Changes in the Pension Schemes in the Banking Sector - Financial Consequences

Financial Consequences of the Agreement of September 13, 1993

On September 13, 1993, employees and management in the banking sector signed an agreement amending the Collective Bargaining Agreement which, up to that time, had governed the pension schemes applicable to banks. This agreement was signed at a time when the conditions inherent in the running of the pension schemes for banks and the considerable imbalances recorded in certain pension funds of the banking sector did not permit a guarantee that the system could continue to function on a long-term basis.

The main thrust of this agreement is that banks give up their retirement scheme and become members of the nationwide multi-employer schemes, ARRCO and AGIRC. Those last schemes will, managed on a pay as you go basis, attribute prior service cost to the employees without payment of an extra premium.

Therefore, this agreement put an end to the pension scheme of the Association Française des Banques; this scheme was handled either by special funds in each bank or by a multi-employer fund grouping together nearly 300 banks, the Pension Scheme for Bank Employees ("CRPB, Caisse de Retraite du Personnel de Banque").

The new scheme guarantees the maintenance of rights in excess of ARRCO and AGIRC for prior service cost accrued until January 1, 1994 to both active and retired employees. After such date, it is closed. The pension funds have been maintained in order to manage these rights and the consequences of the integration into the AGIRC and ARRCO schemes. This will lead them to pay:

(i) one year's worth of contributions to the ARRCO and the AGIRC (entrance fee required to constitute the reserves of these new funds),

(ii) a premium to cover the difference between the employees' recognized rights by ARRCO and AGIRC and the rights which would have accrued if they had contributed to the multi-employer plans since the beginning of their careers,

(iii) the difference between the amounts of the accrued rights under the bank scheme which have been frozen and the AGIRC, ARRCO and Social Security rights accumulated at that date.

Furthermore, the independent funds have agreed to pay an amount of 1.4 billion French Francs to the CRPB over a period of fifteen years as a demographic compensation.

The banking organizations have agreed to assure that the funds have sufficient financing to cover all the payments referred to above. Such resources will be set aside in preference out of the funds' existing reserves and completed, if necessary, by contributions by employers. However, these contributions may not exceed, without the agreement of the organization, 4% of the payroll calculated as an average over the period from 1994 to 2004 (capping). The contributions will be re-negotiated after such date in order to cover the benefits for 2004 and subsequent years.

As regards the CRPB, the actuarial liability with respect to the benefits due in the future for retired employees and active employees amounts to 4,339.5 million French Francs at December 31, 1994. This amount should be reduced by the contributions paid in 1994, that is 120 million Francs. The share in this liability of each of the banks which was a member of the CRPB is defined according to the contributions it paid in 1993 as compared with the total contributions paid to the CRPB for that same year.

On the other hand, the actuarial liabilities of the banks or institutions which contribute to independent funds are extremely variable and must be the subject of an actuarial valuation on a case-by-case basis, as certain of these funds are able to meet their obligations with their current resources and others find themselves in a more difficult situation.

For more information, please contact Patrice Cardon or Jean-Claude Lallau at +33-1 49 01 32 41.

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