iDeco & Company DC Plan coexistence

[ivanpgs]

Hi guys,

I have just changed jobs and my new company is offering a Defined Contribution Plan (Company DC) with company matching your contributions (I guess that tops up at the maximum of 55K yen - 27.5K company + 27.5K employee). The nice thing is that employer's and employee contributions are deducted from pre-tax salary. I can decide not to do it and they they would still put the money as part of my salary (but then it would be tax, of course)

The thing is that I am already contributing to iDeCo for several years. My provider is SBI. And if I accept to join the Company DC, I think that I have the option to keep iDeCo at SBI, as long as I stop doing contributions while I still have my company contributing to that DC. I guess I would have to call SBI to stop my next contribution. Then, my company would not start the DC until next month. Besides, the Company DC provider is different from the iDeco's one.

I have also talk to some people that would just cash out iDeCo invested money and get it transferred to the Company DC´s provider account. But then that also has its drawbacks, as stated in the next articule that I found it to be very interesting:

https://www.fidelity.co.jp/page/dc-colu ... rced-to-en

I think I will join the Company DC and then call SBI to stop my contributions for as long as I contribute to my Company DC. Then, it would be easier when I leave the company to resume iDeCo contributions calling SBI again I guess. Any one being in the same situation can tell me whether this is correct?

Thanks in advance for reading through it

[sutebayashi]

Your fidelity link doesn’t work for me, but I’ve been in a similar situation.

I was contributing to iDeCo first, then joined a company with a DC plan. I for whatever reason kept the iDeCo assets going as they were (Monex), but ceased new contributions, having joined the company DC plan.

Then I left that company and went through the process of migrating the DC plan funds to my old iDeCo account, and recommencing the iDeCo contributions (my new gig doesn’t have a DC plan).

I was a bit slow on the paperwork and made a mistake once leading to an extra turnaround with the paperwork, but after 4 months the DC funds were cashed out, and transferred to my iDeCo account (or the custodian to be precise) a few weeks later.

There is a downside to the chopping and changing, since the money is out of the market for periods of time.

For that reason, I would not put my existing iDeCo funds into a company DC fund, just because I want the money to be invested and not be out of the market when some favourable market move occurs. (It might go the other way if one is lucky.)

The advantage of having money in a single pension fund account seems to me to be the ease of management, since it can be a hassle to log in to two accounts to see what’s up. But I guess you’d be in SBI regularly anyway?

[Tkydon]

Working link

https://www.fidelity.co.jp/page/dc-colu ... rced-to-en

[ivanpgs]

Thanks sutebayashi for talking about your experience with the tandem iDeCo + Company DC.
It actually helps a lot, because it is most probably what I will end up doing now.

About Fidelity link, which topic is about iDeco and Company DCs and its complications when having both (very interesting article), thanks Tkydon for sharing it fixed. I am also sharing here just to give a bit more context to this response:

https://www.fidelity.co.jp/page/dc-colu ... rced-to-en

I was contributing to iDeCo first, then joined a company with a DC plan. I for whatever reason kept the iDeCo assets going as they were (Monex), but ceased new contributions, having joined the company DC plan.

Then I left that company and went through the process of migrating the DC plan funds to my old iDeCo account, and recommencing the iDeCo contributions (my new gig doesn’t have a DC plan).

I will also keep iDeCo, because the funds have been going on for a while and do not want to have them sold and unavailable for one or two months before the get transferred to the Company DC provider. Besides, the Company DC provider funds are more expensive.

I will see what I have to do with SBI to stop next month contributions and join the Company DC this month. It seems it takes one month to get it up and working. What I did not know, and I learnt from your reply, is that, after leaving the company, I can transfer the Company DC funds (I guess that after get them sold) to SBI, where iDeCo is (I knew it could be done the other way). I was just going to leave that funds alone while resuming on the iDeCo account and having both accounts (iDeCo resumed and the Company DC frozen). However it seems like a good idea transferring the funds from the Company DC provider to iDeCo to have them all there (I know the market timing risk can be there)

For that reason, I would not put my existing iDeCo funds into a company DC fund, just because I want the money to be invested and not be out of the market when some favourable market move occurs. (It might go the other way if one is lucky.)

