- September 01, 2021
- Changes to DC plan contribution limits determined
Order of cabinet and MHLW (Ministry of Health, Labour and Welfare) was announced officially to change employer-sponsored DC contribution limits. This change is expected to affect all employers that have a combination of a DC plan and an externally funded DB plan.
The monthly contribution limit of DC plans is currently JPY55,000 in the absence of a funded DB plan and JPY27,500 if the employer also sponsors a funded DB plan irrespective of the benefit level of the plan.
MHLW concluded that the limit should be set as the total of DB and DC contributions. Accordingly, the new rule is to set “JPY55,000 – hypothetical DB contribution” instead of using a fixed amount of JPY27,500. “Hypothetical DB contribution” will be set as the monthly contribution corresponding to the standard benefit based on the assumption used to calculate normal DB contribution by each company.
The new rule becomes effective on or after December 2024 with some grandfathering arrangements for the employers with combined DC and funded DB.
- April 16, 2021
- Bill to extend the mandatory retirement age for national government workers was submitted to the Diet
In accordance with the proposal by the National Personnel Authority in 2018, the bill to extend the mandatory retirement age for national government workers to 65 from the current 60 was submitted to the Diet. Government explains the purpose of the bill is to keep older workers with wealthy knowledge and experiences working amid the nation’s rapid aging.
In this bill, government plans to extend the retirement age by one year every two years beginning in fiscal 2023, until it is raised to 65 in 2033. The salary of workers who have turned 60 will be cut to basically 70 percent of what they had previously earned. Also, the age limit system for managerial personnel will be newly introduced for the workers attaining age 60.
The amendment is expected to become effective on fiscal 2023.
- March 26, 2021
- Revision of taxation on retirement benefits was passed by the Diet
The 2021 tax reform bills were passed by the National Diet on 26 March 2021. The bills include the revision of taxation on retirement benefits.
Lump sum retirement benefits are subject to one of the most favorable tax treatments in Japan. However due to this revision, favorable tax treatment of retirement benefits (the 50% exemption of amounts exceeding JPY 3,000,000) will no longer be available for individuals with five years of service or less. Similar revision has already been applied to directors since 2013 and is expanded to non-directors this time.
The new rule becomes effective for income tax on or after 2022.
- January 08, 2021
- 31.5% of companies with a system to allow employees to work until age 70, an increase of 2.6 points from last year
MHLW (Ministry of Health, Labour and Welfare) released the report of a survey on elderly employment. The law for stable elderly employment requires firms to report the status of elderly employment as of June 1st every year. The results of this year are summarized in this report.
The survey showed that 99.9% of companies have already taken measures to secure employment opportunities for people aged between 65 and 70, including raising the mandatory retirement age, introducing a continuous employment system or abolishing the retirement age. Looking at the breakdown, more than 76.4% of companies have introduced a continuous employment system, whereas 20.9% have raised the mandatory retirement age.
Also, the ratio of companies with a system to allow employees to work until age 70 was 31.5%, which increased 2.6 points from last year. As for companies with more than 300 employees, the ratio was 26.1% (+2.8 points).
- December 23, 2020
- MHLW published a review plan of DC contribution limits
MHLW (Ministry of Health, Labour and Welfare) is pushing a review of DC contribution limits that could force a restructuring of some employer' retirement plans. They published its review plan.
The monthly contribution limit of employer-sponsored DC plans is currently JPY55,000 in the absence of an externally funded DB plan and JPY27,500 if the employer also sponsors an externally funded DB plan. MHLW has verified that 50% of limit in the case of providing funded DB is reasonable, and concluded that the limit should be set as total of DB and DC contribution.
The new proposal is to set “JPY55,000 – hypothetical DB contribution” instead of using a fixed amount of JPY27,500.
It is arguable how to set “hypothetical DB contribution”. The proposal suggests setting it as the monthly contribution corresponding to the standard benefit based on the assumption used to calculate normal DB contribution. The proposal also includes some grandfathering arrangements for the employers with combined DC and funded DB.
- October 29, 2020
- Dai-ichi Life announced to change fixed guaranteed rate of general account from 1.25% to 0.25%
On October 29th, 2020 Dai-ichi Life Insurance (second largest life insurer in Japan) announced that they changed fixed guaranteed rate of general account* which is their major investment product of pension assets from 1.25% to 0.25%. This rate is historically the lowest and other insurers providing similar products may consider following suit. This movement will surely affect the employers using general account in their pension assets portfolio.
* This is a major investment product unique to Japanese life insurers that returns “a fixed guaranteed rate + policyholder dividends”. It is primarily invested in fixed-interest bearing assets. It becomes challenging to respond to the historically low-interest market.
- October 13, 2020
- The Supreme Court ruled that it is not unreasonable not to provide fixed-term employees with retirement benefits
In a case brought forth by the contract employees of Metro Commerce (a subsidiary of Tokyo Metro Co.), the Supreme Court ruled that it is not unreasonable not to provide retirement benefits which are paid to regular employees on October 13th, 2020.
The point was Article 20 of the Labour Contract Act, which prohibits unreasonable disparities based on contract employment and the Supreme Court had said that whether different treatment is unreasonable should be judged not only by the total pay but by the purpose of each item making up compensations. This time, they say that it can’t be called unreasonable disparity because their respective expected jobs have certain differences.
There is a tendency, however, for the court to make judgment of disparity more strictly than before. The employer should prepare to explain the reason why they provide different benefits for contract employees.
- September 30, 2020
- New notification of legal interpretation of salary sacrifice DC plan
On September 30th, 2020, MHLW (Ministry of Health, Labour and Welfare) updated notification of legal interpretation of employer-sponsored DC plan. If employers introduce DC as salary sacrifice plan*, they must provide correct information that the reduction of monthly pay to make a contribution to DC reduces social security premium, which leads to a decrease of benefit amounts of employee pension and employment insurance. Salary sacrifice DC plan is currently prevalent among cost-conscious employers, but their insufficient communication with employees has been a concern.
* Due to cost constraints, some employers considering to introduce DC plans want to avoid making employer contributions on top of salary to the plan. A salary sacrifice DC plan can be considered whereby employees will be given the opportunity to make contributions to a new DC plan by reducing their monthly pay. Under this scheme, employees will be usually given the choice not to make a contribution to the DC plan and hence receive it as cash.