Note: This is a sidebar story to the main article on the Japanese pension system here.
U.S. citizens who have contributed to both Social Security and a Japanese pension system for any length of time are likely to know of the 40-quarter/ 25-year vesting rules. There are two important laws to understand here:
Japan-U.S. Totalization Agreement
Effective since Oct. 1, 2005, this agreement prevents double taxation of social taxes during the contribution phase and provides guidance when applying for benefits from both Social Security and Japanese pension programs. The covered Japan schemes are generally work-related and mandatory, such as kōsei nenkin and kokumin nenkin.
Windfall Elimination Provision
Legislation passed by the U.S. government in the early 1980s, WEP’s intended purpose was to prevent people from “double-dipping,” or receiving full benefits in two pension systems. It covers a number of demographics, one of which is those receiving both Social Security and a foreign work-related pension. Benefits can be reduced by as much as 50 percent. Legislation has been proposed by a member of Congress as recently as October to try to repeal it.
These laws have implications for two classes of recipients:
For those who have been independently paying into Social Security for 40 or more quarters and into a Japanese scheme 25+ years, WEP applies. For those who worked for U.S. companies that may have contributed to both sides simultaneously prior to October 2005, no allowance/credit is given for this period of double taxation.
The only way to get around the WEP is through having contributed to Social Security for 30+ years under a “substantial earnings” standard, which is based on minimum earnings for each of the years. Reduction of benefits can be estimated through a WEP calculator provided by the Social Security Administration.
For those who fail to meet either the U.S. 40+ or the Japanese 25+ thresholds, totalization allows you to combine the paying-in periods in both countries in order to meet the threshold of either country.
For example, if Jane contributed 60 quarters (15 years) to Social Security and 12 years to a Japanese pension scheme, then 15+12=27 means she meets the 25-year threshold on the Japanese side. In addition, it overrides the “penalty” of WEP so Jane can enjoy the full benefits from both sides, but receiving from each scheme only what was contributed to that scheme.
Updated on Dec. 22 in line with the correction explained in the column here.
Japan-U.S. Totalization Agreement: www.ssa.gov/international/Agreement_Pamphlets/japan.html. For specific questions on Social Security vs. Japanese schemes, contact the Federal Benefits Unit at the U.S. Embassy in Tokyo: japan.usembassy.gov/e/acs/tacs-fb-contact.html. Calvin Tong can be contacted at email@example.com.