The final tally for daiko henjo (return to the government of welfare pension portion of EPF schemes) in fiscal 2009 has been announced by the Ministry of Health, Labor and Welfare. Seven corporate pension funds received approval for a waiver of the obligation to handle future disbursement of pension benefits, while another six were allowed a waiver for past disbursements. Both figures were greater than the previous year and the trend is for a further increase this year, as corporations seek to avoid risk on welfare pension funds, after two straight years of weak performance. According to the trust banks, corporate pension funds of the major manufacturers and service industries are planning to transfer funds back to the government in FY10.

The number of future daiko henjo grew by two over the previous year, bringing the total number to 876. When future portions are returned, the corporation is freed from related debt (unrecognised debt) as of the approval date. The reduction in the future cost burden appears on the books as profit. Thus, in order to improve their finances, companies such as Nissin Foods, Hewlett-Packard Japan and the Tomen Group have elected to carry out daiko henjo. At the same time, past portions were returned by two more funds this year as well for a new total of 813. EPF schemes at listed firms turned to daiko henjo in order to avoid portfolio risk on the returned portion after three consecutive years of negative returns in FY2000-02 following the burst of the IT bubble. In FY02, when daiko henjo was introduced, 481 funds opted for the scheme. The number then declined for six straight years thereafter. Trust banks and life insurers say that the system is being used by unlisted as well as listed firms. This is because if daiko henjo is completed by the end of this year, the value of the assets to be returned to the government (minimum actuarial reserve) can be calculated with the negative yields experienced in FY08 on EPFs as a whole. The less that needs to be returned to the government, the larger the profit on the daiko henjo. As such, we could see a wave of companies rushing to carry out their daiko henjo by year end. The incentive for companies will lessen next year since the amount returned to the nation on daiko henjo after January 2011 will increase, reflecting the positive operating yields obtained in FY09.

 

Source: Nenkin Joho (R&I)

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