Retirement Plan Design Decisions

• Decide what the goals of the plan are. While you will always get somewhere without a destination, you may not be happy once you arrive if it does not satisfy your ideas about a proper destination. Japan is a little easier than the States since turnover is still quite low and the retirement plan does not need to be designed as a severance tool. Recruitment is often another consideration. Mature companies seeking no- to low-experience recruits need merely to have a retirement plan to be competitive. Mid- and late-career hires are more difficult, especially with the typical "S" curve of Japanese accruals.



• Decide who the retirement plan is to serve. It can not serve all groups of employees. The more it is fine-tuned to serve broader groups, the more it will cost and the less management control you will have over it. It will also be more difficult to build off of for special groups of employees who can not be served by the basic design.



• Decide how much you want to spend. Once the first two decision are made, the overall curve of the plan is pretty much fixed. Your choice here sets the benefit curve either higher or lower. Of course this decision will reflect the current make-up of your employees; future hires will alter the percent of pay relationships because of their ages and pay levels coming in.



• Decide how you are going to save the money. In Japan all retirement plans are supposed to be funded. Unlike North America, you are permitted to allocate net worth on the balance sheet and get a tax deduction for the accrual in excess of any cash payments made. Tax Qualified Retirement Plans (TQPP) attract an asset tax that can exceed your corporate tax rate. Thanks to some high profile bankruptcies recently, employees are not as keen as they used to be for the apparent security of external funding, but such feelings continue to be a concern, especially among Japanese managers.

Those decisions are pretty much all you need to do. While you should consider the form of the benefit, most Japanese prefer lump sums and, when the plan uses the Book Reserve System, they are the only choice. To increase your understanding of the plan, we would advise you to examine anticipated benefits for several rank and file employees and also for several executives.

A final consideration is to remember that Japan is changing. Make an effort to maintain flexibility. If turnover turns remarkable higher, most Japanese plans will end up costing far more than originally designed. If the investment climate continues to flounder, alternatives need to be considered for saving the money. Investing in your own business remains the most cost-effective method, but it does leave a certain amount of insecurity among some employees.