LIA$Facts$ June, 2002 - Defined Benefit versus Defined Contribution in Japan ("Japan 401K")

Lohmann International Associates
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Tokyo, JAPAN
Leslie John Lohmann, FSA, FCIA, CCP
Canadian Pension Actuaries, United States Enrolled Actuaries and Employee Benefit Consultants Serving the International Community

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Last Updated January 20, 2006 (note that references are updated independently.)

The following is a traditional Japanese "TQPP" style plan. Note that it does not reflect the more common "S" accrual curve in order to preserve simplicity; back loading at younger ages and front loading from the older ages are permitted variations.

Age at hire: 35. Pay increases: 4%. No age limit.

Retirement age: 60.

Service is completed years of service.

Fct is the base monthly pay multiplier from the plan.

Involuntary is the amount paid in case of a retirement for company reasons.

Vest is the reduction applied for voluntary retirement.

Voluntary is the amount paid in case of a voluntary retirement.

AfterTax is the amount left over after paying the tax on retirement benefits. 2002 tax scales.

Age	Service	Base Pay	Fct	Involuntary		Vest	Voluntary
Age	Service	Base Pay	Fct	Gross	AfterTax	Vest	Gross	AfterTax
35	0	350,000	0	0	0	0	0	0
36	1	364,000	1	0	0	0	0	0
37	2	378,560	2	757,120	757,120	0	0	0
38	3	393,702	3	1,181,106	1,181,106	0.4	472,442	472,442
39	4	409,450	4	1,637,800	1,635,910	0.4	655,120	655,120
Age	Service	Base Pay	Fct	Involuntary		Vest	Voluntary
Age	Service	Base Pay	Fct	Gross	AfterTax	Vest	Gross	AfterTax
40	5	425,828	5	2,129,140	2,122,683	0.5	1,064,570	1,064,570
41	6	442,861	6	2,657,166	2,644,308	0.5	1,328,583	1,328,583
42	7	460,575	7	3,224,025	3,202,824	0.5	1,612,013	1,612,013
43	8	478,998	8	3,831,984	3,800,385	0.5	1,915,992	1,915,992
44	9	498,158	9	4,483,422	4,439,251	0.5	2,241,711	2,241,711
Age	Service	Base Pay	Fct	Involuntary		Vest	Voluntary
Age	Service	Base Pay	Fct	Gross	AfterTax	Vest	Gross	AfterTax
45	10	518,084	10	5,180,840	5,121,798	0.6	3,108,504	3,108,504
46	11	538,807	11	5,926,877	5,850,533	0.6	3,556,126	3,556,126
47	12	560,359	12	6,724,308	6,628,093	0.6	4,034,585	4,034,585
48	13	582,773	13	7,576,049	7,457,246	0.6	4,545,629	4,545,629
49	14	606,084	14	8,485,176	8,340,917	0.6	5,091,106	5,091,106
Age	Service	Base Pay	Fct	Involuntary		Vest	Voluntary
Age	Service	Base Pay	Fct	Gross	AfterTax	Vest	Gross	AfterTax
50	15	630,327	15	9,454,905	9,282,160	0.7	6,618,434	6,587,512
51	16	655,540	16	10,488,640	10,284,208	0.7	7,342,048	7,294,946
52	17	681,762	17	11,589,954	11,350,456	0.7	8,112,968	8,047,320
53	18	709,032	18	12,762,576	12,484,447	0.7	8,933,803	8,847,113
54	19	737,393	19	14,010,467	13,689,944	0.7	9,807,327	9,696,961
Age	Service	Base Pay	Fct	Involuntary		Vest	Voluntary
Age	Service	Base Pay	Fct	Gross	AfterTax	Vest	Gross	AfterTax
55	20	766,889	20	15,337,780	14,934,002	0.8	12,270,224	12,056,713
56	21	797,565	21	16,748,865	16,273,978	0.8	13,399,092	13,164,137
57	22	829,468	22	18,248,296	17,693,466	0.8	14,598,637	14,338,705
58	23	862,647	23	19,840,881	19,196,793	0.8	15,872,705	15,584,070
59	24	897,153	24	21,531,672	20,788,505	0.8	17,225,338	16,904,071
Age	Service	Base Pay	Fct	Involuntary		Vest	Voluntary
Age	Service	Base Pay	Fct	Gross	AfterTax	Vest	Gross	AfterTax
60	25	933,039	25	23,325,975	22,473,377	0.9	20,993,378	20,374,040

The following is a Japanese "401K" style plan.

Age at hire: 35. Pay increases: 4%. No age limit.

Retirement age: 60. 2% investment return.

Service is completed years of service. Immediate vesting.

Contribution is adjusted for 1/2 year's interest.

Limit on monthly contribution (\¥36,000) ignored.

Account is the account balance at the end of the period indicated.

AfterTax is the amount left over after paying the tax on retirement benefits. 2002 tax scales.