Absolutely what I think. (although I might do as I said before with the DC Plan to iDeCo)

The advantage of having money in a single pension fund account seems to me to be the ease of management, since it can be a hassle to log in to two accounts to see what’s up. But I guess you’d be in SBI regularly anyway?

Well, I use SBI for iDeCo and also have a Tokutei there. It would be nice to still keep them there.

Thank you very much!

[TunaSki]

It sounds like You have a matching type Company DC. Which just to correct you, your employer is not matching what you pay, your employer dictates how much they pay, and then you can opt to match up to that amount, as long as the combination of both don’t exceed ¥55k per month.

Also the tax deductible is just for your contributions, not your employer’s contributions. but you’re correct that you’re not taxed for your employer’s contributions so it’s essentially free money for you from your employer

Thanks to law changes in 2022, You have two options:

1) make contributions to the DC, which as you mentioned your employer is paying in ¥27.5k then you can match up to ¥27.5k

Or

2) contribute between ¥5k and ¥20k per month to iDeCo

If you choose option 2, then your employer will continue to pay in their ¥27.5k per month to your DC, but you won’t be able to contribute anything to it.

Basically, option 2 means you have both company DC and iDeCo at the same time, but you can only contribute ¥20k per month to iDeCo.

Whereas option 1 means you contribute ¥27.5k to company DC but cannot do iDeCo.

You can then either keep your iDeCo dormant as an investment instructor, or roll it over to the company DC

[ivanpgs]

Hi TunaSki,

Thanks for your comment. I keep on learning new options here!

It sounds like You have a matching type Company DC. Which just to correct you, your employer is not matching what you pay, your employer dictates how much they pay, and then you can opt to match up to that amount, as long as the combination of both don’t exceed ¥55k per month.

Oh, I see. Thanks for the correction!

Also the tax deductible is just for your contributions, not your employer’s contributions. but you’re correct that you’re not taxed for your employer’s contributions so it’s essentially free money for you from your employer

It seems that another option is not joining the Company DC. In that case it seems my employee would just add it as an advance payment for retirement into my monthly salary, being taxed in that case.

Thanks to law changes in 2022, You have two options:

1) make contributions to the DC, which as you mentioned your employer is paying in ¥27.5k then you can match up to ¥27.5k
Or
2) contribute between ¥5k and ¥20k per month to iDeCo

If you choose option 2, then your employer will continue to pay in their ¥27.5k per month to your DC, but you won’t be able to contribute anything to it.

Basically, option 2 means you have both company DC and iDeCo at the same time, but you can only contribute ¥20k per month to iDeCo.
Whereas option 1 means you contribute ¥27.5k to company DC but cannot do iDeCo.
You can then either keep your iDeCo dormant as an investment instructor, or roll it over to the company DC.

Well, new option here. So if I want to continue contributing to iDeCo, let's say, at 20K yen/month while my employer puts 27.5K a month into the Company DC provider, then I will need to do some papers with SBI to get the monthly contribution changed from the current 23K to 20K and will be able to keep both iDeCo at SBI and the Company DC with my employer contributing to it. Or, stop contributing to iDeCo (and do some papers anyway to achieve so) and contribute to the Company DC maxing up to 55K monthly.

Both will need some papers to be done along the way.

Thanks!!!

[TunaSki]

Also the tax deductible is just for your contributions, not your employer’s contributions. but you’re correct that you’re not taxed for your employer’s contributions so it’s essentially free money for you from your employer

It seems that another option is not joining the Company DC. In that case it seems my employee would just add it as an advance payment for retirement into my monthly salary, being taxed in that case.

Thanks to law changes in 2022, You have two options:

1) make contributions to the DC, which as you mentioned your employer is paying in ¥27.5k then you can match up to ¥27.5k
Or
2) contribute between ¥5k and ¥20k per month to iDeCo

If you choose option 2, then your employer will continue to pay in their ¥27.5k per month to your DC, but you won’t be able to contribute anything to it.

Basically, option 2 means you have both company DC and iDeCo at the same time, but you can only contribute ¥20k per month to iDeCo.
Whereas option 1 means you contribute ¥27.5k to company DC but cannot do iDeCo.
You can then either keep your iDeCo dormant as an investment instructor, or roll it over to the company DC.

