At the 7th Central Executive Committee Meeting on April 20 at a hotel in Tokyo, RENGO endorsed its principle for a "Defined Contribution Pension Bill" which has been submitted at the current Diet session. In it, RENGO stated that it would not support the bill unless the current system was reformed, by abolishing, for example, the "substitute system" in the Employee's Pension Fund.

1. Problems with the Bill

(1)

"Corporate Pensions" vs. "Private Pensions" The proposed bill for pension plans in private domain will divide the "defined contribution plan" in two categories-"corporate pensions" in which only corporations contribute, and the "private pensions" where only the individual participants contribute. Financial accounts are assigned to individuals with each individual directly responsible for the management of the investment of their own assets. The biggest problem is that the individual will not be able to withdraw money until they reach 60 years old. Another point that is expected to become a major issue is that plans for a system where workers contribute in addition to company's contribution, or one where companies subsidize employee contributions are both excluded from the proposed bill.

(2)

Differences in Amounts of Non-Taxable Limits Corporate contributions to pensions will be entered as losses in gross revenue and individual contributions are deducted from income. Amounts will be limited to \18000 per month when contributors are part of a "defined benefits pension plan," and \36000 per month when they are not. If employees contribute to "private pensions" on their own, they will receive a deduction of only \15000 per month. On the other hand, those who are self-employed will have a \68000 deduction including the premium for the National Pension Fund. There is no logical reason for such disparate differences that favor big businesses and the self-employed. Conversely, the gap will expand to the point that it loses its original purpose of introducing a new pension scheme to "correct differentials between the minute, small to mid-sized businesses' workers [and others]."

(3)

Special Corporate Taxes on Personal Contributions The bill stipulates that assets not only from "corporate pensions" in which businesses contribute, but also those from "private pensions" in which the individuals enroll and contribute, will be subject to a special corporate tax. When compared to the current personal pension, imposing a "corporate" tax on money contributed by individuals lacks all rationality. There are no taxes on National Pension Fund premium, and the Tax-Qualified Pension Plan also excludes taxes on personal contributions. Further, the proposed special corporate tax includes large-scale exemptions for Employee's Pension Funds. Yet, the "Tax-Qualified Pension Plan" (excluding the Special Tax-Qualified Pension Plan) has no exemption. RENGO has been demanding this elimination of such differentials.

(4)

The "Shift" from Existing Corporate Pensions/ Retirement Funds If "defined benefit plan" corporate pensions are shifted either partially or entirely to "defined contribution plans," the middle-aged and seniors may possibly suffer a reduction in standard pension payment (unfavorable change). However, the current bill postpones any necessary study for this shift. Corporate pension contracts prepared by labor-management agreements need to include clause which allow the right to choose between the old system or the new system.

(5)

The Problem with Complicated Systems It is unavoidable that a "401(k)" type pension system, in which individual administration of assets is the key, should be complicated. Above all, "asset control institutions" and "asset management institutions" have the most critical roles. "Asset control institutions" are specifically assigned. While, "asset management institutions" as long as they satisfy the minimum requirements and receive proper ministerial authorization, could be anybody. Furthermore, the bill states that a business can conduct operations as a "asset management institution" for itself, and an "asset control institution" can double as a "asset management institution." These mechanisms could potentially blur the idea that pension assets be "maintained separately." The bill fails to proscribe penalties for "asset management institutions" that deviate from their required neutrality, in the case of major financial institutions which are assigned as "asset control institutions" while also holding the additional post of the "asset management institutions."

(6)

System Management and the Problem of Running Costs The complicated "401(k)" plan increases system management costs. With regard to "corporate pensions" in this bill, commission charges arise in almost every level including businesses, "asset control institutions," "asset management institutions," financial institutions, workers, beneficiaries, and so forth. The 401(k) system is more expensive to run compared to bulk management pension assets which only require a simple system. Therefore, it requires high-risk management strategies to ensure comparable amounts of return. "401(k)" type plans are characterized by the high risk they require of subscribers. "Private pensions," become even more complicated as they involve the Association of the National Pension Fund and the business-entrusted financial institutions in the system. Employees in the micro, small to mid-sized businesses would have to bear greater differentials in both cost and risk.

