Report: Japanese Pensions Only 44% Funded

October 22, 2003 ( - Next time you think pension underfunding in the United States has run amok, consider that the 100 largest Japanese pensions hold funds equal to 44.6% of their payment obligations.

As if the underfunding level is not shocking enough, analysts at IIC Partners, an independent Japanese pension consultant, say these deficits are set to undermine corporate Japan for the next 10 years.   All of this comes at a time when a half-year rally in Japanese stocks has already reduced deficits in Japanese pensions by half, according to a Financial Times report.

With the recent rally cutting such a large swath into the Japanese pension deficits, the new figures serve as a reminder that even as corporate restructuring and profit growth push Japan’s economy to new highs, many companies still have structural weaknesses.  “The result of this survey is sending a warning signal to people trying to evaluate the value of corporate Japan, ” said Yutaka Taguchi, a senior consultant at IIC.

This is a result of the relative miniscule gains pension assets have made compared to the rest of the Japanese market. While the Tokyo stock market has increased 43% since April, the value of private pension assets has risen only 9% in the first half of the year.

Thus, IIC says to pay particularly close attention to h alf-year earnings reports due from Japanese companies over the next few weeks to better gauge the true impact of Japanese pension underfunding on corporate bottom lines as Japanese law requires companies to create synthetic reserves to match them by writing off shareholder capital.   The likely effect of this is that shareholder capital will be cut even further as allowance reserves have been created for less than half of the deficit.

Taking it one step further, IIC sees an effect on profit and loss accounts as well as companies trying to plug the funding gap with earnings. “Corporate executives do not have this problem under control,” Taguchi said. “Even as their operating profit is increasing, a significant portion of it is being eaten by pension costs.”