Well, new option here. So if I want to continue contributing to iDeCo, let's say, at 20K yen/month while my employer puts 27.5K a month into the Company DC provider, then I will need to do some papers with SBI to get the monthly contribution changed from the current 23K to 20K and will be able to keep both iDeCo at SBI and the Company DC with my employer contributing to it. Or, stop contributing to iDeCo (and do some papers anyway to achieve so) and contribute to the Company DC maxing up to 55K monthly.

Both will need some papers to be done along the way.

Thanks!!!

Yea if you don’t join the company DC then the amount they might give you in your salary would be taxable.

As for the paper work, yes, unfortunately paperwork is required for iDeCo, but it would be required anyway. Because every time you chanage jobs with iDeCo you need to be reassessed on your pension category (1,2, or 3)

So your new employer would fill out the iDeCo form to signal you’re category 2 enrolled in matching DC, where they pay in ¥27.5k, but you’re not contributing to it, and therefore can only contribute up to ¥20k per month

I’ve actually been doing this for a while because I went on childcare leave. And when on childcare leave my employer’s contributions went to ¥0. Meaning my opinions were match ¥0, or do ¥20k into iDeCo. So needless to say, I went for iDeCo while on childcare leave.

I might add though, if your employer is paying in ¥27.5k then the no brainer option is to do matching because then you can pay in ¥27.5k too. Which maximizes your contributions. Just make sure your employer DC offers a good selection of funds though.

[sutebayashi]

Yes thanks to Tkydon - thumbs up emoji time!

One thing I had not considered is the double management fee, one for iDeCo, that could be evaded by having just a DC plan but as ivanpgs says the fund costs may be higher in the DC and outweigh it.

I will see what I have to do with SBI to stop next month contributions and join the Company DC this month. It seems it takes one month to get it up and working.

I forget how this goes, but when you sign up to the DC there might be some box to check if you have an existing iDeCo… but I can’t remember having any difficulty with that part. (When going back from DC to iDeCo I did have to contact Monex as my iDeCo provider and get them to send me the paperwork to get started again.)

Thank you very much!

Most welcome

[beanhead]

One thing I don't think has been mentioned is the product availability. Does the company DC have suitable low-fee equity fund?
All-countries or developed countries or even S&P 500 would all be acceptable to me, as long as it is passive and low-cost.

[ivanpgs]

One thing I had not considered is the double management fee, one for iDeCo, that could be evaded by having just a DC plan but as ivanpgs says the fund costs may be higher in the DC and outweigh it.

About the double management fee, I think that the Company DC provider monthly fee is paid by the employer. However, iDeCo's account, regardless of the provider, has to be paid anyway. It seems that when you do not contribute monthly (because of a xxx) the fee is lower than when you contribute. For example, in SBI the regular monthly fee is 177円 and 66円 when not contributing. (Other providers might charge higher fees)

https://www.dcnenkin.jp/search/commission.php

I forget how this goes, but when you sign up to the DC there might be some box to check if you have an existing iDeCo… but I can’t remember having any difficulty with that part. (When going back from DC to iDeCo I did have to contact Monex as my iDeCo provider and get them to send me the paperwork to get started again.)

Yeah, you are right sutebayashi, there is a survey form where they ask you whether you want to join the Company DC or not. If you want to join, depending on your level within the company the company itself provides more or less monthly contribution and then you have the option of adding up to top 55K円 monthly. Then, probably there will be some questions about iDeCo, as TunaSki remarked before, when changing employer there is this need to reassess your pension category (1,2, or 3). I guess that after choosing to max up the contributions they will need to provide me with some sort of document like the "Notification of loss of participant eligibility" (加入者資格喪失届), but just guessing.

I also found below PDF very interesting. It is named "Asset Rollover Procedures", by Sonpo Japan DC Securities, and it contains the different scenarios that can occur for pension plan changes for diverse reasons, such as changing jobs, retiring, etc:

https://www.sjdc.co.jp/-/media/sjnkdc/f ... umei_E.pdf



Well, let's see how it goes!