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Legislation to abolish employee pension funds (EPFs) deemed too risky to the country’s social security system passed the Japanese parliament in June 2013 and will be effective April 2014.
After a government committee report in July 2012, which examined EPFs in the wake of an investment-fraud scandal, the Ministry of Health, Labour and Welfare announced in September 2012 that it would examine measures to abolish the funds.
According to global HR consultancy Towers Watson, the legislation calls for:
EPFs are supplementary occupational pension plans operated voluntarily in Japan and cover private-sector employees only. The funds were introduced by law in 1965 to offer an additional benefit to the government-run public pension system.
Among Japan’s 34.5 million private-sector employees, 4.37 million (12 percent) were covered by EPFs as of March 2012. The percentage has been declining over the years, Urata said. The number of pensioners in EPFs is 2.93 million; there were 560 EPFs as of March 2013.
Employers Need to Act Now
Multinationals with operations in Japan should determine whether their local offices are participating in EPFs, and if they are, the companies should consult a professional advisor to fully understand the implications of the new legislation, Urata said. He advised seeking counsel from third-party professionals, rather than from plan administrators.
“The deteriorating funded status of EPFs and the increasing financial burdens on participating employers over recent years have prompted some foreign multinationals to withdraw from their EPFs by paying a one-time withdrawal fee; however, it may now be preferable to wait for the dissolution of an EPF, rather than withdrawing and paying a fee,” Urata suggested.
Employers with defined contribution plans in Japan should also monitor the issue, as these plans could undergo changes in the future when EPFs are effectively abolished.
“Since detailed regulations are scheduled to be released this year, employers should closely monitor the development,” Urata said.
Roy Maurer is an online editor/manager for SHRM.
Follow him @SHRMRoy
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