Japanese 401(k) Clears Another Hurdle

June 21, 2001 (PLANSPONSOR.com) - Japan's version of the 401(k) plan cleared another hurdle today ? setting the stage for a vote in the Upper House plenary session tomorrow.

The law would for the first time allow working individuals to choose how to invest a part of their pension money, as the government attempts to remodel its current pension system in the wake of a rapidly aging population.

The law is set to take effect on October 1.

The parliament’s Upper House health and labor committee approved the defined contribution pension bill today. According to Reuters, government sources said the bill will be sent for a vote in the Upper House plenary session on Friday where it is expected to be passed.

The bill passed the more powerful Lower House on June 12.

High Hopes

Supporters hope that the 401(k) plan will lighten the financial burden on employers of supporting the current pension commitment. They also hope that the new program will bring a respite to the struggling Japanese stock market, much as the steady stream of 401(k) contributions have to the US.

Analysts expect the Japanese 401(k) market to grow by as much as 50 trillion yen ($403.8 billion) over the next decade. However, it could be a slow start since the proposed bill sets tax-deductible limits on defined contribution contributions at 216,000 yen for employees in corporate pension plans, about one-tenth the average amount in many US 401(k) plans.