Japan Looking To Cash Balance Plans for Pensions

PlanSponsor.com's NewsDash has an interesting story about how Japanese plan sponsors are looking towards cash balance plans to protect against market volatility for workers' pensions:

Because Japanese plan sponsors have largely restored their pension funding ratios to healthy levels, they now focus on lowering volatility and exploring hybrid structures such as cash balance plans, according to Greenwich Associates. Researchers said the funding change represents a dramatic turnaround since the current mean funding ratio of 103% is up from 62% four years ago. Nearly two-thirds of Japanese funds now have a 90% funded status. In terms of plan designs, 21% of corporate sponsors report that they have closed their defined benefit plans to new employees, up from 12% two years ago, but only 3% say they anticipate shuttering their plans in the next two or three years, the report said. Japanese pensions' allocations to domestic equities declined to 19% of total assets in 2007 from 21% in 2006, while allocations to international equities dropped to 12% from 14% — the latter decline coming entirely from cuts made by public pension funds. Meanwhile, allocations to domestic bonds grew to 55% among all pensions in 2007 from 47% in 2006.

If Japanese plan sponsors decide to go the route of cash balance plans and interest credits, let's hope they learn from their American counterparts and avoid questions of age discrimination when undertaking a cash balance plan conversion.

However, because age discrimination is legal in Japan (there is "a recent law [that] encourages employers not to discriminate against older workers in hiring. Under the 2001 Employment Measures Law, 'employers must endeavor to relax age restrictions when recruiting and hiring.'”), perhaps there will be less problems on the cash balance front.

PS