Strengthening Employment-Based Pensions In Japan

Robert L. Clark and Olivia S. Mitchell


This paper investigates how the Japanese pension market for funded
employment-based pensions is changing and how it might be strengthened
in order to better serve one of the most rapidly aging populations in the
world. Public and private pensions in Japan are estimated to hold around
US$3 trillion, making that system the second largest globally after the United
States. However unfavorable economic developments have cut sharply cut
into asset values and the weak economy is undermining traditional lifetime
employment contracts. The recent passage of new legislation permitting the
establishment of defined contribution plans in Japan may provide new opportunities
for employer-sponsored retirement plans. We begin by describing the Japanese
pension system at the end of the 20th century, and then provide an overview
and evaluation of the changes in the pension arena emerging from the 2001
legislation. We show that important design questions remain to be answered,
if Japanese employment-based pensions are to be reformed and modernized.
We also suggest what lessons might be gleaned from recent changes in pension
plans in the United States

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