NU Online News Service, July 6, 1:13 p.m. – Cerulli Associates, Boston, says foreign investment companies may have a tough time profiting from Japan’s shift toward “defined contribution” retirement plans.

Today, most Japanese pension plans are traditional defined benefit plans. The employer sets benefit goals and arranges contributions and investments accordingly.

The Japanese government is now talking about permitting 401(k)-style defined contribution plans. An employer would contribute a set amount, and the benefits would depend on the plan’s investment performance.

Japan faces severe pressure to shift to the defined contribution approach, because its economic slump has hit traditional pension plans hard, according to a new Cerulli report on the global retirement services market.

Japanese defined benefit pension plans lost about 9% of their assets in the fiscal year that ended in March, and 29 defined benefit pension plans collapsed, Cerulli analysts note.

But Japanese employers are unlikely to shift the equivalent of more than $42 billion into defined contribution plans over the first three years after the pension laws change, and 75% of the new money will probably flow into principal-guaranteed products offered by domestic banks and insurers, the analysts predict.

On the other hand, the analysts write, the introduction of 401(k)-style shoulds should help foreign and domestic investment companies by increasing Japanese citizens’ awareness of investment issues.