Japan: Changes to DC retirement plan contribution limits approved

Changes to the current defined contribution (DC) plan contribution limit that were proposed by the Japanese Ministry of Health, Labor and Welfare (MHLW) will come into effect on December 1, 2024. Companies in Japan commonly have both DC and funded defined benefit (DB) retirement plans for their employees. More background information can be found in our Global News Brief on this topic.

Key Details

• Currently, the total monthly contribution limit for DC plans is JPY 55,000, in total for the employee and employer. If a funded DB plan is also in place, the DC contribution limit drops to half of this amount (JPY 27,500), regardless of the benefit level of the DB plan.
• From December 1, 2024, the monthly DC total contribution limit in the case of company sponsoring both a DC plan and a funded DB plan will be determined as JPY 55,000 less the DB plan equivalent accrual; where the DB plan equivalent accrual will be determined periodically, for each plan, based on the DB plan’s benefits and certain actuarial assumptions (e.g., discount rate, salary increase rate).
• The change will not apply where an employer sponsors solely a DC plan, or a combination of a DC plan and an unfunded Retirement Allowance Plan.

Employer Implications

The ultimate impact of the change will vary for employers, possibly creating opportunities for companies to introduce employee contributions (in cases where the DC limit will increase) or challenges to maintain current DC plans if the contribution limit decreases. In addition, the changes may also have implications beyond benefit plan design, possibly impacting the funding and investment of the DB plans as well.

Companies sponsoring both a DC plan and a funded DB plan should begin reviewing their retirement plans and consider the impact of the changes from a holistic perspective. For large plans, it can take 12 to 18 months from the first preliminary review to full implementation. Willis Towers Watson provides a wide range of retirement services in Japan and can support such reviews.

Contacts

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Yukihiko Nakano

Senior Associate, Retirement

email Email phone + 81 3 3581 6441

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Toshiyuki Kinugasa

Director, Head of Retirement, Japan

email Email phone + 81 3 6833 4803

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Nicolas Guiho

Director, Retirement

email Email phone +81 3 6833 4799

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