(7)

"Investment Education" and Information Disclosure "401(k) plan" type pensions, where participants directly manage their own assets, makes it crucially important to obtain as much "investment education" and "information disclosure" as possible in order for them to choose the proper products for asset management and act accordingly. Unless conditions in which judgement to minimize management risks are established, participants will be left defenseless to the fluctuations of the financial market. The bill specifies obligations only for "asset management institutions" to provide information and investment education, while business owners' responsibilities remain merely to "make efforts." From the standpoint of participant protection, business owners should be obliged to have clearly stipulated responsibilities.

(8)

Fiduciary Responsibilities Asset control institutions and asset management institutions have a "responsibility to discharge their duties faithfully to participants," or in other words, they have a "faithful duty." America's Employee Retirement Income Security Act (ERISA) is designed to protect private retirement plan assets (corporate pension/retirement pension). Its central provision, section 404, stipulates, "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries," and limits its purpose of work as "for the exclusive purpose of providing benefits to participants and their beneficiaries, and paying reasonable expenses." ERISA also clarifies the duty of the fiduciary, or the so-called "Prudent Man Rule," stating that the fiduciary "shall discharge his duties with the care, skill, prudence, and diligence that a 'prudent man' would use in the conduct of an enterprise of a like character and with like aims." The bill, which has been submitted to the Diet, expresses this notion in its "common rule of practice," yet it is difficult to say if the bill has adopted a 'prudent' way of thinking properly. Furthermore, the bill fails to specify any provisions for the violation of the "faithful duty" of corporations, the Federation of National Pension Fund, or asset control institutions.

(9)

Personal Information Management and Protection In the common rule of practice, the bill imposes fixed restrictions on the retention and use of participants' personal information by business owners and the asset control institutions "within the confines of that which is needed to conduct business." But there are no penalty provisions. Also, it is essential to set legal stipulations on the private use in each agency of each individual's basic pension number for their asset management.

(10)

Measures Delayed to Protect Receivership Rights "Rights of Receivership Protection" which goes with the "defined contribution pension plan," was to have been examined for the possibility of legislation, but that was postponed. The Ministry of Health and Welfare inverted their priorities by submitting the "Defined Contribution Pension Plan Bill" to the current Diet session but postponed protection measures which should be included in "Corporate Pension Basic Law"(tentative).

2. RENGO's Fundamental Policies

For the reasons mentioned above, the insufficiency of this bill should be obvious. Therefore, unless the following problems are cleared up, RENGO will not support the bill as the necessary groundwork for introducing the system cannot be said to be in place.

(1)

Reform the current corporate pension system as a prerequisite for discussion of the submitted bill on the defined contribution plan. Reforms should include: Abolition/renouncement of the "substitute system" of the Employee's Pension Fund, mutual transition of the Employee's Pension Fund and the Tax-Qualified Pension Plan, and a correction of differentials in the taxation of the two, and so forth.

(2)	In order to protect the receivership rights of corporate pensions, it is necessary to submit the "Basic Corporate Pension Law (tentative)" which includes both defined benefits and defined contribution plans, along with the "Defined Contribution Pension Plan Bill" already submitted.

(3)

The Japanese financial/bond market is insufficiently transparent and necessary information disclosures are unsatisfactory. It is premature to introduce any legislation that places management risk on participants, based on the condition that the national consciousness of financial issues is still immature. Further, with interest rates at an extended low, now is not the time to introduce legislation, as high-risk management should be conducted to cover service charges.

(4)	The Defined Contribution Plan Bill has many problems that have been pointed out on 1, (1)-(10).

(5)	In order to correct differentials for micro, small to mid-sized business workers, a mutual aid system of retirement allowances for small to mid-sized businesses and an employee asset accumulation system should first be expanded.