Japan is expected to enact its version of the Employee Retirement Income Security Act sometime this year.
The Corporate Pension Bill, which sets uniform standards for funding, vesting, fiduciary responsibility and disclosure, was introduced in the Diet, the Japanese legislature, last month. The bill also would allow corporations to contract with outside institutions to manage and invest the pension fund assets.
Perhaps the bill will be as strong a catalyst for change in the investment of pension funds in Japan, and for development of the asset management industry and capital markets there, as ERISA was in the United States.
Japan developed a funded corporate pension system in the 1960s, but Japanese companies were restricted by law in how the assets could be invested, and only trust banks and insurance companies could invest the assets. Company ties often determined which firm got the investment management assignment. As a result, Japan never developed a mature institutional investment management industry and its capital markets never developed the depth and flexibility of the U.S. capital markets.
Over the past decade, the investment rules for Japanese corporate pension funds have been liberalized, but the development of new investment firms and techniques for pension funds has been slow, despite efforts of pioneering Japanese executives.
One of those leading the charge for change is Yasuteru Aizawa, founder of the International Pension & Economic Research Institute, an independent research and educational organization designed to bring the best worldwide practice to the management and oversight of Japanese pension funds. Along with forward-looking pension executives such as Shigeo Okumura, managing director of the Toyota Motors Welfare Pension Fund, and Hiroshi Maruta, president and chief executive officer of Hitachi Investment, Mr. Aizawa has been attempting to speed the reform of the Japanese system.
Mr. Aizawa started his career at Mitsui Trust & Banking Co., eventually becoming the deputy general manager of the pension sales department. From 1988 until 1992, when he started IPERI, he was with Barclays Trust & Banking Co. in Tokyo as senior manager in charge of marketing to public and private pension plan sponsors.
He is interested not only in keeping pension costs as low as possible, but also in making the pensions of Japanese workers more secure. At present those pensions are not secure at many large and small Japanese companies, because they have large unfunded pension liabilities, as evidenced by the $8 billion liability Nissan Motor Co. reported last year when it was taken over by Renault.
Mr. Aizawa helps spread the latest ideas through seminars at which Japanese and non-Japanese experts discuss the latest investment knowledge and techniques; through his publication, Monthly IPERI; and through monthly meetings of The 21st Century Study Society, during which Japanese pension industry leaders share practical information.
Mr. Aizawa is not sure the new corporate pension bill will achieve for Japanese pension funds what ERISA achieved for U.S. pension funds. "There is still room to doubt if it will become the definitive version of `Japanese ERISA,"' he said. Only broad outlines of the bill have been released, and it's not clear what the Diet will eventually pass. But he will continue to work through IPERI to improve Japanese pension investment practice to the extent the new pension law allows.