401(k)-type Plans Flourishing in Japan

April 14, 2006 (PLANSPONSOR.com) - The number of Japanese companies offering 401(k)-type retirement plans to their employees is up 50% from last year, to just over 6,600, as of the end of March.

According to a news release on a survey by Japan’s Health, Labor and Welfare Ministry, the number of individual participants in the pension schemes increased by some 500,000 to slightly below 1.8 million as of the end of January. The outstanding net asset balance of investment trusts sold exclusively for the plans doubled to 800 billion yen as of the end of March.

The 401(k)-type plans were first authorized in Japan in 2001 and were originally adopted by large companies such as Toyota Motor Corp. and Hitachi Ltd., according to the new report. More and more small and mid-sized companies have adopted the plans in recent years.

The aggregate net asset value of all financial instruments purchased by 401(k) plan subscribers is estimated at just over 2 trillion yen, about 30% of which has apparently been placed in investment trusts. The number of investment trusts offered for the schemes increased by 28 to 329 in the year ended March 31.

Originally, investment trusts designed for 401(k) plans were mostly linked with stock or bond indexes, but financial institutions have increased the variety, offering funds intended to buy real estate investment trusts (REITs) and Chinese stocks, among others.

Deregulatory measures taken by the government in October 2004, including hikes in the maximum allowable nontaxable contributions by employers, may be the reason for the steep increase in sales of funds for 401(k)-type pension plans, analysts say.