JAPAN - About 25% of all Japanese DB plans will be closed to new employees by 2008, Greenwich Associates research has found.
The migration away from DB plans is already underway, with 12% now shut to new employees, up from 6% only two years ago. A further 11% of plan sponsors currently anticipate closing off their plans to new employees within the next two or three years.
While 30% of the country’s pension funds now have assets covering at least 90% of their projected benefit obligations, the typical Japanese pension fund still remains “under water” with assets covering just 83% of projected benefit obligations, Greenwich noted. As funding pressures continue to spiral, two-thirds of Japanese plan sponsors and financial institutions are planning to make “significant” changes to their asset allocations, Greenwich found. Japanese pension funds had nearly 100% of their assets in traditional DB structures in 2003, but that has dropped to 72% in 2005. That decline is likely to continue, with Japanese plan sponsors saying they expected traditional DB assets to account for just 50% of the total market by 2015.
The key driver for plan sponsors closing their DB plans is the increasingly difficult task of funding their plans at levels adequate to keep pace with growing liabilities, said Greenwich Associates consultant William Wechsler (pictured).
“As Japan’s economic and social contract is being redefined, lifetime employment practices are being reconsidered, and political campaigns centre on historic reforms of venerable financial institutions, a generational shift has also begun regarding corporate responsibilities for financing workers’ retirement.”
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