For the last two years, the concept of employee savings, such as saving plans or schemes for profit sharing, has received much publicity from the media. The potentially large volumes of assets available has attracted a number of new providers. For a company, the choice of a fund manager is becoming an extremely complex exercise.
For some months, the Loi Fabius1 legislation, has been the object of much attention in the media, pointing out the advantages for companies and employees as follows:
o low taxation for companies and employees;
o deferred remuneration with some possibilities of early withdrawals;
o employees associated with the performance and results of their company.
There are different plan types:
The Multi Company Saving Plan – Plan d’Épargne InterEntreprise (PEI) – provides for several companies to implement a single programme, thus creating economies of scale.
The Voluntary Saving Plan – Plan Partenarial d’Épargne Salariale Volontaire (PPESV) – creates a longer saving period of 10 years instead of five. The legislation extends the possibility of participation to board members of companies having less than 100 employees.
In 2000, companies have paid E7.6bn to some 5.6m employees from profit sharing programmes. This has generated voluntary contributions of the order of E13bn paid into mutual funds.
Selecting the fund manager:
New players are appearing for a range of reasons relating to their area of expertise:
o Commercial network: Mutual banks and saving banks, insurance companies and retirement institutions.
Administration costs – new competition
Administration costs are becoming transparent and very competitive, enabling them to be identified. Administrative charges and details related to the investment expenses are specified. The charges can vary greatly according administrators and company size. Large company administration charges are below actual cost for the service while charges for smaller companies are high.
Three main approaches are observable:
o Sophistication in investment options and services for the larger companies,
o More standardised approach for medium companies with limited investment options,
o Packaged programmes for smaller companies with pre-defined options.
Now products are available that are ‘branded’ for groups of unions, industry, and groups of smaller companies, and so on.
New environment creates new responsibilities
The expansion of saving and retirement programmes requires having the ‘partners’ in place: HR, finance and employees making those decisions collectively that can no longer be taken individually, due to the complexities of the environment, and knowing the products available. As well, there is the consideration of the far reaching effect that a wrong decision may have on the savings of the participants.
Gilles Frechet is with Actuariés Associes in Paris, part of the ASINTA Network