem. “If there is a national reform that is better we can always re-negotiate the retirement plan.”