• SHARE

The House of Councilors on Friday approved a pension reform bill designed to revamp the corporate pension system, paving the way for its enforcement next April 1.

Separately, the House of Representatives Committee on Health, Labor and Welfare was set to approve another pension reform bill Friday afternoon that would allow a defined-contribution plan modeled after the popular U.S. 401(k) plan.

The enacted law on defined-benefit corporate pensions will give rise to two new corporate pension programs — a “contract type” that outside managers will manage based on agreements between workers and employers, and a “fund type” under which companies will jointly manage funds.

It will require companies to maintain a specified level of reserves to meet guaranteed pension benefit payments to workers for at least five years after they reach the public pension eligibility age, which is due to be raised to 65 gradually from the current 60 from fiscal 2013.

Companies will also be obliged to reassess their pension plans at least once every five years to maintain their financial health and to make workers with at least 20 years of service eligible for pension benefits.

Under the legislation, programs now managed by life insurers and other investment managers, mainly for smaller companies, will be required 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-financed portion of pension premiums in stocks rather than cash to avert the funds liquidating stockholdings to repay the government in cash.

Under the new defined-benefit program, firms will generally pay premiums. But workers, subject to their consent, could also pay them.

Contributions by employers to pension plans will be treated as tax-deductible losses.

Meanwhile, the Japanese version of the U.S. 401(k) pension scheme will set benefits based on investment performance, unlike the defined-benefit system.

Under the modified corporate pension system, the government plans to allow companies to choose between the new defined-benefit program and the defined-contribution scheme.

At present, Japanese companies are allowed to operate only defined-benefit plans, but face difficulties in funding guaranteed benefits due to the sluggish stock market.

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.

SUBSCRIBE NOW