TOKYO -- Better early than late: Yasuda Kasai CIGNA Securities Co. is the first company in Japan to set up a prototype payroll deduction 401(k)-type plan.
Human resources personnel are testing the plan using their own money.
But competitors are not racing in to copy the model plan developed by the joint venture between CIGNA Global Holdings Ltd., Hartford, Conn., and Yasuda Fire and Marine Insurance Co. Ltd.
Rather, other money managers, such as Nippon Life Insurance Co., Osaka, are awaiting the outcome of a major overhaul of the Japanese tax system.
"It would not be `too late' to offer DC-style investment products after the overall structure of tax system reforms becomes clearer," said Kiyoaki Fujiwara of the economic policy bureau of the Federation of Economic Organizations.
Under the proposed reforms, the ministries of Health and Welfare, Labor, and International Trade and Industry seek no taxation on contributions and investment returns, and a favorable rate charged on distributions.
But Ministry of Finance officials oppose tax breaks on benefits, instead insisting standard income-tax rates apply.
Even then, proposed annual caps on tax-deductible contributions were viewed as too modest by the American Chamber of Commerce. The proposed reform would create deductions up to Y816,000 ($7,771) in annual contributions for the self-employed and housewives; up to Y432,000 for salaried workers who do not join corporate pension plans; and Y216,000 for those who participate in such schemes. Figures include any matching funds paid by employers.
With the fate of tax relief hanging in the balance, Yasuda Kasai CIGNA officials have set up the YKCS Accumulation-type Funds Plan as a prototype to help human resources personnel familiarize themselves with the new plan design, before tackling less sophisticated employee participants.
"We decided to offer YKCS Plan as a `simulation practice program' designed particularly for those who are in the personnel and corporate welfare departments," said Eiichi Yoshimitsu, general manager of Yasuda Kasai CIGNA's strategic planning department.
"These are the people who will have to explain how defined contribution pension plans work to the rest of the employees when DC plans will be introduced."
Yasuda Kasai CIGNA officials believe this strategy will pay off for them over the long term. They hope to garner 4% to 5% of Japan's defined contribution corporate pension market, which they predict will reach between Y25 trillion and Y30 trillion by 2005.
Some experts, however, think these projections are overly optimistic. Takuma Watanabe, an analyst in InterSec Research Corp.'s Tokyo office, said it might take 10 to 15 years before Japan's infant defined contribution market reaches the levels forecast by Yasuda Kasai CIGNA.
Still, the joint venture hopes to use its leverage with Yasuda Fire and Marine's 6,000 corporate clients, the second highest for a non-life insurer.
Many of those clients already have agreed to allow their own human resources staffs to subscribe to the prototype program so they can learn how a defined contribution-like plan can operate. Yasuda Kasai CIGNA would not say how many clients were participating.
What's more, Yasuda Kasai CIGNA already has developed a customized record-keeping system, based on CIGNA's existing model.
In the meantime, the joint venture has trotted out its model plan even though participants cannot enjoy tax relief on their contributions.
The company also cautions that assets accumulated by participants in the YKCS Plan will not be directly transferable to the accounts of tax-exempt retirement plans when legislation is enacted.
Nevertheless, joint venture officials hope the plan will provide a model for the future.
Plan participants can invest a set percentage of their salaries into a menu of fund options. The minimum amount to set up an account is 1,000, and the minimum monthly contribution is Y3,000.
Call centers were set up nationwide to field queries from investors and arrange for new purchases or redemptions. The firm also provides information via the Internet. Portfolio rebalancing can be done for free by placing a call to call centers and there is no charge for switching within the funds offered in the plan.
The YKCS plan offers five open-end mutual funds run by CIGNA International Investment Advisors K.K. and Yasuda Kasai Global Asset Management: Yasuda Kasai CIGNA Japan Equities Open; Yasuda Kasai Global World Balanced Open; Yasuda Kasai TCW International Stock Open (hedged and unhedged); Yasuda Kasai Global World Bond Open; and Yasuda Kasai Green Open, which invests in the stock of pro-environment companies.
"In the future, participants will also be able to invest in funds offered by other well-known non-Japanese asset managers," Mr. Yoshimitsu said. "For the more conservative investors, we will also add MMFs (money market funds) and GICs."