Accumulate to 60 is the last account balance accumulated to age 60.

Combined is the total after leaving the company, getting a 25% increase, then retiring with the new company at the indicated duration. After the 25% increase, annual increases return to 4%.

All Japanese 401K - balance at retirement is not available until age 60, then taxed in combination with the new benefit. Special tax rules (more favorable than DB) have been applied.

Age	Service	Base Pay	Employer Contribution (8%)	Account Value		Accumulate to 60	Total at Age 60 (one job change; "service" is for the second job)
Age	Service	Base Pay	Employer Contribution (8%)	Gross	AfterTax	Accumulate to 60	Gross	AfterTax
35	0	350,000	339,343	0	0	0	17,395,199	17,100,439
36	1	364,000	352,917	339,343	339,343	545,812	17,612,661	17,307,028
37	2	378,560	367,034	699,047	699,047	1,102,327	17,825,942	17,509,645
38	3	393,702	381,715	1,080,062	1,080,062	1,669,754	18,035,123	17,708,367
39	4	409,450	396,983	1,483,378	1,483,378	2,248,306	18,240,280	17,896,252
Age	Service	Base Pay	Employer Contribution (8%)	Account Value		Accumulate to 60	Total at Age 60 (one job change; "service" is for the second job)
Age	Service	Base Pay	Employer Contribution (8%)	Gross	AfterTax	Accumulate to 60	Gross	AfterTax
40	5	425,828	412,863	1,910,029	1,910,029	2,838,203	18,441,492	18,077,343
41	6	442,861	429,377	2,361,093	2,361,093	3,439,667	18,638,838	18,254,954
42	7	460,575	446,552	2,837,692	2,835,807	4,052,923	18,832,384	18,429,146
43	8	478,998	464,414	3,340,998	3,333,948	4,678,204	19,022,209	18,599,988
44	9	498,158	482,990	3,872,232	3,858,620	5,315,745	19,208,383	18,767,545
Age	Service	Base Pay	Employer Contribution (8%)	Account Value		Accumulate to 60	Total at Age 60 (one job change; "service" is for the second job)
Age	Service	Base Pay	Employer Contribution (8%)	Gross	AfterTax	Accumulate to 60	Gross	AfterTax
45	10	518,084	502,310	4,432,667	4,411,034	5,965,786	19,390,977	18,931,879
46	11	538,807	522,402	5,023,630	4,992,448	6,628,573	19,570,058	19,093,052
47	12	560,359	543,297	5,646,505	5,604,180	7,304,356	19,745,695	19,251,125
48	13	582,773	565,029	6,302,732	6,247,595	7,993,388	19,917,952	19,406,157
49	14	606,084	587,630	6,993,816	6,924,125	8,695,931	20,086,896	19,558,206
Age	Service	Base Pay	Employer Contribution (8%)	Account Value		Accumulate to 60	Total at Age 60 (one job change; "service" is for the second job)
Age	Service	Base Pay	Employer Contribution (8%)	Gross	AfterTax	Accumulate to 60	Gross	AfterTax
50	15	630,327	611,135	7,721,322	7,635,256	9,412,248	20,252,589	19,707,330
51	16	655,540	635,580	8,486,883	8,382,539	10,142,611	20,415,096	19,853,586
52	17	681,762	661,004	9,292,201	9,167,591	10,887,294	20,574,477	19,997,029
53	18	709,032	687,444	10,139,049	9,992,096	11,646,580	20,730,794	20,137,715
54	19	737,393	714,941	11,029,274	10,857,810	12,420,754	20,884,105	20,275,694
Age	Service	Base Pay	Employer Contribution (8%)	Account Value		Accumulate to 60	Total at Age 60 (one job change; "service" is for the second job)
Age	Service	Base Pay	Employer Contribution (8%)	Gross	AfterTax	Accumulate to 60	Gross	AfterTax
55	20	766,889	743,539	11,964,800	11,766,560	13,210,106	21,034,464	20,411,018
56	21	797,565	773,281	12,947,635	12,735,253	14,014,937	21,181,933	20,543,740
57	22	829,468	804,213	13,979,869	13,750,875	14,835,549	21,326,568	20,673,911
58	23	862,647	836,382	15,063,679	14,815,495	15,672,252	21,468,421	20,801,579
59	24	897,153	869,837	16,201,335	15,931,268	16,525,362	21,607,548	20,926,793
Age	Service	Base Pay	Employer Contribution (8%)	Account Value		Accumulate to 60	Total at Age 60 (one job change; "service" is for the second job)
Age	Service	Base Pay	Employer Contribution (8%)	Gross	AfterTax	Accumulate to 60	Gross	AfterTax
60	25	933,039	904,630	17,395,199	17,100,439	17,395,199	21,743,999	21,049,599

Index to |Lohmann International Associates |

Index to
|Lohmann International Associates |