RetireJapan

Long time lurker, first time posting. I apologize if this has been covered elsewhere.

After working as a sole-proprieter for 15+ years, I recently returned to the corporate world, accepting a management position with a Japanese company.

The company has a DC plan, and I've been running various contribution scenarios based on the excellent information that I've been able to gather here on this site and from other sources online.

As far as I understand things, my company makes a contribution to the DC plan of a certain amount each month, i.e., 10,000 yen, and according to the corporate DC plan rules, I am allowed to make a contribution that will be deducted from my monthly salary. Generally speaking, is this amount the difference between the maximum combined monthly contribution of 55,000 yen and the company's contribution of 10,000 yen, i.e., 45,000 yen?

Further, as has been pointed out on this forum and elsewhere, my contribution of 45,000 yen reduces my taxable income, lowering both national tax and resident tax. But where I would like to seek clarification, does this lowered taxable income also reduce shakai hoken (pension and health insurance) deductions?

Running two scenarios of minimum contribution (5,000 yen) and maximum contribution (45,000 yen) based on my understanding, through what I believe to be an accurate Japan salary calculator, results in a notable increase in gross pay.

Am I misunderstanding something?

I will consult with the HR department this week, but I'd greatly appreciate any insight.

It reduces your pre-tax income but I am not sure what that would have to do with shakai hoken calculations.

Also, the matching contribution cannot more than what your company puts in. In your example, if your company puts in 10k, you can only put in a max of 10k. The rest of the 55k is wasted.

zeroshiki wrote: ↑Mon Feb 07, 2022 2:01 am It reduces your pre-tax income but I am not sure what that would have to do with shakai hoken calculations.

Also, the matching contribution cannot more than what your company puts in. In your example, if your company puts in 10k, you can only put in a max of 10k. The rest of the 55k is wasted.

Really? I pay in 10,000 yen per month to my company's scheme, but they only contribute 500 yen.
Mine might be a DB scheme as opposed to DC though....are there different rules for DB & DC?

Roger Van Zant wrote: ↑Mon Feb 07, 2022 3:53 am

zeroshiki wrote: ↑Mon Feb 07, 2022 2:01 am It reduces your pre-tax income but I am not sure what that would have to do with shakai hoken calculations.

Also, the matching contribution cannot more than what your company puts in. In your example, if your company puts in 10k, you can only put in a max of 10k. The rest of the 55k is wasted.

Really? I pay in 10,000 yen per month to my company's scheme, but they only contribute 500 yen.
Mine might be a DB scheme as opposed to DC though....are there different rules for DB & DC?

Are you asking specifically about definitions? Yes, they are different.

https://www.zurich.ie/pensions-retireme ... pension%20(DC,salary%20to%20a%20pension%20scheme.

The main difference between a defined benefit scheme and a defined contribution scheme is that the former promises a specific income and the latter depends on factors such as the amount you pay into the pension and the fund's investment performance.

Haystack wrote: ↑Mon Feb 07, 2022 4:37 am

Roger Van Zant wrote: ↑Mon Feb 07, 2022 3:53 am

zeroshiki wrote: ↑Mon Feb 07, 2022 2:01 am It reduces your pre-tax income but I am not sure what that would have to do with shakai hoken calculations.

Also, the matching contribution cannot more than what your company puts in. In your example, if your company puts in 10k, you can only put in a max of 10k. The rest of the 55k is wasted.

Really? I pay in 10,000 yen per month to my company's scheme, but they only contribute 500 yen.
Mine might be a DB scheme as opposed to DC though....are there different rules for DB & DC?

Are you asking specifically about definitions? Yes, they are different.

https://www.zurich.ie/pensions-retireme ... pension%20(DC,salary%20to%20a%20pension%20scheme.

The main difference between a defined benefit scheme and a defined contribution scheme is that the former promises a specific income and the latter depends on factors such as the amount you pay into the pension and the fund's investment performance.

Thanks for that link.
I just checked, and mine is indeed a DB scheme as opposed to a DC:
https://www.rokinren.com/kigyonenkin-su ... ne/db.html

I had no idea you could only match your employer's contribution with a DC. Thank goodness that isn't the case with a DB, seeing as my company contributes a measly 500 yen per month!

On the shakai hoken aspect, IDECO is a DC scheme and contributions are not deductible for kokumin hoken purposes, so I would assume any DC contributions would have no impact on shakai hoken payments. Anyone with direct experience?

There seems to be two types of corporate DC plans, "matching type" and "selection type," where the latter lowers the shakai hoken calculation and the former doesn't. It seems my corporate DC plan is matching type.

Thank you to everyone who answered.

As another reference point, my company recently started a "selection type" DC plan where they contribute 1,000 per month and then employees can add up to 26,000 per month. They also contribute to another pension scheme for us, which I assume is why the upper limit is reduced to 27,000 per month rather than 55,000.

My understanding from my somewhat limited research is that "matching type" DC contributions are considered to be earned income that has subsequently been contributed, and thus is eligible for income/residence tax deduction in the same way as IDECO contributions.
In contrast, "selection type" DC contributions are not considered to be earned income and thus are completely ignored for tax calculations.
This reduces your income tax, residence tax, and also shakai hoken payments, but may also reduce any payments you get back from kosei nenkin in the future.

I hope this doesn't confuse the issue, and in my own case, it is no longer relevant. I finally got a face to face meeting with the HR people and found out that my company doesn't allow matching (a contribution deducted from monthly salary in an amount equal to or less than the company's contribution).

Having said that, I spent much of the long weekend reading blogs and watching YouTube videos by Japanese CPAs, investment advisors and their ilk, and around half of the 10 or so sources I reviewed clearly stated that "matching contributions (i.e., contributions by the employee) reduce Shakai Hoken payments," without any explicit reference to "matching type" or "selection type."

Just thought it was interesting material for further discussion.

Not sure without going back and checking some numbers, but I think the contributions result in reduction of Taxable Income.

Shakai Hoken and Medical Insurance are decided on last year's income, so you should see the reduction resulting from Tax Free Pension Contributions, not in the same year, but in the following year.

So, if you start your contributions in this year 2022, I think you would not see a deduction from your Shakai Hoken and Medical Insurance this year, as they are based on 2021 Income, but I think you should see a reduction in 2023 payments, which are based on your 2022 Nenmatsu Chosei or Kakutei Shinkoku reported Taxable Income.

I need to go back and check...