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Japan: Govt May Phase Out Corporate Pension Funds / Cash-Strapped System Seen No Longer Feasible
Source: yomiuri.co.jp
Source Date: Sunday, November 04, 2012
Focus: Electronic and Mobile Government, ICT for MDGs, Knowledge Management in Government, Institution and HR Management
Country: Japan
Created: Nov 06, 2012

The Health, Labor and Welfare Ministry compiled on Friday a draft reform plan to dissolve corporate employees' pension funds over five years and phase out the fund system itself over 10 years, as most of the funds are in poor financial condition.

The ministry plans to take every measure at hand to collect the about 1.11 trillion yen shortfall in the funds' reserves to cover liabilities to the state-run pension program for company employees, and make up for the still-remaining shortfall with the public fund, according to the draft plan.

The reform of the supplement pension system, however, is unlikely to proceed smoothly as some ruling and opposition party members have urged caution over the matter.

The draft plan was presented at a meeting of the expert panel of the Social Security Council's pension committee on Friday. The ministry plans to finalize the plan and submit a bill to revise the corporate employees' pension insurance law to the regular Diet session next year.

Corporate employees' pension funds are designed mainly for small and midsize corporations to manage the portion of public funds loaned by the government on top of employee contributions to corporate pension programs.

However, 287 among the 577 funds nationwide lack sufficient reserves to repay what they were loaned by the public pension system in the event that they are dissolved.

The ministry found that cash-strapped funds were short about 1.1 trillion yen after it conducted a survey following the scandal involving AIJ Investment Advisors Co., in which corporate pension funds fraudulently disappeared. The finding prompted the ministry to conclude it would be difficult to maintain the supplement pension system.

The draft plan stated the system would be abolished 10 years after the revised law comes into force. Regarding funds with insufficient reserves set aside to cover their public pension liabilities, the ministry is considering introducing a method to force them to dissolve.

The draft plan also stated pension payments to retirees would be halted when funds lacking sufficient reserves to cover their liabilities to the public system apply for dissolution.

The draft said measures would be taken to provide preferable conditions for the funds' dissolution, including reducing repayment amounts to the public pension system during the first five years of the 10-year phase-out period.

It also said special measures would be taken to eliminate collective responsibility that would obligate corporations to shoulder other firms' contributions in the same fund in the event the firm goes bankrupt.

After being dissolved, funds would be able to choose whether to remain dissolved or offer other types of corporate pensions such as defined benefit pensions.

The draft also said the parent organizations of funds should repay the portion loaned by the public pension program if funds cannot repay the debt themselves. The ministry would forcibly collect the debts of companies unable to repay the loans by such measures as seizing assets.

However, this has raised concern both within the ruling and opposition parties that parent companies could be negatively impacted.

"Consideration should be taken so that [dissolution and subsequent repayment] do not negatively affect management of funds' parent corporations," one party member said.

In cases where debts are not repaid though forcible measures, "Shortfalls should be covered by the public pension program," according to a ministry official.

A senior Democratic Party of Japan official voiced concern about the plan, saying "If coverage [of funds' debts] by the state-run pension program for company employees is introduced on a large scale, the program's participants may find it unfair."
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