a new millennium, a new challenge for certified … “a new millennium, a new challenge for...

Trans ICA 2002 Association Report of the Japanese Society of Certified Pension Actuaries

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A New Millennium, A New Challenge for Certified Pension Actuaries

~ Association Report of the Japanese Society of Certified Pension Actuaries ~

The 27th International Congress of Actuaries

Cancun, March 2002

I. Why “A New Millennium, A New Challenge for Certified Pension Actuaries” ?

1. Structural reform of corporate pension schemes

1.1. Introduction

June 2001 is a memorable month in the history of Japan’s corporate pension system,

because two bills passed the Diet which are to bring about structured changes in private

pensions in our country. With the simultaneous approval of the Defined Contribution Pension

Act (hereinafter, “DCPA”), the Defined Benefit Corporate Pension Act (hereinafter,

“DBPA”), which was based on two years of discussion by the government and was submitted

to the Diet in February 2001, was enacted in June 2001. DCPA will become effective on

October 1, 2001 and DBPA on April 1, 2002.

The purpose of DCPA is to introduce defined contribution pension plans as a new

option for retirement income security. One major purpose of DBPA is to introduce a

framework for protecting employees’ benefit rights, whereby the act provides (1) funding

requirements, (2) fiduciary responsibility, and (3) reporting and disclosure.

There were several issues, which motivated the enactment of these two acts, but one

of the most pressing concerned what we call the substituting system attached to Employees’

Pension Funds (EPF). EPF are corporate pension plans, which substitute a portion of the old

–age benefit of the Employees’ Pension Insurance scheme (EPI). For reference, the EPI

scheme is one of the social security pension schemes covering employees in the private sector.

For this substitution, the participants and employers participating in EPF are exempted from

paying a portion of the contributions to the EPI scheme. Instead they are required to pay this

portion to the EPF. The exempted contribution rate for an EPF is determined as a level

contribution rate for the substituting benefit, so the fund accumulates. Investment


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performance in Japan has, however, been weak for a very long time. Employers sponsoring

EPF have been required to pay additional contributions for amortizing losses attributable to

poor investment performance. Consequently these employers have started to demand a

framework under which they can buy back the substituted portion from the EPI scheme with

the rest of the benefits in the plan maintained. This certainly was one of the driving forces

that led to the enactment of DBPA. DBPA, therefore, stipulates requirements for buying back

the substituted portion from the EPI scheme. It also prescribes the conditions for a company

or companies to convert the current corporate pension plan into another type of plan.

The DBPA also states plan design requirements for receiving tax-qualification.

1.2. Overview of Japanese corporate pension plans in the 20th century

1.2.1. Tax Qualified Pension Plan (TQPP)

Tax Qualified Pension Plans (TQPP), which were introduced via tax reforms in 1962,

are established by many Japanese employers to maximize cost and tax efficiencies.

In order for a pension plan to be a TQPP, it must meet the following requirements,

which are prescribed in the Corporation Tax Code and regulations.

l The plan must make fund management contracts with life insurance companies or trust

banks. It may make discretionary investment contracts with investment advisory firms.

l The plan must be designed so that benefits can be paid in annuity form.

l Actuarial valuation of the plan, including reviews of actuarial assumptions, should be

conducted at least once every five years with appropriate actuarial assumptions and

methods.

l Actuarial liabilities should be evaluated annually.

l Plan assets shall not be refundable to employers, unless the amount of plan assets

exceeds the accrued liabilities.

TQPP provide annuities, but the Japanese tax system so favors lump sum retirement

benefits that most retiring employees take a lump sum that is actuarially equivalent to the

annuity.


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Chart 1-1 Number of TQPP Contracts by number of active participants

Number of Active Participants As of 3/31/1994 As of 3/31/1999

99 or less 72,209 63,231 100 ~ 299 13,442 12,749 300 ~ 499 2,774 2,734 500 ~ 999 1,788 1,758

1000 or more 1,142 1,133 Total 92,355 81,605

1.2.2. Employees’ Pension Fund

The Employees’ Pension Fund (EPF) system was introduced in 1966. As explained

above in 1.1, EPF provide their own pension benefits together with a substituted portion of

the old –age EPI benefits. In this way, employees receive a retirement income of higher value

than the one the EPI scheme provides.

There are 1,793 EPF as of August 1, 2001.

