Japan's regulators are moving to put "fairer" contribution limits for corporate defined contribution plans in place this year but analysts warn their proposed changes could just as easily shrink Japan's DC market as expand it.
Along the way, some of Japan's biggest corporate plan sponsors could be forced to restructure the mix of DC and defined benefit retirement plans they offer to employees.
At issue are current rules that mandate across-the-board reductions in DC contribution ceilings for companies that also offer defined benefit plans.
In contrast to the U.S. 401(k) system, where regular deductions from employees' paychecks powers growth, companies are the main contributors to Japan's corporate DC asset pool, which has grown to more than ¥12 trillion ($112.9 billion) since the country put its DC framework in place almost 20 years ago.
DB plans, meanwhile, remain the core of Japan's corporate retirement system with ¥63 trillion in assets — roughly five times the size of DC.
Under prevailing rules, companies offering only a DC plan can contribute up to ¥55,000 monthly, or just over $500, to employees' accounts. For companies offering a DB plan as well, that ceiling is cut in half — to ¥27,500.
Japan's Ministry of Health, Labor and Welfare is arguing now that slashing monthly DC contribution limits by ¥27,500 is unfair for companies whose estimated DB contributions come in well below that amount, noted Junichiro Goto, Tokyo-based managing director, multiasset business development, with AllianceBernstein Japan Ltd.
The ministry is calling for those companies' DC ceilings to be raised, flexibly, to allow total contributions for a sponsor's DB and DC plans of ¥55,000, Mr. Goto said.
By way of example, under the proposed change, a company paying only ¥5,000 a month per employee into its DB plan could contribute up to ¥50,000 a month to participants' DC accounts — far in excess of the ¥27,500 permitted under current rules.
At present, companies face no limits in making contributions to their DB plans and the push to generate a hypothetical, per-employee DB figure is only relevant in the context of the current proposal to come up with company-specific DC contribution limits.
Still, some market participants expressed concern that those hypothetical, per-employee DB figures could lay the groundwork for regulators to impose contribution limits on DB plans in the future. A ministry spokesman couldn't immediately be reached for comment.