A panel of the ruling Liberal Democratic Party gave the go-ahead Tuesday to a government bill designed to drastically reform Japan’s corporate pension system with an eye to protecting employees’ rights to receive pension benefits.
The government wants to submit the new defined-benefit pension bill to the ongoing session of the Diet and have it go into effect on April 1, 2002.
The bill is designed to create hybrid pension programs that combine features of both defined-benefit and defined-contribution plans.
At present, companies are allowed to operate only defined-benefit plans but face difficulties in funding guaranteed benefits because of the sluggish stock market.
The bill calls for setting rules to require companies to maintain a certain level of reserves to meet the guaranteed payment of pension benefits to workers.
Companies will also be required to reassess their pension plans at least once every five years to ensure their financial health.
The rules are intended to guarantee minimum pension benefits for all workers for at least five years after mandatory retirement, which is usually set between the ages of 60 and 65.
Another bill carried over from the previous Diet session seeks to introduce defined-contribution plans, or the Japanese version of the U.S. 401(k) pension scheme, in which benefits hinge on investment performance.
The government plans to allow companies to choose between the new defined-benefit program and the defined-contribution scheme.
With the new defined-benefit program bill, the government wants to restructure current corporate pension schemes into two types — “contract type,” which will be managed by outside managers based on agreements between workers and employers, and “fund type,” to be managed by funds set up by companies.
Programs currently managed by life insurers and other investment managers for smaller companies are all to be converted into the new schemes within 10 years.
If companies want to transform their existing employee pension funds into the new defined-benefit programs, the government will allow those funds to repay the government portion of pension premiums in stocks rather than in cash.
The government portion refers to the portion of pension premiums to be paid to the government, which the pension funds are currently allowed to manage and repay benefits on behalf of the government.
Payment in the form of stocks is to be allowed to avert the funds liquidating stockholdings to repay the government in cash.
For the new defined-benefit programs, premiums are to be paid basically by companies, but can also be paid by workers subject to their agreement.
Contributions by employers to pension plans will be treated as tax-deductible losses. When employees agree to pay contributions, they will be eligible for tax deductions applied to the payment of insurance premiums.
In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.