In order for a company to establish an EPF, it must obtain approval from the Minister

of Health, Labor and Welfare. The requirements for approval are as follows.

l The company must have at least 500 regular employees.

l The plan must make fund management contracts with trust banks, or life insurance

companies. It may also make discretionary investment contracts with, or seek

investment advice from, investment advisory firms.

l Actuarial valuation of the plan, including reviews of actuarial assumptions, should be

conducted at least once every five years with appropriate actuarial assumptions and

methods.

l The plan must be structured so that benefits, or at least a portion of benefits, can be

paid as a life annuity.

l The plan must follow the minimum funding standard.

l The plan sponsor must submit an annual report to the government with the

certification of an enrolled certified pension actuary attached to the actuarial report.

Actuarial reports are required to contain information concerning the actuarial liabilities

and the minimum funding standards


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1.3. New structure of corporate pension plans

Until now, different government bodies have supervised TQPP and EPF. The

Ministry of Finance and the National Tax Administration have supervised TQPP, and the

Ministry of Health, Labor and Welfare (MHLW) has overseen EPF. The respective

requirements and rules have been set independently, and so significant differences have

developed between these two types of corporate pension plans. In general, the requirements

for EPF are more restrictive than are those for TQPP. For example, EPF require the

certificate of a certified pension actuary (CPA) for the annual actuarial report, while TQPP do

not even require filing of an annual actuarial report.

TQPP are required, within 10 years’ time, either to be converted into an EPF, a new

DB plan or new DC plan, or to be terminated. As with EPF, new DB and DC plans will be

supervised by the Ministry of Health, Labour and Welfare. Therefore, the supervision of

corporate pension plans in Japan will be unified in 10 years’ time. Financial institutions,

however, are the exception, as their issues are co-supervised by the Ministry of Health,

Labour and Welfare and the Financial Services Agency.

As for the requirements and rules governing new DB plans, it is very likely the

current requirements and rules for EPF will basically be applied. For example, new DB plans

will also be required to file annual actuaria l reports with certificates signed by a qualified

CPA.

It should also be noted that the new DB plans are classified into two types from the

viewpoint of the plan’s organizational structure. One type is known as a new qualified

pension plan (NQPP), under which the sponsoring employer(s) makes fund management

contracts directly with trust banks or insurance companies. Sponsoring employer(s) may also

make discretionary investment contracts with investment advisory firms. The other type of

plan is known as a new corporate pension fund (NCPF), under which the sponsoring

employer(s) establishes a fund as an independent legal entity. Half the total number of the

entity’s decision-making representatives are elected by the employer(s), and the remaining

half are elected by the employees. It is not the employer(s) but the fund that makes contracts

with trust banks, insurance companies or investment advisory firms. It may be said that the

organizational structure of NQPP are similar to that of a TQPP, while NCPF are closer to that

of EPF.

As stated above, TQPP are to be converted or abolished within 10 years’ time.

However many of these plans are small; about 76,000 of them having 300 or fewer active


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participants (Chart 1-1). If all of them are to be converted into new DB plans (possibly

NQPP), how should we set actuarial requirements and rules for them? This is one of the

major concerns we are now considering, and the matter must be settled by the end of 2001.

2. The Defined Benefit Pension Act

2.1. Purpose

The purpose of the DBPA is to provide a framework for defined benefit corporate

pension plans, in which employers promise retirement benefits to employees and employees

secure the same. Through the DBPA, the government supports self-help efforts aimed at

achieving retirement income security and fosters, together with the social security pension

benefits, the stability and welfare of the nation.

2.2. Scope

The DBPA only covers funded plans. Securing the retirement lump-sum benefit rights

of book reserve plans is beyond the reach of the new act. This issue remains unresolved on

the enactment of the DBPA, although the issue continues to be reviewed.

2.3. Protection of employees’ benefit rights

The DBPA sets a minimum funding standard in order to protect employees’ benefit

rights. In concept, if a plan has enough assets to pay the benefits earned so far in the event of

plan termination, we can say that employees’ rights are secured. DB plans are required to

confirm annually that they are adequately funded. Regarding the pension benefit guarantee

system, which is normally referred to in connection with the security of benefit rights, no

conclusion has been reached, and the government is expected to continue discussion on the

matter. Although a detailed standard is not ment ioned in the Act, the same requirements

governing EPF will likely be applied to all DB pension plans. The current requirements for

EPF are as follows:

l The minimum secured benefits, which are very similar to the vested benefits in ERISA,

shall be prescribed in the plan documents.

l The minimum funding standard is equal to the total present value of the minimum

secured benefits, using the discount rate prescribed by the Minister of Health, Labour


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and Welfare and the valid EPF mortality table. Neither withdrawal rate nor salary

increase assumptions are applied.

l In the event assets fall short of the minimum funding standard, the plan sponsor must

formulate an assets restoration schedule for the plan, such as an increase in

contribution rates or an acceleration of amortization.

