NOTES

• PENSION REFORM
  --- by Jon Choy

Responding to the multiple problems experienced by Japan's public and private pension systems (see JEI Report No. 4B, January 28, 2000), the cabinet of Prime Minister Keizo Obuchi approved legislation March 3 that will introduce a defined-contribution pension system. Modeled after the popular 401(k) plans available in this country, the key points of the proposed Japanese version include:

• Company-sponsored plans will be allowed beginning January 10, 2001. Individual plans administered by the government-run National Pension Fund Association will be offered starting in March 2001.
• Contributions by both employers and workers will be tax-deductible.
• Depending on a plan's sponsor and benefits, annual contribution ceilings will range from ¥180,000 to ¥816,000 ($1,600 to $7,400 at ¥110=$1.00).
• Private-sector workers under 60 can enroll in the new system; nonworking spouses and government employees cannot.
• Benefits normally will be distributed beginning at age 60 as long as contributions have been made for at least 10 years. However, payments can start at age 65, even if a retiree has paid into a plan for less than a decade.
• Benefits will be disbursed either in a lump sum at retirement or in installments over five years or more.
• Plans must offer participants at least three investment options, but the individual bears all responsibility for financial decisions.
• After three years on the job, employees can take their pension monies with them if they decide to work for another company or go into business for themselves.
• Funds cannot be withdrawn before retirement unless a person leaves the work force or otherwise becomes ineligible to participate, in which case the money is available immediately.

The 401(k)-type pension legislation had a difficult gestation, with numerous disagreements among the Liberal Democratic Party and its coalition partners, the Liberal Party and the New Komeito, and between the cabinet and the bureaucracy. Observers expect the bill's trip through the Diet to be equally contentious.