Corporate Pension Reform in Japan: Big Bang or Big Bust?

Sarah (Ingmanson) McLellan

This paper investigates the events leading up to the passage of defined contribution pension legislation in Japan in June 2001. Expectations ran high that defined contribution (DC) legislation would induce a massive wave of DC plan conversion as Japanese companies began unloading their traditional defined benefit (DB) plans. However, despite the continuing pressures on Japanese companies, such a widescale movement did not occur. What appeared as a clear solution in the new DC option, then becomes a puzzle given the lukewarm response in Japan. Here I argue that the main determinant of corporate decision-making on the pension issue was the binding constraints of the DC legislation, not the paternalistic ways of Japanese companies. In broader strokes, this analysis also sheds light on the nature of policymaking in Japan today.