FRANCE CONSIDERING PRIVATE PENSION FUNDS

PARIS-Both houses of France's Parliament are scheduled to hold a second round of deliberations this month on a bill that would permit private-sector employers and employees to contribute to private pension funds.

Under the proposal introduced in the lower house of Parliament, called the National Assembly, employers and employees would be able to contribute a total of 5% of an employee's gross salary to private pension funds that would supplement government-sponsored pensions.

Employer's could contribute up to 4% of payroll, which would not be regarded as taxable income to the employee as long as the total contribution to both state and private plans does not exceed the social security base annual salary of 164,620 francs ($30,932).

Arnauld Jacquillat, managing director of NSM Pensions, said this limit implies that an employee could earn a salary of up to 700,000 francs ($131,530) annually before he or she would pay any tax on the contributions.

Participation in the private pension funds can be decided by either the employee or the employer.

French insurance companies, brokers and banks are preparing for an expected boost to their pension business if the law is approved.

The new legislation would cover about 14 million private-sector employees, because state-sector employees and the self-employed are already able to contribute to supplementary private pension plans.

At present, private-sector workers get a basic government pension and must contribute to a state-run supplementary system. The private funds would provide a third tier of pension contributions.

The total payments into the state pension system amount to 20% of an employee's gross salary, with the employer contributing 60% of that total and the employee contributing 40%. The final pension is based on the average salary over the last 16 years of employment and comes to about 40% of this average salary.

The workings of France's state pension plan and each company's system of employee benefits are governed under a collective bargaining agreement, known as "convention collective," between the employer and either labor unions or professional associations.

Claude Vala, manager of the Paris office of Buck Consultants Inc., says that this gives significant influence to the unions and professional organizations in how pensions work, and these organizations have been reluctant to cede such power to private fund managers.

The proposed law gives unions and employee representatives places on boards which will supervise the management of the new funds. Insurance executives say that this provision is likely to be hotly contested.

Insurance companies and banks have forecast that initial contributions to private funds could total between 30 billion and 50 billion francs (between $5.64 billion and $9.4 billion), "but we expect it to be slightly lower than that and grow," said Mr. Jacquillat of NSM Pensions. "It could take five years." NSM Pensions is a newly created division of Paris-based bank Neuflize, Schlumberger, Mallet, part of ABN-AMRO Bank B.V.

But other forecasts are not so bullish. Mr. Vala said the premiums generated from the new private funds could be only some 15 billion francs ($2.82 billion). Total pension contributions to both state and private plans amount to 800 billion francs ($150.3 billion).

NSM Pensions will begin trading once the law is passed and the company receives government approval to conduct the business, Mr. Jacquillat said.

France's largest mutual insurer, La Mondiale, announced last December that it has created a pensions subsidiary, La Mondiale Fonds d' Epargne Retraite.

But executives say they are not celebrating imminent new business yet. "The law is still under debate," said Mr. Vala.

Mr. Vala mentioned that political debate continues in France on how the funds would be managed and regulated, and their effect on the present state social security system. "We still have to decide, do we want the (state-run) pay-as-you-go system or (private) pension funds a la francaise," he said.