Japan ended 2015 with 15,656 fund- and covenant-type defined-benefit (DB) pension schemes and 339 Employee Pension Funds (EPFs), a total 301 fewer than 12 months earlier. This marks the first time in 40 years that the aggregate number of job-based DB retirement schemes, all of which are now regulated by the Ministry of Health, Labour & Welfare, has fallen below 16,000.
The tally seems to indicate that the reforms of 2002 have almost run their course. Under the new regime qualifying, solvent EPFs were allowed to hand over to the Government Pension Investment Fund (GPIF) responsibility for managing their employees’ contributions to an optional official scheme (the daiko) which pays benefits additional to whose available from the national basic pension.
Around 40% of the 1,900 EPFs then in existence made the shift, thereby converting themselves into fund-type DBs each of which which is governed by its own boards. There were 615 schemes of this kind at the end of 2015, 110 fewer than at the start of the year.
Some EPFs shifted instead to being covenant-type DBs which are typically run by personnel or treasury departments or from the company president’s office. Most of these are former Tax Qualified Plans which once numbered around 66,000 though not even the Ministry of Finance – their supposed regulator – ever knew exactly how many there were.
TQPs did not have any daiko money to hand over to GPIF but their structure was reformed at the same time as that of EPFs in order to move their regulation to the Ministry of Health, Labour & Welfare and to close down those no longer viable. At the end of 2015 there were 15,041 of them.
Much of the shrinkage in the number of both fund- and covenant-type funds in recent years has come from the restructuring of large conglomerates which has seen subsidiaries being absorbed into parents and the consequent merger of their pension plans.
As a result their aggregate assets under management have remained relatively stable (at least until September this year, the latest figures available) despite the huge sums handed over to GPIF and most now being past the point at which they have tipped into permanently having more going out to benefits than coming in via contributions. Also, many TQPs are lump-sum schemes.