The Japanese Diet today passed a law introducing 401(k)-style defined contribution plans, effective Oct. 1. There will be two types of plans — corporate, used by companies for their employees; and personal, used by those who are self-employed.
In corporate schemes, each employee’s maximum contribution will be ¥432,000 (US$3,500) per year. Employers must offer at least three investment vehicles, which must include a strategy that guarantees the principal.
According to a report from Cerulli Associates, the principal-guaranteed strategy "plays into Japanese investment culture, which traditionally has favored risk protection over return. 75% of net new inflows to Japanese defined contribution plans will wind up in capital-protected accounts.” The report also says that "the advent of Japanese defined contribution plans will fail to create a gold mine of opportunity for the foreign fund managers that have been banging on the doors of Japan’s asset management industry.”
