Retirement / Unemployment

Many companies have decided or plan to implement an alternative system to the supplementary pension scheme (defined benefits plan Article 39) because of its loss of efficiency. For example :

Schneider Electric : decided to terminate the Article 39, which its corporate officers and executives benefited from. The Board of Directors of the company justified this decision by « the extremely high burden of these schemes linked to the will of the French legislator to increase significantly their financing cost in order to discourage their implementation and to encourage their removal ». In compensation, Schneider Electric pays a lump sum in cash and shares, plus an annual amount in cash (a fixed portion and a variable portion) ;
PSA : also decided to terminate the defined benefits plan for its corporate officers and executives. A new pension scheme has been in place since January 2016 ; it provides the payment of a lump sum in compensation for the closure of the Article 39 (under presence conditions for a transitional period of 3 years), plus the payment of an annual retirement allowance equal to 25% of the cash remuneration (fixed + bonus) - in cash and in a defined contributions plan (Article 82). The new pension scheme saves € 34 million for the company.

Other companies have followed : Arkema, Unibail-Rodamco, Pernod Ricard ...

The Article 39 is inadequate - and not only for tax reasons

Why ? The Article 39 pension is conditional to being present in the company at the time of retirement. « Gilded handcuffs » ! Two consequences :

On the one hand, an executive who leaves his company before the date of his retirement loses all his rights, except in special cases from the age of 55 and under condition that he does not resume a new job. This made sense when the beneficiaries made a career in the some company. But the world has changed : the company's interest is not to implement very long-term loyalty schemes, and the executive no longer plans to spend his entire career in the same company ;
On the other hand, when an executive joins a new company, it will be the responsibility of this new company to take in charge the cost of the entire pension over a few years ; which represents a prohibitively expensive economic effort, and which makes the pay mix unbalanced in favor of guaranteed elements of remuneration.

Pension plan is a particularly sensitive component of the compensation package :

For politicians and media ;
But also for shareholders : the pension plan interests the executive, but does not motivate the shareholder who wants the essential of the compensation package to be aligned with value creation.

The supplementary pension schemes have suffered from severe political decisions. As a result, the current taxation on the highest pensions has become confiscatory : social contributions and taxes absorb nearly 80% of the remuneration paid by the company. Who would accept such an online loss for an investment ? Confiscatory indeed !

Alternative systems

There are several types of alternative systems that must be adapted to each company (advantages and disadvantages) ; in particular XLT (eXtra Long-Term Incentive), in cash or in shares, inspired by Anglo-Saxon practices.

They generally consist of a lump sum to compensate the abandonment of the Article 39, plus annual payments.

These XLT systems have several merits :

They are portable, and thus definitively acquired even in the event of departure before the date of retirement - which is a decisive advantage for the beneficiaries ;
They authorize payment in capital or in annuity - the capital payment being generally more favorable ;
For the company, they generate a substantial saving : for example, a study with a customer indicates a saving of about 25%. The XLT also helps to strengthen the correlation between compensation and long-term performance of the company, a key argument for convincing institutional investors and proxy advisers.

We are at your disposal to help you to profit from this opportunity to improve your executive compensation package.

Final stage of career

The collective insurance systems are deteriorating, and executives wish that the company takes care of their individual expectations.

Protection programs, pension and insurance plans... these formerly peripheral components have become fundamental.

It is necessary to anticipate, and carefully prepare the final stage of career, within the framework of the company or on a purely individual basis : to make an individual pension assessment taking into account various retirement dates, to validate the entitlements, to analyze the output of possible repurchase of retirement entitlements, to optimize the retirement date, to identify other opportunities to improve the pension, to know the amount of the survivor's pension, and to be guided in the tiresome formalities when retiring.

Individual pension assessment

The assessment includes the analysis of personal data, the identification of the full rate retirement date, the calculation of retirement entitlements, as well as a personalized report to each recipient.

It relates to the basic and complementary pension plans, whatever the type of scheme is : employee, self employed, senior civil servant...

The estimate of the retirement entitlements can be carried out for various retirement dates and various assumptions of remuneration increase.

This service includes a waybill which establishes the priorities in emphasizing on the pension entitlements optimization.

Validation of pension rights

This sequence consists in checking, updating and getting validated the potentially vested entitlements. It relates in particular to contribution periods, periods of internship, periods of expatriation... taking into account the international regulations and conventions in force.

This validation exercise is essential in order to optimize the pension amount and to anticipate the retirement date ; it must be carried out before any repurchase of retirement entitlements.

Repurchase of retirement entitlements

Some repurchase opportunities of retirement entitlements deserve to be analyzed, such as : higher studies, incomplete years contribution, periods worked abroad...

This repurchase is often expensive, and the analysis of its output must be carefully evaluated, by checking its impact on the various scenarios which will have been defined - in particular by taking into account the incidence of possible anticipation of retirement date.

Survivor's pension

This stage allows recapitulating the entitlements of the surviving spouse in the event of death of the policy holder.

Drawing a pension : implementation

In some countries (in Europe and North America), we can undertake the whole process of converting the retirement entitlements into a pension, in intervening directly towards the various organizations or insurance companies on behalf of the beneficiaries.

These formalities are generally tiresome and always time consuming.

Accumulating compensation and unemployment benefit / retirement pension

Many executives wish to pursue a professional activity while receiving unemployment benefits or a retirement pension.

More and more companies are willing to cooperate with their former managers for some time in order to facilitate the transition, thus leveraging their experience and know-how. This collaboration often takes place through the set-up of a consulting company.

Such an approach assumes :

For the beneficiaries of unemployment benefits : the optimization of their unemployment benefits upstream (age, duration of contributions...), and the accumulation with the compensation ;
For the beneficiaries of a retirement pension : the valuation of the pension rights in order to ensure the date of full pension retirement, to have an estimate of the pension rights, and to see which are the opportunities for optimizing the pension rights (validation, repurchase of retirement entitlements...), and the accumulation with the compensation ;
The identification of the type of legal structure desirable for the executive’s future activity ;
The optimization of the revenues coming from this new structure (tax, social).

1. Accumulating compensation and unemployment benefit

The unemployment insurance (Pôle Emploi) offers, under certain conditions, two types of interesting measures :

A support for start-ups payed in to two equal installments : a first payment at the start of the activity and a second payment six months following the first payment ;
The partial maintaining of the unemployment benefit : generally, this formula is more favorable than the option mentioned above.

2. Accumulating compensation and retirement pension

The accumulation of a compensation and a retirement pension has been authorized without any limit of resources from January 1, 2009. This regulation makes it possible for people to continue their professional activity in their former company.

Some conditions must be met :

The employee must have terminated its professional relationship with its former company (and entered into a new contract if the individual continues to work with the company) ;
The individual must have winded-up its pension plan at full rate ;
Be at least 65 years of age, but with some exceptions.

3. Legal structure

In France, there are multiple legal structures possible for individual entrepreneurs .

The choice must be made on a case-by-case basis, depending on the objectives pursued by the executive.

Various criteria deserve to be taken into account. In particular :

Provisional turnover ;
Company image ;
Responsibilities incurred by the executive over his own assets ;
Costs and complexity of management ;
Number of partners ;
Social status of the executive ;
Tax status of the company and of the executive.

4. Tax and social optimization

For executives, the employment status is an option to be excluded given the weight of social security contributions. A case-by-case study should be carried out.

In France, the executive who has set-up his own start-up has various tax and social opportunities which need to be analyzed and leveraged.