Japanese Retirement Programs Showing Signs of "Age"

August 20, 2002 (PLANSPONSOR.com) - Japanese employee pension funds had 4.5 trillion yen in unfunded pension liabilities for the year ending March 31, according to a new study.

A Nomura Securities Co. survey of 257 major companies found that the companies needed to offset the unfunded liability with about 30% of their combined operating profit, according to a Dow Jones news report, which quoted the Nikkei Financial Daily.

According to the survey, employee pension funds held about 58 trillion yen in assets at the end of March. With tax-qualified pensions added in, the figure climbed to about 80 trillion yen.

Unable to shoulder the burden, an increasing number of companies may scale back their employee pension funds, the story said.

Indeed, 401(k)-style, defined-contribution pensions that do not require companies to offset shortfalls are becoming increasingly popular, as shown by the 134 companies that implemented such programs between last October and this July, according to the Dow Jones story.

But a majority of small and midsize companies do not have alternatives to offer, such as defined-contribution pensions. As a result, many are simply opting out of employee pension programs.

That indirectly is leading to investment managers taking a financial hit, according to the Dow Jones story. If employee pension programs continue to decrease, the earnings of investment trust and investment advisory companies will likewise go down.