Moreover, fiduciary responsibilities are imposed on employers by the new Act in this

respect. Disclosure requirements are also applied to all DB pension plans, which should

contribute to the protection of employees’ benefit rights.

2.4. Certification of CPA

The existing EPF regulations require that a CPA review all actuarial reports, comment

on them and certify that the reports utilize proper actuarial methods. The regulations for

NQPP and NCPF will have the same requirements. As a result, CPA potentially will have

larger responsibilities and challenges; however, these are unlikely to become onerous.

There are 334 fully qualified CPA in Japan as of July 10, 2001, while there are 1,793

EPF as of August 1, 2001. Assuming that half of existing TQPP will be converted into NQPP,

the number of corporate pension plans requiring CPA certification will increase to

approximately 42,000. The difficulties involved in such circumstances are self-evident.

Some argue that increasing the number of CPA to meet demand while maintaining the

relevant professional qualities and standards defines the primary challenge facing the

Japanese Society of CPA.

On the other hand, most TQPP are small: 93% have fewer than 300 participants, and

their plan designs are highly similar. Therefore, possible solutions to the problem might be

found in working out simplified actuarial valuation methods for small plans.

2.5. Requirements for benefit design

The new act requires that qualified plans should at least provide lump-sum benefits

for employees with three or more years of service and annuities for those with twenty or more

years of service. Existing regulations for EPF have the same requirements.


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2.6. Rules for changing plan type

The DBPA introduces rules for changing a plan’s type. This development comes in

response to public concerns over the substituted portions of EPF, mentioned in 1.1, as the

rules enable the company to buy back the substituted portions of EPF from the EPI scheme.

3. Introduction of defined contribution pension plan

The introduction of defined contribution pension plans represents another stream of

corporate pension plan structural reform. This development was motivated in part by changes

in accounting standards. The pension accounting rules, effective for fiscal years beginning on

and after April 1, 2000, require companies to disclose unfunded defined benefit plan

liabilities on their corporate balance sheets. Given the stock market has steadily declined in

value since 1990, many defined benefit plans have persistently struggled with significant

asset loss. Therefore, their current funding status is well below the average. In order to reduce

the unfunded liabilities on their balance sheets, it is expected that quite a few companies will

convert the whole or a part of their DB plans to DC plans.

3.1. Outline of the Defined Contribution Pension Act

Eligibility: All employees in principle.

Plan documents may include provisions to impose conditions for employees to be covered by the plan. In this case, employees who do not satisfy the conditions are excluded from the coverage of the plan.

Limit of Company’s Contribution:

¥18,000 per month for employees whose company has a DB corporate plan.

¥36,000 per month for all others.

Employees Contributions: Not Allowed.

Commencement of Pay (preservation age):

60 years of age.

Withdraw: Not Allowed before 60 years of age.

Investment Education: Required by the act.

Loan: Not Allowed


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There are distinctive characteristics of the DCPA. For example, the Act does not

allow participants to withdraw money before the commencement age of 60 years.

Furthermore, companies are allowed to transfer and distribute the assets of their DB plans

into individual accounts of DC plans.

3.2. The expected role of CPA in the field of DC plans

In general, the expected role of CPA is not so conspicuous in the field of DC plans.

However, as the DCPA of Japan allows a DB plan to transfer and distribute the assets into

individual accounts, and only certified pension actuaries can certify that the assets are

properly distributed into each individual account, an important role for CPA does exist.

Incidentally, due to the rather low contribution limit, many large companies will

likely preserve their DB plans, even in the event they introduce DC plans, as well.


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II. Defining the JSCPA 1. What was the JSCPA?

As the JSCPA membership serve as the certified pension actuaries for the Employee

Pension Fund (EPF) system, it might be best to start with a review of the process that

introduced the Certified Pension Actuary (CPA) system to that of the EPF.

