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 will introduce 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 2
The spread of retirement plans and leading pension plans in the modern times

2.1 The spread of retirement plans

During the Meiji Period while Japan shifted to a modern nation after Nissin War (Japan vs. China) and Nichiro War (Japan vs. Russia), shortage of skilled workers became a big problem, particularly in the munitions industry, and competition for workers occurred. Retirement plans were initially introduced as a measure to confine workers to an enterprise under this situation. Later when depression came, these retirement plans were utilized to ease conflict between management and workers by providing unemployment security.

2.2 Mutual benefit aid association of Kanefuchi Spinning Company

Such retirement plans gradually became common. On the other hand, a case of pension-like plan already existed as early as in the Meiji Period.

It happened at Kanebo Mutual Benefit Aid Association of Kanefuchi Spinning Company, established in 1905. The corporate pension-like plan was founded to cover general employees as referred to the internal welfare scheme of Krupp (a German iron and steel company). This plan was introduced by Sanji Muto who moved from Mitsui Bank to Kanebo. There were no other plans like this in the Meiji Period of Japan and it was really advanced and unique.

The plan provided sickness and injury benefit and pension with provisions stated as follows:"This association will provide relief or pension for its members when they are forced to resign due to capability loss caused by sickness, injury, death, senility, or when they fulfill specified years of service." ¹

The employees contributed 3% of their wages and the enterprise subsidized more than half of the total contribution amount. The rule of retirement pension was; "Pensions are provided for 15 years to male workers who retire after 15 years of service and to female workers who retire after 10 years of service".

In later days, a bureaucrat of Ministry of Health and Welfare commented on this scheme:"It was far from a real pension scheme that provides old age security and was more like an allowance based on years of service. Nonetheless, it can be highly evaluated as a scheme in private sectors at that time." ²

2.3 Corporate pension plan of Mitsui Store

There is a record of another corporate pension case. Mitsui Store introduced a corporate pension plan as a revised provision of internal rules for employees' benefits in 1914. However, Mitsui Store was the core company of the Mitsui conglomerate, so the employees referred to were probably limited to only its executive members. Which means, the plan did not apply to all the employees of the group.

2.4 Compulsion of retirement plans under wartime economy ³

In later years, retirement plans to provide lump-sum at the retirement prevailed as gratuity for employees with long years of service. In 1935, 53% of factories with more than 100 employees adopted the retirement plans.

In 1937, 'Retirement Reserved Fund Plan and Retirement Allowance Act' was enacted, and companies with over 50 employees were obliged to establish retirement plans. However, the management side were generally against the establishment of this law.

The employers insisted that the nature of the retirement allowance was a gift from employer's charity mind, not to be compelled by law, and that labor management became effective only if it was brought in arbitrarily by employers. The government at that time, on the other hand, criticized the management view as an intention to retain absolute power on providing retirement allowance and to subordinate laborers.

The government compelled retirement plans because it valued significant effect of unemployment benefit. By enacting this law, the government expected the unemployment benefit to take the role of social security that did not exist at that time. Retirement plans became legal obligation by the establishment of this law and were characterized as workers' rights.

Under this law, withdrawal allowance was paid to employees who left a company after more than 3 years of service. Forced laborers who increased rapidly as World War II fueled, however, could not receive the allowance because their service years were usually for about 2 years. This caused morale degradation which was another issue.

Later, 'Retirement Reserved Fund Plan and Retirement Allowance Act' was abolished and absorbed to 'Workers' Pension Insurance Act' enforced in June, 1943 (the name of the act was revised to 'Employees' Pension Insurance Act' next year) and the function of funding retirement benefits within companies was taken over by the workers' pension insurance scheme.

¹ Company history compilation team of Kanebo (1988), "History of Kanebo 100 Years" , pp 121-126

² Pension Service Planning Division of Pension Bureau, Ministry of Health and Welfare (1982), "Description of the System: Employees' Pension Fund", p 10: Social Insurance Law Research (Houken)

³ Yoshihara, Kenji and Hata, Mitsuru (2016), "History of Japan's Public Pension System", pp 352-353: Chuohoki Publishing.

< Translated by Tomoyuki Kubo >

 

Overview of Japan's Corporate Pension Scheme, 3 of 9: https://investmentjapan.jp/japansbasic/1209/