New accounting rules effective this year are prompting a growing number of companies in Japan to add defined contribution plans to their retirement programs or to expand existing ones.
At the same time, the Tokyo stock market's recent revival could make it easier for those companies to garner the approval of employees they'll need to make those changes.
Panasonic Corp., the Osaka-based electronics giant, and Tokyo-based All Nippon Airways Co. Ltd. are the latest high-profile companies to confirm plans to make DC a bigger part of their retirement programs. Firms that have added DC plans in recent years include Sony Corp., Tokyo, and Chubu Electric Power, Nagoya.
The same accounting rules that led U.S. companies to freeze or close defined benefit plans over the past decade look set to weigh on their Japanese counterparts as well.
The international accounting standards coming into effect for Japan's fiscal year ending March 31, 2014, have become a “huge issue” for corporate management, said Haruka Urata, a Tokyo-based director of Towers Watson & Co.'s benefits business in Japan.
Those accounting changes — which disallow deductions that had shielded corporate balance sheets from the full impact of pension funding shortfalls — are making ditching DB plans a higher priority in the face of growing risks from interest-rate fluctuations, low investment returns and longevity issues, said Mr. Urata.
In Japan, unlike in the U.S., DB assets accumulated on behalf of active employees can be converted to DC assets, provided employees approve.
In an e-mailed response to questions, Ryosei Nomura, a Tokyo-based spokesman with ANA, called the goal of minimizing balance sheet risks posed by rising retirement benefit obligations “the most important point” driving the company's efforts to shift retirement assets into a DC plan.
The move would only involve the DB assets ANA has slated for annuity payouts for active employees. It wouldn't affect DB assets for retired ANA employees, or a lump-sum payment segment of its retirement program for active workers.
For the fiscal year ended March 31, 2013, on a consolidated basis, ANA and its subsidiaries had retirement plan assets of roughly ¥110 billion ($1.1 billion) and retirement benefit obligations of roughly ¥300 billion, leaving unfunded obligations of ¥190 billion. Of that ¥190 billion, ¥130 billion is recognized on ANA's balance sheet under the accounting rules that have prevailed until now. Under the accounting rules coming into effect this year, the remaining ¥60 billion would have to be recognized as well.
If ANA is able to restructure its retirement program, it could lessen the impact on the company's balance sheet by roughly ¥10 billion, Mr. Nomura said.