1.1. Establishment of the Certified Pension Actuary System

The Japanese social security pension schemes were reformed extensively in 1986. At

that time, it was felt there might be a limit to the schemes’ respective roles in securing

sufficient retirement income security. Furthermore, it was perceived that the social security

pension scheme should provide a basic level of retirement income security, while retirement

income security beyond that level should be undertaken by private pensions including

corporate pension plans. Previously private pensions had rarely been considered as important

instruments for retirement income security.

This perception resulted in demands for more flexible management of private pension

plans; more flexible plan design rules, plan-specific actuarial management, investment

regulations capable of adapting to swiftly changing conditions, and the like. Ultimately the

aim was to meet the needs of participants and beneficiaries. This sort of discussion initially

centered on the EPF system. As a result, EPF regulations were gradually relaxed, and in the

process it was noticed that the people providing actuarial advice for the management of EPF

played a crucial role in safeguarding their financia l soundness. At the same time, the

government encouraged companies to introduce EPF plans as a complementary retirement

income vehicle, and, as a result, the number of EPF increased noticeably. Until this time, the

government held sole responsibility for supervising each EPF in detail. However as the

number of EPF grew, it became virtually impossible for the government to carry out such

close supervision. These twin developments brought about the idea that the roles of the

people who provide actuarial advice should be prescribed by statute, and that part of the

government supervisory responsibilities should be delegated to them. Qualifications for

people proving actuarial advice were also introduced.

These discussions were embodied in two reports. The report produced by the

Corporate Pension Committee, an advisory body to the Director-General of the Pension

Bureau of the Ministry of Health and Welfare, in July 1987 was one. The other was the report


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of the Committee on Actuarial Matters of Corporate Pension Plans set up in the Employees’

Pension Fund Association (EPFA) in April 1986. They proposed to introduce a statutory

system of certified pension actuaries and to require them to possess deep professional

knowledge and sufficient experience.

Following these reports, an amendment bill to the Employees’ Pension Insurance Act

was passed in the Diet in May 1988, which included the establishment of the Certified

Pension Actuary system (article 176-2 of EPI Act).

The outline of the Certified Pension Actuary system was as follows.

Purpose: to clarify the responsibilities for actuarial matters in the management of EPF and

EPFA and to maintain their financial soundness (the CPA system was extended to

cover National Pension Funds under the National Pension Act in 1991 and pension

plans under the Defined Benefit Corporate Pension Act in 2001)

Role and responsibility: to certify and comment on EPF (and NPF) actuarial reports to be

submitted to the MHW.

Qualification: to be formally recognized by the MHW as possessing a basic knowledge

(Fellow of the Institute of Actuaries of Japan) and having at least 5 years experience

of actuarial work in the area of pensions, of which at least 2 years are in managerial

or supervisory capacity.

The Certified Pension Actuary system took effect on 1 September 1988, and, for the

first time, 102 actuaries were formally recognized as CPA by the MHW on that date.

1.2. Establishment of the JSCPA and authorization as a corporate juridical person

After the CPA system was established, all CPA wanted to form their own professional

organization. Some leading CPA set up a “ Preparatory Committee for Establishing the

JSCPA” on 29 September 1988 under agreement of all groups concerned. The committee

advanced procedures to establish the Society and, at the same time, discussed what the

Society should be, and what the relationship with the Institute of Actuaries of Japan should be,

as well.

The JSCPA was established on 4 April 1989 after half a year of preparation since the

establishment of the Committee.

After 1990, the economic conditions surrounding the EPF started to worsen and the

deterioration continued for quite some time. In particular, the stock market plunged and


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brought about lingering low rates of investment return on EPF assets. Since many of the large

EPF plans had accumulated a fairly sizeable reserve fund until then, they were severely

affected by the poor investment performance. Such circumstances necessitated more

deregulation in the management of EPF plans, as uniform rules became meaningless, or even

harmful, to many EPF. A typical example was the assumed interest rate. Historically it had

been fixed at 5.5% by regulation. However, with changing conditions, it came to be

considered as unrealistic, although until just a few years earlier, it had been thought to be

very conservative. Deregulation followed, and thereafter the government revealed only the

lower limit annually.

This sort of deregulation necessitated expanded roles for CPA, and, by extension, for

the JSCPA. The MHW demanded advice from the JSCPA, and the JSCPA was required to

work out guidance notes for CPA on undertaking actuarial advice. In effect, this meant that

the JSCPA’s activities were moving further into the public arena. For this reason, the MHW

granted recognition of the JSCPA as a corporate juridical person on 1 May 1998. In other

words, the JSCPA became a legal entity after 9 years as a voluntary society.

