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To: Alex who wrote (15226)	8/3/1998 6:29:00 PM
From: goldsnow	Respond to of 116762

FEATURE-Pension headache grows in Japan slump 11:34 p.m. Aug 02, 1998 Eastern By Fumiko Fujisaki TOKYO, Aug 3 (Reuters) - Japanese companies are facing a pension time bomb rivalling the banking sector's woes in scope, and it may not be easy to defuse. Firms in Japan could be 60 trillion yen ($428 billion) short on covering their pension expenses, according to recent estimates from the Daiwa Institute of Research, double some previous estimates. That is equivalent to about 75 percent of the country's annual budget. The reason is clear. Japan's population is now ageing rapidly and forecasts indicate that more than a quarter of its people will be over 65 by 2025. But with its economy in recession, a stagnant stock market and low interest rates, it has been impossible for corporations to generate the returns necessary to meet future benefit obligations. Japan's society is one of the most rapidly ageing in the world, with better health care meaning people live longer. The nation's fertility rate is at a record low of 1.39 children per couple. The nation's workers have traditionally been used to spending their careers with a single company which provides for their old age. But some of those pensions could be in jeopardy unless a solution to this problem is worked out. A MILLENNIUM BOMB The Daiwa Institute's estimates suggest the problem rivals in scope the bad loan problem weighing down Japan's financial sector, which is put at 87.5 trillion yen. And if history is any guide, the known exposure of Japanese firms is bound to grow as secretive companies slowly come to grips with the magnitude of the problem. That is when they are likely to admit their exposures. It will explode into the open in April 2000. With a new fiscal year, new regulations will come into force requiring companies to declare the market value of their pension fund assets. ''The shortfall in corporate pension fund assets has not been visible on companies' balance sheets, but the new practice will make it clear which companies hold shortfalls and how much,'' said Shinji Watanabe, a consultant at Nikko Research Center's pension research & consulting division. PENSIONS THE U.S. WAY The solution eagerly sought by corporations is to shift workers away from the current life-time pension schemes that guarantee an annual income after retirement. Under the proposed alternative system, each employee would get a lump sum cash payoff at retirement to manage on their own, an idea borrowed from the United States. While this alternative might be hard to accept for some traditionally minded Japanese, it would give firms a much clearer idea how much they will eventually have to pay. The idea received support from the ruling Liberal Democratic Party (LDP) in February. But implementing it would require tax changes to encourage employees to put away cash. In the current economic climate that might not be a straightforward matter. An LDP subcommittee recently came up with a package of proposals calling for employees' contributions to such plans and investment gains under them to be made tax free until the pension matures. Analysts say the Ministry of Health and Welfare wants to reform public and corporate pension systems in 1999, ahead of the changes to be introduced in April the following year. A LOW PRIORITY? But with pressure on to cut income and corporate taxes in other ways, some analysts believe deferring tax payments on pension contributions are low on the government's list of priorities. ''Favourable tax treatment is a key element of the plan, but it is difficult to decide currently with the ongoing discussions over permanent income tax cuts,'' a government source said. It is unclear, analysts say, whether the Health Ministry's plans have the backing of the Finance Ministry, which is under pressure to use tax breaks to boost consumer spending in the short-term. After recent political changes, new Prime Minister Keizo Obuchi is under strong international pressure to pull Japan out of recession. Permanent income tax cuts will hit a government already facing large deficits totalling 280 trillion yen. Deferred tax payments for a new pensions system would have little immediate economic benefit as the taxpayers would not be spending the money saved for years. HIGH PERSONAL SAVINGS Some policymakers in fact see no need to act at all, arguing that Japanese wage earners generally put away more than a quarter of their disposable income, so need for favourable tax treatment on pensions is questionable. This is not music to the ears of company accountants. Several of Japan's corporate giants have in recent years written large extraordinary losses into their balance sheets to cover their pensions shortfalls. For smaller firms, the choices could be more grim. Corporate treasurers also worry that even if tax deferrals are approved they will do nothing to solve existing problems. In 1997/98, consumer electronics maker Hitachi Ltd posted 43.8 billion yen in extraordinary losses to cover costs related to its employee pension fund plan. The step was to help cover a 180 billion yen shortfall over five years from 1997/98. Mitsubishi Corp will post extraordinary losses over three years from 1998/99 to cover a 40 billion yen shortfall. Sumitomo Corp in 1997/98 started a four-year programme to cover underfunding of 8.8 billion yen. Copyright 1998 Reuters Limited.