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Finalizes Rules for Pension Asset Transfer
Japan's Health Ministry on Friday finalized rules covering the transfer of
assets to the state pension fund from corporate schemes, which could
affect 10 trillion yen ($85 billion) or more of assets.
It set September 1 as the date
from which the handover is allowed and amended the rules slightly to make
it easier to hand back assets in the form of securities rather than cash,
as agreed by government officials earlier this month to help the stock
Corporate funds, once a
transfer is approved by the authorities, can hand back an amount set by
the government in either cash or securities.
Securities are valued at market
prices around the time the funds reach agreement on a transfer.
The original draft had an
October start date. Bringing forward the date was aimed at lifting some of
the selling pressure on the stock market. Many corporate funds had
preferred to liquidate securities holdings rather than carry them until
October, with all the risks involved in a bearish market.
When the private funds hand
over Japanese shares to the state scheme, they are required to include at
least 80 percent of the TOPIX index <.TOPX> components so that the
returned securities will fit immediately into the state's passive
The ministry's initial
requirement was 90 percent.
Small funds will still probably
opt to return assets in cash.
"We simply cannot set up a
TOPIX-tracking portfolio," said a spokesman for a Japanese
manufacturer whose pension fund has total assets of around 30 billion yen.
Larger funds will find it
easier to hand over the assets in securities since they usually have TOPIX-tracking
portfolios, although even these have elected in recent weeks to sell their
Japanese shares and return assets in cash.
Many Japanese firms have
managed part of the public pension scheme for over 30 years, entrusted by
the state with getting better returns for employees because of their
But a decline in returns in
general and the erosion of Japanese share prices in particular have forced
One-fifth of the 1,700
corporate pension funds, including those of blue chip firms such as
Hitachi Ltd <6501.T>, have already decided to return their proxy
assets to the state.
A change in Japan's accounting
standards two years ago was another factor behind the companies' change of
Japanese corporations are now
required to include accrued pension and severance costs as liabilities, a
step soon to be introduced by British and other European firms.
Not surprisingly, Japanese
corporate pension funds are heavily underfunded on a projected benefit
obligation (PBO) basis and neither reducing benefits nor coming up with
extra funding will prove easy.
According to a survey by U.S.
rating agency Standard & Poor's, Japanese firms on average have 40
percent of their pension liability unfunded as of March 2002, compared
with only six percent for a U.S. firm. ($1=118.17 Yen)
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