Published: December 01, 2008
La Lettre du Trésorier
Philippe GoubeaultYes that’s right, when I was doing my doctorate in economics and finance at Orléans I wrote my thesis on financial mechanisms for retirement. This is why, in 1981, I was called upon by Arrco where a post had just been created within the technical and finance division. Afterwards as an actuary I was appointed head of technical services in charge mainly of research into the prospects of changes in regimes, research made available to the social partners for their negotiations and then the technical and financial director of Arrco. After the merger of Agirc and Arrco, when the economic interest group Agric-Arrco was formed in 2002, I became finance director of both associations. The Agirc and Arrco systems cover 18 million members, including around 3.7 million managers.
PG: The Agirc-Arrco economic interest group combines the resources of the two associations in respect of the two supplementary pension schemes. Arrco is for employees in the private sector and Agirc for managers. The management of each scheme is decentralised. Within each of the associations, the member institutions cover contributions, pay out benefits and manage the shares of the reserves.
All the entities within the system, the two federations and their institutions, the AGFF and the social protection groups are managed by the social partners.
As regards the administrative management of the institutions, the methods put in place are those used by the social protection groups which combine in each case for the compulsory retirement activities, an Arrco institution and an Agirc institution, and for activities in the competitive area, contingency funds, insurance or savings institutions. These groups, the biggest of which include Reunica, AG2R, Médéric, Malakoff, ProBTP, are around twenty in number.
The system for complementary pensions schemes is completed by the AGFF, a fund that finances Agirc and Arrco, paying the additional costs of early retirement (retirement at 60 and before 60 for long careers) and distributes its surpluses amongst the two schemes. The AGFF is supplied by a separate contribution covered by the institutions, which accounts for annual flows of around €9.5 billion.
All the entities within the system, the two federations and their institutions, the AGFF and the social protection groups are managed by the social partners.
PG: Apart from the accounting activities, notably drawing up the schemes’ accounts, the most important duties of the finance division are to carry out the financial settlements amongst the institutions. As the employees we cover do not all have the same demography, some institutions are in surplus and some in deficit. The settlement process therefore consists of organising, applying a principle of general joint liability, movements of funds between the institutions so that everyone has the necessary cash to pay the benefit instalments.
The second duty that we have is to provide the best conditions and an overall coherence for the decentralised financial management. The finance division offers the bodies schemes and periodically updates a regulatory framework and the strategic policies incumbent on all the institutions, and monitors whether this has been correctly applied. The latest version of this financial ruling, which dates from 2007, has opened up possibilities to invest in alternative management of funds of funds, some structured products and in international diversification. [[[PAGE]]]
PG: The amount of technical reserves managed in the medium and long term, distributed between all the institutions, including the associations, totals €60 billion. This seems like a large amount but in comparison with the annual flows of the schemes this is only slightly more than one year. If we had a capitalisation scheme rather than distribution schemes, we would manage between 15 and 20 times more.
In the context of the financial crisis, in the short term we have made considerable use of certificates of deposit which have a better yield than normal treasury UCITS.
PG: On a quarterly basis, the contributions are collected at the end of term and the benefits are paid in advance of term. There is therefore a gap of six months between the sources and applications. Working capital equivalent to six months is therefore mobilised, half of which is made up of accounts receivable and half by cash sums. In this fund the sums covered are placed between two quarterly due dates over a term of around two months with companies having a period of one month to pay the contributions. In addition to the contributions, there are the contributions paid by the third-party organisations (Unédic and the government).
PG: No, we work with a large number of banks which are of course involved in the transfers of funds but also in financial management. In the context of the financial crisis, in the short term we have made considerable use of certificates of deposit which have a better yield than normal treasury UCITS.
Medium- and long-term management is 95% delegated to management companies which often belong to banks. The basic tool is a dedicated unit trust. For example, the associations’ portion of the reserves amounts to €60 billion, which is invested in 40 different dedicated funds allocated to 25 management companies.
PG: The management companies are selected by invitations to tender. The agreements made with the selected managers specify the reporting provisions as well as the methods for maintaining or withdrawing the mandate. In accordance with these contractual provisions, the companies contribute to the management thinking of the associations.
In the current context and in view of the new regulatory provisions, consideration is being given to diversifying portfolios and to policy.
La Lettre du Trésorier
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