Translation of a paper originally published in an academic journal of Yokohama National University “Yokohama Management Research” vol. 38, March 2018.

Prof. Osamu Yamaguchi presented a nine-chapter odyssey of Japan’s corporate pension scheme, covering from primitive plans in the early days to issues to be fixed in the future. IJ introduces each chapter over several months.

Past, Present and Future Perspective of Japan's Corporate Pension Scheme

Osamu Yamaguchi
Emeritus Professor of Yokohama National University


Chapter 6
'Daiko-henjo' and development of defined benefit plans


6.1  Difference between dismissal and 'Daiko-henjo' of Employees' Pension Fund (EPF)

EPF provides benefits of the 'Daiko' (substitute) part which is a part of Employee Pension Insurance (public pension), and the additional part which is based on benefits from the sponsoring company. Under this scheme, the 'Daiko' part and the additional part are managed as a set. Therefore, there was no way to stop the 'Daiko' other than to dismiss EPF itself.

On dismissal, the fund for the 'Daiko' part (the minimum required fund) is returned to the government and the remaining fund is distributed to participants and beneficiaries. This method was prepared to brace for bankruptcy of the sponsoring company and to maintain the additional part under a healthy sponsoring company was out of scope without legal support.

The enactment of Defined Benefit Corporate Pension Act solved this problem. This act introduced a way to return the 'Daiko' part to the government and to maintain the additional part to shift to a newly established Defined Benefit (DB) Corporate Pension plan.

6.2  Shift from EPFs

When exercising 'Daiko-henjo' to shift an EPF to a DB, future benefits for 'Daiko' are at first returned to the government and thereafter, premiums and benefits for the future periods are to be provided by the government. Later, the past benefits are returned to the government after record matching and the fund for the 'Daiko' part (the minimum required fund) and the records during EPF are returned.

Since April 1, 2002, on the enactment of Defined Benefit Corporate Pension Act, the EPFs, as of Toyota Motor and DENSO etc. filed the 'Daiko-henjo', and most of the single or combined established plans that were practiced at big companies rushed to 'Daiko-henjo' like an avalanche as mentioned earlier. They shifted mainly to the fund-type DB, called 'Corporate Pension Fund'.

6.3  Shift from Tax-qualified pension plans

DB plans that shifted from Tax-qualified pension plans were newly or already established DB plans that succeeded the rights and obligations from them and received their assets. The number was 15,064 during the 10-year transition period, which was about 20% of total number of Tax-qualified pension plans (73,582 at the end of March, 2002). Other Tax-qualified pension plans shifted to Defined Contribution plans (about 10%) and the Smaller Enterprise Retirement Allowance Aid (Chutaikyo) scheme (about 30%). Other than this, about 40% were abolished (refer to Chart below).

6.4  Development and problems of DB plans

DB plans steadily increased to 13,540 plans, 8.18 million participants and JPY 59,442 billion assets by the end of March 2017. The DB scheme became the main vehicle of Japanese corporate pension.

However, in the DB type plans, corporate earnings were reduced because of funding deficiency based on business accounting. There were companies (mainly listed companies under the application of business accounting standards) that changed their plan design to Cash Balance type in which pension benefits were adjusted to market index etc. or reduced risk assets in their pension funds to avoid funding deficiencies.

Also, there were companies shifting to Defined Contribution (DC) plans in which only contributions by employers were allocated as costs for the companies based on business accounting.

Under this situation, risk-sharing DB plans were introduced on January 2017. The details will be mentioned later, but the plans can be classified as DC type on business accounting if contributions by companies are limited to the amounts described in their plan documents and there are substantially no more obligations for additional contributions.

Therefore, companies can allocate only yearly contributions except special contributions as costs for business accounting and exclude liabilities of retirement benefits in this type of plans. A hope for a stable risk-sharing DB plans that are not influenced by volatile capital market came into potential.


( to Chapter 7: )


< Translated by Tomoyuki Kubo >