It was very important for the JSCPA to receive recognition as a legal entity, because it

meant that the Society would also receive social recognition as a professional body in Japan.

Aligned with these developments, the JSCPA subsequently considered that it would be very

important to undertake international activities in a more globalized world..

The JSCPA was admitted as an Associate Member to the IFAA on 17 March 1996.

After establishing the Code of Ethics, the Disciplinary Rules and the Due Process of

Standards of Practice to meet the conditions necessary for full membership in the IAA, the

JSCPA was admitted as a Full Member to the IAA Council on 29 August 1999 in Tokyo.

Speaking of the deregulation in the 1990’s, it should further be noted that, from

October 1997, each EPF is required to appoint a CPA as its appointed scheme CPA. To

supervise each EPF in a scheme-specific manner, the scheme’s appointed CPA is required to

survey the financial status of the EPF continuously by confirming the actuarial reports to be

submitted to the MHW, analyzing the quarterly statistics of the EPF, and similar activities.

2. What is the JSCPA?

2.1. History, Objectives and Businesses

The JSCPA is the professional organization of the Certified Pension Actuaries, who

are engaged in pension actuarial business for the Employees’ Pension Funds and the National

Pension Funds. Its history, objectives and businesses are summarized as follows.


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History:

September 1, 1988: Establishment of the Certified Pension Actuary system

April 4,1989: Establishment of the JSCPA

May 1, 1998: Authorization as a corporate juridical person

Purpose:

The purpose of the Society is to take the necessary steps to develop the quality of

CPA, to maintain their professionalism as well as to improve pension actuarial

services and to contribute to supporting and improving the financial soundness of EPF

and NPF.

Mission:

(a) To establish a Code of Ethics which consolidates the ethical basis of the

members of the Society

(b) To establish the Standards of Practice for members performing Pension

Actuarial services

(c) To research domestic and international Pension Actuarial Science

(d) To train members on Pension Actuarial Science

(e) To hold information seminars for people on Pension Actuarial Science

(f) To maintain data regarding Certified Pension Actuaries

(g) To issue bulletins, public relation magazines and other publications

(h) To engage in any other activities necessary to accomplish the purposes of the

Society

2.2. Activities in 2000-2001

The Society has been conducting various activities that contribute to the sound and

efficient operations and further development of the EPF and NPF. Such activities include the

submission of proposals and opinions to the Ministry of Health, Labor and Welfare, the

establishment of actuarial standards and the holding of seminars. Activities performed in

2000-2001 are as follows.

Proposals and Opinions:

- Proposal on the defined-benefit Corporate Pension Act

- An interim report of special committee on the Defined-Benefit Corporate Pension Act

- A proposal for an alternative method to evaluate EPF liability in retirement benefit

accounting in accordance with an amendment to the Employees’ Pension Insurance Act


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Establishment of Actuarial Standards:

- Amendments of “ the Standards of Practice “

- Standard no. 5 “ Standard of practice on the reserve corresponding to the substitutional

portion at the settlement during the period with the contribution rate frozen at the

former rate in the Employees’ Pension Insurance “

- Standard no.6 “ On the application of the Standards of practice during the period with

the contribution rate frozen at the former rate in the Employees’ Pension Insurance “

- Standard no.7 “ Standard of practice II on the reserve corresponding to the

substitutional part at the settlement during the period with the contribution rate frozen

at the former rate in the Employees’ Pension Insurance “

- Amendments of the “ Standards of practice on retirement benefit accounting “

Education and Public Relations:

- Quarterly lectures to CPA

- A 2 day seminar on practical matters in February, 2001 ( see appendix 5 )

- Lectures to the executives of secretariats of EPF in 9 areas

- Publication of “Journal of Certified Pension Actuaries“ semi-annually

- Publication of “Corporate Pension Plans in Japan in 2001“ ( English ) for international

use

- Publication of “Understanding the Defined Benefit Corporation Pension Act and

Defined Contribution Pension Act “

International Affairs:

- Full Member of the IAA

- Submission of opinions to international organizations

- Participation in international congresses


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2.3. Organization

2.4. Members

Membership Classifications

(a) Full Qualified Member: Certified Pension Actuaries (see the next section)

(b) Associate Member: Fellows or Associates* of the Institute of Actuaries of Japan

who aim to qualify as CPA

(c) Supporting Member: Corporations that support the objectives of the JSCPA

(d) Honorary Member: Persons who have contributed to the Society and persons

with relevant academic experience and background

* Only Fellows of the IAJ had been permitted to become members of the JSCPA before

October 2000.

