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Thursday, July 12, 2012
Pension fund problems to remain
In the wake of the incident in which AIJ Investment Advisors Co. lost most of ¥145.8 billion in pension assets through bad investments, a panel of the health and welfare ministry on June 29 came up with a proposal on how to solve the problems related to the type of corporate pension fund known as kosei nenkin kikin.
Unfortunately, the proposal fails to show a clear way toward resolving the problems.
Kosei nenkin kikin manages private corporate pension assets as well as some of the pension premiums that must be paid into the nation's kosei nenkin pension program, a pension plan for corporate workers.
Because of low stock prices and low interest rates in the postbubble economy, many kosei nenkin kikin funds cannot secure high enough yields and have used up a large portion of their accumulated kosei nenkin premium reserves to provide pension benefits to pensioner.
About 40 percent of some 600 kosei nenkin kikin funds have shortfalls of some ¥630 billion in the reserves.
One way to reduce such shortfalls is to reduce pension benefits provided by kosei nenkin kikin. To realize this, under the current rule, more than two-thirds of the pensioners in question as well as the health and welfare ministry must approve the reduction.
The panel was divided between members who support the current rule and those who called for relaxing the current more than two-thirds rule to more than one-half of pensioners.
Some say that kosei nenkin kikin funds with large shortfalls in the kosei nenkin premium reserves should be disbanded. But to disband them, under the current rule, more than three-quarters of member companies and their employee representatives must consent.
If a kosei nenkin kikin is disbanded, member companies are jointly liable to pay shortfalls back to the government. Because of the system of joint liability, financially weak companies face the risk of going bankrupt if their kosei nenkin kikin is disbanded.
The panel proposed relaxing the three-quarters rule and allowing the health and welfare minister to order disbanding of a kosei nenkin kikin if certain conditions are met. It also proposed reducing the amount of shortfalls that member companies of a disbanded kosei nenkin kikin have to return to the government and ending the system of collective liability.
But if shortfalls are not paid back in full, kosei nenkin reserve funds or tax money will have to be injected. This would weaken the kosei nenkin pension system. Kosei nenkin premiums would also have to be increased.
It appears the time has come to hold informed public discussions on the wisdom of continuing the kosei nenkin kikin system.