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Thursday, Aug. 19, 1999

Nippon Life feeling assured of 401(k) role for small firms


Staff writer

As the government readies itself for the debut of pension plans modeled after the U.S. 401(k) that may come as early as fall 2000, both Japanese and foreign financial institutions are busy jostling for a foothold in the market.

Earlier this month, two cross-sector alliances for developing account management systems for 401(k)-style plans were set up between Nomura Securities Co. and Industrial Bank of Japan, and the Sumitomo and Mitsubishi group financial companies.

But Aoi Horii, managing director of Nippon Life Insurance Co. in charge of the firm's 401(k) strategy, gives a cool response to both of them.

"I don't think firms participating in such tieups are very serious about making the 401(k) their core business," Horii said in a recent interview.

The alliances are focused only on the development of record-keeping systems, a small function and the least profitable one in the pension business, he said.

In 401(k)-style defined-contribution plans, individual employees are to hold control and responsibility for their own pension plans. Specifically, individual employees are to make their own investment decisions and their benefits will depend on actual returns.

That compares with the current defined-benefit pension system, under which employers guarantee fixed returns on their employee pension funds regardless of investment results.

Horii said Japanese life insurers and trust banks, which have been major players in designing and managing conventional pension plans, can and should go their own ways, rather than joining hands with city banks and brokerages that have no experience in the existing pension market.

Indeed, Nippon Life, the nation's largest manager of defined-benefit pension funds, with more than 8 trillion yen under management, is pursuing an independent path. It plans to fork out more than 20 billion yen to build an account management system by itself.

Nippon Life plans to provide a full line of 401(k)-related services, including record-keeping, funds investment, consultation services for corporate clients planning to introduce such pensions and employee education.

The success of his firm's 401(k) business hinges on how much it can attract small and midsize firms, because they will likely turn to a single firm for all their pension needs, Horii said, noting that such a bundle deal can hardly be expected with large companies.

And to better cater to small and midsize companies, Nippon Life wants to use its strength as a comprehensive provider, he added.

Horii claimed that his firm has ample knowhow on what will happen when Japan introduces a 401(k) system, because its U.S. subsidiary has been providing 401(k) services for local employees of Japanese firms in America.

In partnership with the Iowa-based Principal Financial Group, a leading player in the U.S. 401(k) market, the Nippon Life subsidiary is managing $118 million in 401(k) funds from 165 Japanese companies.

In particular, the Nippon Life subsidiary has acquired expertise on educating employees on how to invest their pension funds, Horii said. It also has sold a type of conservative investment product called guaranteed investment contracts, which Nippon Life plans to market in Japan once the 401(k) scheme is introduced. GICs guarantee not only principals but also specific rates of returns after a certain period.

Fidelity Investments, which recently announced that it will become an independent full-service provider in Japan, will surely do well in selling its mutual funds to 401(k)-participants, Horii said, because the company has "a global name brand."

He said, however, that he is watching closely how Fidelity will provide consultation services for companies on how to adopt 401(k) plans, adding it lacks necessary connections with Japanese corporations.



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