Lights, Camera, Actions !

Introduction

Following up with my previous post regarding profit share and retirement savings as part of a compensation package for French workers. The aim of this post is to dig deeper into the sorts of plans that are offered from the perspective of the employee.

Stock-Based Compensation in France

First, some terminology:

• Employee Savings Plan = « plan d'épargne entreprise (PEE) »

• Retirement Savings Plan = « plan d'épargne retraite (PER) »

• Profit Share = « interessement et participation »

• Bonus = « prime »

• Stocks = « actions » 

• Stockholder = « actionnaire » 

• Bonds = « obligations » or « dettes » 

As discussed in the previous post, when you are given the opportunity to invest as part of your non-salary compensation, generally you receive a link to access a web portal managed by a benefits administrator. The big players in this space are HSBC and Natixis, although there are alternatives such as Epsor.

Where to Invest

Similar to an American 401(k) or HYSA, the benefits administrator will generally attempt to gauge your risk tolerance and create a portfolio of managed funds for you, likely offering "default" portfolios for a given risk level. Depending on the agreement between the administrator and your employer you could be limited to investing in these default funds, or you could potentially choose to invest in any other fund offered by the administrator.

You might also have the option to invest in funds created specially for your employer, for example one that invests exclusively in your own company's stock.

These funds are ranked by two factors: the investment risk (on a scale of 1 to 7), and the minimum investment lockup (up to 5 years). For example:

1. A money-market fund might have risk level 1, in exchange you can sell your stake in the fund basically daily

2. A bond fund might have risk level 3 but your money is locked in the fund for a year

3. An index fund might have risk level 4 with a lockup of maybe 3 years

4. An actively-managed fund likely has risk level 7, with a lockup of 5 years

Here are some real examples. As you'd expect, funds with higher equity components (stocks and ETF's) have a higher investment risk factor but also higher returns. Also, in general the fees are much higher for these funds than we are used to in America.

Withdrawals

Profit Share

If the investment account is a profit share, when you receive the money you can either invest it or withdraw immediately. However, if you choose to withdraw, then the withdrawal will be taxed at the marginal income tax rate which can be as high as 55%. If you choose to invest, you are required to keep the money invested for five years, at which point you can sell your holdings and withdraw the money tax-free. So for tax reasons you are much better off to invest the money, if you don't have an immediate need. You can allocate it as you like based on the funds made available to members of your organization by the benefits administrator. 

That being said, it is exceptionally possible to request an early release before the 5-year mark. There is a list of allowable exceptions which you can find on your benefits administrator's website, but some examples are:

• You are buying your first home

• You are leaving your job (either voluntarily or involuntarily)

• You are getting married

Usually there is an online form on the benefits administrator's website where you submit the request, provide documentation, and decide how much to withdraw (and from which funds, if you've invested in multiple).

Retirement Savings

If you have attained the legal retirement age then you can withdraw funds from your retirement savings account.

As of this writing there is no way to make an early withdrawal of retirement savings, even if you have a legitimate need, and even if you would be willing to pay an early withdrawal fee (similar to a Roth IRA early withdrawal fee in America).

Conclusion

As an employee at a French company, you may receive the opportunity to invest via a profit sharing account and/or a retirement savings account, similar to an American 401(k) or HYSA. The structure of these plans is broadly similar to their American counterparts, but there are some differences in terms of the investable universe and also the withdrawal rules.

For more information about employee savings plans, here is an english-language explainer from the French government.

For more insights about doing business in France, don't hesitate to schedule a meeting.

Au revoir !