General Assembly Board of Directors President Vice Presidents

Secretary General

Standing Committees

Planning &Coordination

General Affairs Com.

Education & Training Com.

Public Relations Com.

International Relations Com.

Administrative Com.

Study & Research Com.

Actuarial Standards Com.

Disciplinary Com.

Special Committees

Judging Com. for Objections

Board of Councilors

Auditors

Executive Advisors

Advisors

Special Assistants

Secretariat


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Number of Members

The numbers of Full Members and Associate Members are 334 and 150 respectively, as of

July 10, 2001.

Full Qualified Associate Total

Number of members 334 150 484

Of which: In trust banks 130 50 180 In life insurance company 110 57 167

In consulting firms 26 8 34 In other corporations 40 33 77

Independents 28 2 30

2.5. CPA Qualifications

An applicant for CPA is required to meet the following four qualifying conditions and

the recognition of the MHLW.

(a) Basic knowledge: Fellow of the Institute of Actuaries of Japan

(b) Experience and practice in pension work: at least 5 years

(c) Experience in managerial or supervisory positions: at least 2 years of which in the area

of pension plan actuarial valuation and reporting

(d) High public credibility

3. What will the JSCPA become?

The two corporate pension bills, namely the Defined Benefit Corporate Pension Bill

and the Defined Contribution Pension Bill, passed the Diet in June 2001. Thereafter the

corporate pension system in Japan entered an entirely new era with a framework more similar

to the UK, the US and other developed countries described in the first part of this report. The

biggest problem confronting the JSCPA, at least in the first decade of the 21st century, is how

to cope with the structural changes to the corporate pension system. The main issues in this

area are increasing the number of CPA, the development of valuation methods for small

pension plans under the Defined Benefit Corporate Pension Act and the establishment of

roles and responsibilities for CPA under the Defined Contribution Pension Act.


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3.1. Increasing the number of CPA

CPA have been providing actuarial services for about 1,800 EPF, which are large

single employer plans with more than 500 employees or multi-employer plans. As the CPA

system will likely be applied to 80,000 pension plans – currently tax qualified pension plans -

under the Defined Benefit Corporate Pension Act of April 2002, the JSCPA is required to

increase its membership to meet demand. Although more than 40 times the current number of

CPA would be necessary (if we simply compare the number of pension plans to the current

number of CPA), the JSCPA feel fewer CPA would be required if simplified valuation

methods could be applied to the small pension plans converting from TQPP. Even if this were

achieved, at least 1,000 CPA would be necessary; meaning triple the number of current Full

Members. This target should be attained within ten years consonant with the transitional

period for converting TQPP to other pension plan types under the Defined Benefit Pension

Act.

Simply easing the conditions for CPA qualification might present an easier method of

meeting increasing demand. However the JSCPA strongly prefers to maintain its current

professional quality and standards: knowledge equivalent to that of a Fellow of the Institute

of Actuaries of Japan and 5 year experience; with 2 years experience in a managerial or

supervisory capacity. The JSCPA is rather orthodox and includes enlargement and fulfillment

of pre and post CPA education and requirement and an increase in the number of exams. At

this time, the JSCPA think it would not be easy, but not impossible either, to triple the

number of Full Members of the Society within ten years.

3.2. Development of valuation method for small pension plans

CPA have been using traditional methods for valuating the financial condition of EPF

using demographic and economic assumptions estimated on experienced data. This is

sensible, because EPF are large pension plans with at least 500 participants. Many small

pension plans will need the actuarial services of CPA under the Defined Benefit Corporate

Pension Act, so other simplified, applicable, low cost methods need to be developed. The

JSCPA is studying several methods including model increment-decrement tables and

relational decrement table methods.

3.3. Roles and responsibilities of CPAs under Defined Contribution Pension Act

What are the roles and responsibilities of actuaries for defined contribution plans?

Actuaries have a lot of work to do in the transitional phase from DB plans to DC plans. Once


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a DC plan is established, what can and should actuaries do for it? There are no legal

obligations for CPA under the Defined Contribution Pension Act, but the JSCPA considers

that CPA should play some role to secure employees’ retirement benefits; including

consultation on plan design, contribution and investment.

