The financial condition of corporate pension funds in Japan continues to improve. According to a survey conducted of 1,584 listed companies, and reported in Nikkei, the shortfall for all listed companies was down to Yen 8.1 trillion (US$ 736 billion) at the end of March 2005. This compares with Yen 17.5 trillion (US$1,590 billion) two years earlier.
Companies have negotiated reductions in defined benefit schemes, and injected money and investment asset to the pension fund to compensate its shortfall. But a large factor behind the reduction in the shortfall is a change in rules obliging companies to reserve for future pension benefits. A new accounting standard for pension reserving was introduced in March 2001, and the obligation to reserve was reduced by 16% compared to the liability companies faced in March 2003.
The reduction also reflects the peculiarities of the Japanese system, in which corporate pension funds were intertwined with government provision. From the 1960s, corporate pension funds enjoyed the benefits of extraordinarily high returns as the Japanese economy boomed between 1960 and 1989. As the economy stagnated during 1990s, and stock prices fell, companies found their contributions to the government pension scheme increasingly burdensome.
Many Japanese companies have also shifted from defined benefit to defined contribution (DC) schemes. The total assets of DC plans amounted in March this year to Yen 9.3 trillion (US$ 845 billion), with 652 funds now in existence.
Lastly the rise in the value of the stock market since April 2003 has also contributed to the reduction.