The health and welfare ministry in November 2012 came up with a plan to phase out over 10 years the corporate pension funds known as kosei nenkin kikin. The proposal, which in essence meant the eventual abolition of all kosei nenkin kikin funds, followed AIJ Investment Advisor Co.’s reported loss earlier in 2012 of most of the ¥145.8 billion in pension assets under its management as a result of bad investments. But the ministry has changed its plan in the face of LDP opposition. As a result, some kosei nenkin kikin funds will continue operating.
Kosei nenkin kikin funds manage private corporate pension assets as well as part of the pension premiums that originally must be paid into the nation’s kosei nenkin pension program, which is a pension plan for corporate workers. Under the new plan, a situation could develop in which workers and companies that participate in the kosei nenkin pension program but not in kosei nenkin kikin funds, must shoulder losses from poorly performing kosei nenkin kikin funds even though they did not participate in those programs.
Therefore, the ministry should stick to its original plan to abolish all kosei nenkin kikin funds.
If kosei nenkin kikin funds suffer losses through bad management of assets, companies taking part in them have to make up for the losses. Thus such funds have become a burden for these companies. Under current regulations, if a kosei nenkin kikin fund chooses to disband because of bad performance, it has to pay back kosei nenkin pension premiums to the state.
If member companies of such funds go bankrupt, remaining companies participating in the fund must pay back the portion of kosei nenkin pension premiums for which the bankrupt companies were responsible plus their own portion of the premiums.
In the AIJ case, it surfaced that many kosei nenkin kikin funds that had entrusted investment management to AIJ were neither able to pay back lost kosei nenkin pension premiums to the state nor able to disband. Insufficient reserve funds left them unable to fulfill their obligation to pay back lost premiums to the state.
An inherent weak point of kosei nenkin kikin funds is that if such funds and participating companies cannot make up for the losses caused by bad investments of pension premiums, the premiums that have accumulated in the reserve fund of the kosei nenkin pension program must be used to pay back lost premiums to the state as well as to help such funds disband if they choose to disband because of bad performance.
The health and welfare ministry’s new plan allows kosei nenkin kikin funds to continue to operate if they meet certain conditions, including maintaining a mininum level of assets.
To protect the kosei nenkin pension program, the ministry should withdraw the new plan.