No. 10 March 10, 2000
- 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
- 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
- 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- Funds cannot be withdrawn before retirement unless a person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.
The views expressed in this report are those of the
and do not necessarily represent those of the Japan Economic
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