Corporate DC plans were introduced in 2001, modelled loosely on the US 401(k). The employer contributes a fixed amount or percentage of pay to an individual account, the employee chooses investments from a menu, and the benefit depends on investment returns. Employees can add their own matching contributions. The plan sits on top of the state employees' pension, and for many employers it replaces or partly funds the traditional retirement allowance.
The tax treatment is favourable. Employer contributions are deductible and not taxed as the employee's income or counted for social insurance, investment returns build up tax-free, and employee contributions are fully deductible from income. Benefits are taxed on withdrawal, as retirement income if taken as a lump sum or as pension income if taken as an annuity. In return, the money is locked in: withdrawals generally start between 60 and 75, and a member needs ten years of enrolment to start at 60.
Limits are changing. Since December 2024 the monthly limit for a company with a defined benefit plan has been 55,000 yen less a defined benefit equivalent, and for one without it, 55,000 yen. From April 2026 an employee's matching contribution no longer has to be smaller than the employer's. From December 2026 the 55,000 yen figure rises to 62,000 yen. Membership has grown every year, reaching 8.62 million in March 2025.
What it means for a foreign employer
- It is the standard gaishikei retirement benefit. Foreign companies often have no retirement allowance and offer DC instead, or fold the money into base pay. Candidates from Japanese companies will compare it with what they leave behind.
- Balances move with the employee. A DC balance can be transferred to the next employer's plan or to iDeCo, so it is rarely a cost of moving. Unvested employer contributions can be, since plans may require up to three years' service.
- Be careful with salary-sacrifice designs. "Selective DC", where employees divert part of salary into the plan, cuts social insurance contributions but also future state pension and other benefits. Explain the trade-off honestly.
- The new limit helps senior hires. At 62,000 yen a month the plan becomes a meaningful tax-efficient benefit, though still small next to a Japanese company's retirement allowance.
Sources
- Defined Contribution Pension Act (2001), as amended by the 2025 pension reform act.
- Ministry of Health, Labour and Welfare, outline of defined contribution pension changes from December 2024 and December 2026.
- Association of Record-keepers, Trust Companies Association and Life Insurance Association of Japan, statistics on corporate DC plans (March 2025).