3.4. Concluding Remarks

In addition to those issues mentioned above, the JSCPA considers that

professionalism, education and globalization are particularly important issues now and in

future. As these issues are common in all actuarial associations, the JSCPA looks forward to

hearing the views of participants at the ICA 2002.

At the beginning of the new millennium, Japan’s economy and society are changing

rapidly and extensively. The economic, societal and financial reforms are being pursued in

order to get out of the decade-long recession. Japan is now struggling daily for its new future.

The ICA 2002 motto “ A new millennium, a new challenge “ sounds like “ A new

millennium, a new challenge for Japan” to Japanese people and “ A new millennium, a new

challenge for CPA “ for the JSCPA membership.

The JSCPA is willing to participate actively in international as well as domestic

activities as a member of the IAA. We recognize that all of us are now living in a closely

connected world where change occurring elsewhere in the world affects Japan, and a change

in Japan affects the rest of world.


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III. Appendices

Appendix 1. Chronological Table on CPA and JSCPA

April 1986 “Proposal of a statutory system of qualified pension actuary - A Report of the Committee on actuarial matters of corporate pension plans - “ , Employees’ Pension Fund Association

July 1987 “A report of Corporate Pension Committee “, Ministry of Health and Welfare

May 1988 Legislation of the CPA system ( Amendment of Employees Pension Insurance Law )

September 1988 Enforcement of the CPA system ( 102 CPAs )

April 1989 Establishment of the JSCPA

May 1991 Enforcement of the National Pension Funds system

March 1996 Associate member of the IFAA

May 1998 The JSCPA had the permission for incorporation

August 1999 Full member of the IAA

June 2001 The Defined Benefit Corporation Pension Bill and the Defined Contribution Pension Bill passed the Diet


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Appendix 2. Regulations on CPA

a. The Employees Pension Insurance Law

Article 130-3: The EPF must be managed on the basis of proper actuarial science.

Article 176-2 (a): The actuarial materials, to be regulated by the Ministry of Health,

Labor and Welfare ordinance, reporting to the Minister of Health,

Labor and Welfare from an EPF or Employees Pension Fund

Association must be confirmed and signed by a CPA.

Article 176-2 (b): A CPA is a person who has enough actuarial experience and

knowledge and meets conditions regulated by the Ministry of Health,

Labor and Welfare ordinance.

b. The Employees Pension Fund Rule( Ordinance)

Article 75 (a): The actuarial reports to be regulated by the Ministry of Health, Labor

and Welfare ordinance indicated in the Article176-2 of Employees

Pension Insurance Law are as follows.

1. A report on the calculation of contribution rate at the establishment of an EPF

2. A report on the calculation of contribution rate at the change of benefit or

contribution

3. A report on the Liability reserve and Minimum funding standard reserve, and

calculation of contribution at the merger of EPFs

4. A report on the Liability reserve and Minimum funding standard reserve, and

calculation of contribution at the division of EPFs

4-2. A report on the Liability reserve and Minimum funding standard reserve, and

calculation of contribution at the removal of member companies of EPFs

5. A report on the amount transferring to the PFA at the dissolution of EPFs (A

report on the amount returning to the State Pension at the dissolution of PFA)

6. Actuarial valuation report

7. A report on the calculation of contribution rate at the change of benefit or

contribution

8. A report on the calculation of contribution rate of subcontracted part

9. A report on the calculation of contribution rate of subcontracted part at the

establishment of EPFs

10. (deleted)


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11. A report on the transfer from pension account to administrative account

12. A report on the Liability reserve and Minimum funding standard reserve at the

settlement of EPFs or PFA

13. A report on the management of surplus of EPFs or PFA

14. A report on the change of benefits

15. A report on the calculation of contribution rate at the change of benefits

16. A report on the transfer from pension account to administrative account at PFA

Article 75 (b): CPAs must attach their opinions with reports from items 1 to 4-2, 6, 7,

11, 12 ,14 and 16.

Article 76 (a): The conditions of CPAs to be regulated by the Ministry of Health,

Labor and Welfare ordinance indicated in the Employees Pension

Insurance Law Article 176-2 Item 2 are to meet either item below and

to have high public trust.

