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Japan Gains Flexibility in Pension Fund Offerings


The U.S. is not alone in revamping its pension plan rules. Last month, legislation was passed in Japan that opens the door for retirement and financial companies to enter that market, according to Larry Zimpleman, senior vp of the Principal Financial Group in Des Moines. As it stands now, only more traditional pension plans can be offered in Japan, where the benefit an individual receives is a function of his salary and how long he worked at his company, and the employer takes on the responsibility of the funding.

"Japan stands out and stands alone in the developed world when it comes to retirement plans," said Zimpleman. "There was a building consensus within the Japanese government that additional flexibility was needed in that regard."

The legislation will allow for defined contribution plans and represents a big shift in policy for the Japanese government, according to Zimpleman. This is now a ripe market for retirement firms to enter, he said.

In anticipation of this development, ING Group of New York and Principal formed a Tokyo-based joint venture to offer retirement plans. The two companies formed ING/Principal Pensions Co. early in 2000 and have been positioning the venture to take advantage of the opening of that market, according to Zimpleman.

"As governments and businesses around the world continue to reexamine their roles in pensions and retirement, we have an excellent opportunity to deliver our pension experience, investment expertise and technology to growing constituencies," said Principal CEO Barry Griswell.

Good for Everyone

The legislation is good for retirement plan firms, and is extremely advantageous to Japanese employees, according to Principal.

"The timing of the Japanese government's opening of this new retirement market is exactly right," said ING/Principal CEO Greg Burrows. "In this way, many Japanese businesses and employees will see their retirement savings grow safely, efficiently, and quickly, to help them meet their future retirement needs."

ING/Principal will focus on small to mid-sized Japanese companies with a workforce of 50 to 1000 employees, according to Principal. The company plans to introduce defined contribution pension products and will provide consulting services to corporate customers by having pension representatives in branches throughout Japan. The joint-venture will also provide a range of support services for defined contribution pension fund operation and management, including record keeping, asset management information and participant education via the Internet, and back-office support, according to the company.

The new rules are not official until approved by the emperor, however that is merely a formality, according to Zimpleman. Implementation of the new rules is expected in August and ING/Principal plans to begin selling its programs in October, he said.