The amount of pension shortfall for all the listed companies in Japan was reduced by half and totaled less than JPY 8.1 trillion, equivalent to USD 736 billion, at the end of March 2005, according to Mizuho Corporate Bank.
According to the survey conducted for 1,584 of listed companies, the pension shortfall lowered to less than JPY10 trillion since accounting standard for allowance of retirement severance benefits was changed, and was reduced by JPY 9.4 trillion, equivalent to USD 854 billion, from JPY 17.5 trillion, equivalent to USD 1,590 billion, in March 2003.
Major factor that reduced pension shortfall is the reduction in pension obligation itself reserved for the future pension benefits. The obligation for allowance of retirement severance benefits was reduced by 16% compared to the benefits paid in March 2003. The company’s pension reforms behind this reduction as follows.
First, corporate pension funds, which had long merged the part of government pension, returned it to the government pension fund. Since 1960s, corporate pension funds had enjoyed the benefits of excess return from their managed funds. Due to the economic stagnation during 1990s, the stock prices continued to fall sharply and the compensation to the pension fund burdened for the companies. With an introduction of new accounting standard of allowance for employee retirement severance benefits in March 2001, all the companies raised their consciousness of pension funds.
Second, the company has negotiated to reduce their defined benefits with their employees, and injected money and investment asset to the pension fund to compensate its shortfall.
Third, many companies have shifted from defined-beneficially pension to defined-contribution pension (401k). Total asset of DC Plan amounted JPY 9.3 trillion, equivalent to USD 845 billion, with the number of 652 funds. Increasing in the number of companies, which utilized DC Plan, enables to reduce the pension obligation.
Besides the above factors, upward performance supported by increase in the prices of stock market since April 2003 has also contributed this reduction.