At a time when people’s trust in the nation’s pension systems is declining, some enterprises, especially small ones, are behaving in a manner that will weaken the reliability of social security. They deliberately choose not to join the corporate employees’ pension system (kosei nenkin) while the number of people receiving kosei nenkin benefits is rising. Coupled with the hollowing out of the pension system for self-employed people (kokumin nenkin), their refusal to join the kosei nenkin scheme will undermine the very foundation of public pensions overall.

Under the Welfare Pension Insurance Law, businesses established as corporations and those run by individuals and employing five or more people must join the kosei nenkin system. Companies must pay 14.288 percent of every employee’s annual income into the pension scheme. The cost is split by the employer and employee.

In 2004, the Social Insurance Agency under the Health, Welfare and Labor Ministry surveyed about 190,000 businesses suspected of having failed to join the kosei nenkin system and found that 27,200 had indeed chosen not to participate. The Board of Audit of Japan estimates that about a quarter of the nation’s businesses — 400,000 to 500,000 — have not joined the system.

Some companies do not join because the premium poses too heavy a financial burden. When companies join the system, they also join the health insurance system for corporate employees. As is the case with kosei nenkin, the employer and employee split the premium cost.

Some small firms cite tax payments and part of the premiums for unemployment, labor-accident and nursing-care insurance as other financial burdens they face in addition to premiums for kosei nenkin and health insurance. There are cases in which company owners have employees join the kokumin nenkin system rather than the kosei nenkin system, and hand them part of the kokumin nenkin premium. Those covered by the kokumin nenkin system have to pay a monthly premium of 13,580 yen and the benefits they will receive from the system are lower than those from the kosei nenkin system.

To dodge the duty to pay their portion of the kosei nenkin premium, some companies do not register themselves with social insurance offices under the Social Insurance Agency. Others even choose to stage sham bankruptcies.

Contributing to the fact that so many companies do not join the kosei nenkin system is the attitude of the Health, Welfare and Labor Ministry, and the Social Insurance Agency. It is said that they often look the other way even when they learn of companies that choose not to join the system. This is because such firms are likely to go bankrupt or otherwise become unable to pay their portion of the premiums while their employees are still covered by the kosei nenkin system, thus increasing financial pressure on the whole system.

Unfortunately, the ministry and agency fail to see the big picture. The greater the number of participants in a pension scheme, the lower the financial burden of each participant. The opposite also holds true. In fiscal 2000, about 1.7 million businesses participated in the kosei nenkin system, but the number declined to about 1.6 million in fiscal 2004.

In fiscal 2003, the kosei nenkin scheme was in the black with a net balance of 3.8 trillion yen on the basis of market prices, following two years of consecutive deficits, according to an announcement by the ministry in June 2005. But this allows no room for optimism. As Japan’s population declines, the financial burden of companies and employees to sustain the kosei nenkin system will only increase. In fact, the government plans to gradually increase the premium until it reaches 18.3 percent of employees’ income in fiscal 2017.

When companies withdraw from the kosei nenkin system on financial grounds, their action places a heavier burden on companies and employees remaining in the system. To avoid a decrease in take-home pay due to kosei-nenkin premium deductions, some employees of small enterprises even collude with their employers to withdraw from the system. But they should realize that their eventual benefits will be lower and that their action is placing honest companies and employees in difficulty. Reform of the system may be necessary to induce small firms to join the system, and the Social Insurance Agency should do its best to persuade evaders to join. But the government should not hesitate to punish those companies that persist in refusing to join as the foundation of Japan’s social security system is on the line.

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