By Victoria Zunitch
The expected growth in the number of Japanese cash balance plans could spur a shift in favor of certain kinds of asset classes by the plan sponsors, namely, fixed-income and absolute-return products, consultants say.
And that, in turn, spells opportunity for money managers.
Some Japanese companies are in the process of adding cash balance plans as well as defined contribution plans to their retirement plan offerings as they seek ways to move from the higher costs of defined benefit plans.
When a sponsor adds or converts to a cash balance plan, it usually begins to approach asset allocation differently because it must meet certain annual threshold appreciation requirements for its accumulated contributions, said Ben Phillips, managing director at Cerulli Associates, Boston, said in an e-mail. Mr. Phillips recently wrote a report on Japanese cash balance plans.
Because of that requirement — in which sponsors must annually credit a notional account for each employee with a fixed percentage of salary and a fixed interest rate — cash balance plans tend toward more conservative investments than traditional defined benefit plans, consultants said.