Staff writer

The Principal Financial Group, which has the most corporate customers of 401(k) pension plans in the United States, hopes to bring to Japan its expertise in small and midsize firms, according to the head of its research team formed in Tokyo in May.

Gregory Burrows, vice president and managing director at Principal International, Inc., said the group will use the Internet extensively for customer service.

"Our strategy would be very focused in the pension business and even more so focused on small and medium-size employers in the long run," Burrows said in an interview.

"We have found the Internet to be an extremely effective tool and we would want to maximize the use of the Internet for our customers here in Japan."

The Internet would allow individual customers to gather information and carry out transactions around the clock, he said. Services available via the Internet could include automatic calculation of retirement benefits and transfer of money between funds.

Burrows said he expects to start building a business here probably in late fall, and in partnership with a Japanese financial institution that has local market knowledge. The business partner has not been chosen yet.

A pension system modeled on the 401(k) is expected to be introduced in Japan sometime during fiscal 2000. Principal wants to participate at the start or "very, very soon after," he said.

In the U.S., Principal provides fully integrated services that include designing plans, keeping records on individual accounts, educating employees and distributing retirement benefits.

In Japan, Burrows said, "We are looking at all the options available to us to see what is the most appropriate, both short-term and long-term."

The government has yet to spell out specifics of the new system. But if it turns out to be an employer-based model similar to the U.S. 401(k), "We will participate in all aspects of the business in one form or another," he said.

Under the 401(k)-style defined-contribution scheme, employees set aside a portion of their salary, which they distribute among various investment options. Employers can pay matching contributions to get a tax advantage.

This system differs from the conventional defined- benefit model in that retirement benefits are not guaranteed and instead depend on how well the investments do.

Therefore, it is important for pension providers to educate employees about investments so they can take personal responsibility, Burrows said.

Principal wants to get a foothold in the new pension market, but it is looking for business opportunities in the defined-benefit market as well, he said.

But Burrows wonders how defined-benefit plans will be dealt with after the new system is introduced.

"That, to me personally, still remains to be a fairly confusing issue."

The Iowa-based financial group has 31,400 corporate customers of 401(k) plans, in which 1.9 million individuals participate. More than 85 percent of the clients are small firms with 100 or fewer employees. Its 401(k) assets under management totaled $33.8 billion as of December.

To deal with small firms, Principal takes the "mass-customization approach," in which it designs a product flexible enough to meet the majority of employers' needs, Burrows said. The approach is cost-effective because of mass production and mass distribution, he added.