1 To meet the standards regulated by the Minister f Health, Labor and Welfare

as a person with enough knowledge and experience to deign the benefits and

calculate contribution rates of EPFs, and to have been engaged at least 5

years in actuarial businesses of EPFs

2 To be authorized by the Minister of Health, Labor and Welfare as a person

with enough knowledge and experience equal to or more than those

mentioned above

Article 76 (b): The Minister of Health, Labor and Welfare makes a list of CPAs with

items mentioned below.

1 name, date of birth and address of CPAs

2 other items regulated by the Minister

c. The confirmation of actuarial materials by the CPA (A notice from the Director of

Pension Bureau to the Governor of Prefecture)

The conditions regulated by the Article 76 of Employees Pension Fund Rule are

applied as follows.

(1) “the standards regulated by the Minister f Health, Labor and Welfare” means The

Fellow of the Institute of Actuaries of Japan


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(2) “to have been engaged at least 5 years in actuarial businesses of EPFs” means to

have been engaged at least 5 years in actuarial businesses, of which at least 2

years in managerial or supervising position

(3) “ high public trust “ means not to correspond to either item below.

(a) not to confirm intentionally the appropriateness of actuarial reports

(b) not to confirm carelessly the appropriateness of actuarial reports

(c) to indicate or consult with activities against the Social Insurance regulations

(d) to leak or steal the secrets without any proper reason on the confirmation of

actuarial reports

(e) To lose trust or dignity necessary as a person to confirm the appropriateness of

financial reports

d. National Pension Law

Article 128-2: The NPF must be managed on the basis of proper actuarial science

Article 139-2: The actuarial materials, regulated by the Ministry of Health, Labor

and Welfare ordinance, reporting to the Minister of Health, Labor and

Welfare from an NPF or National Pension Fund Association must be

confirmed and signed by a CPA regulated by the Article of 176-2

Employees Pension Law.

e. Defined Benefit Corporate Pension Act

Article96: The employees and Pension Funds must design the benefits,

calculation of contribution rate and settlement on the basis of proper

actuarial science

Article97: The actuarial materials, regulated by the Ministry of Health, Labor

and Welfare ordinance, reporting to the Minister of Health, Labor and

Welfare from an employer or a Pension Fund must be confirmed and

signed by a CPA regulated by the Article of 176-2 Employees

Pension Law 176-2


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Appendix 3. Number of members of the JSCPA

Total Full Qualified Associate

April 1989 109 109 -

July 1990 224 128 96

July 1991 243 143 100

July 1992 257 149 108

August 1993 288 171 117

April 1994 291 183 108

June 1995 319 206 113

July 1996 335 218 117

May 1997 361 235 126

July 1998 378 265 113

May 1999 387 287 100

May 2000 402 315 87

July 2001 484 334 150


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Appendix 4. Rules and Standards of Practices established by the JSCPA

a. The Articles of the JSCPA

The Code of Ethics

b. The Standards of Practice (SOP)

General Rules

Operation Rules

c. The SOP for EPFs

No. 1 Calculation of contribution rate for subcontracted part of a EPF plan

No. 2 The SOP for the financial management of EPFs

No. 3 The SOP on the change of valuation method of a EPF asset

No. 4 The SOP of the evaluation and distribution of minimum funding standard at

the dissolution of a EPF

No. 5 The SOP on the minimum funding reserve at the settlement during the

contribution-frozen period in the Employees Pension Insurance

No. 6 On the application of the Standards of practice during the contribution-frozen

period in the Employees Pension Insurance

No. 7 The SOP II on the minimum funding reserve at the settlement during the

contribution-frozen period in the Employees Pension Insurance

d. The SOP for retirement benefit account


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Appendix 5. Topics at the seminar on practical matters on 27 –28 February, 2001

27th February

A1 Corporate accounting

A2 Corporate governance

B1 Outline of hybrid pension plans and defined contribution plans

B2 The standards of practice for retirement benefit accounting

C1 Pension systems in foreign countries

C2 Pension ALM

D1 EPFs and CPAs

D2 The standards of practice for the EPFs

28th February

A3 A lecture on economy and finance

A4 Corporate welfare

A5 Investment methodology

B3 Future of the EPF plans

B4 Pension fund investment

B5 Future of the CPAs

C3 Insolvency Insurance for the EPFs

C4 On the actuarial soundness in corporate pension plans

C5 The standards of practice for the EPFs

D3 Actuarial assumptions

D4 Future of the pension systems in Japan

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