Company DC vs Ideco

[mule96]

Could you clarify that "DC management fees are paid by company" ? This doesn't mean the fee one would pay on each fund we invest in, right? Probably comparable to the ideco account fee (annual?) which one would pay choosing Monex, SBI etc. ?

Not the fund fee. But Monex, SBI etc charge a small fee per month (171 JPY), for some banks it goes up to 589 JPY..

[turbo]

Hi! I am reviving this thread because I find myself in a very similar situation, and I hope you guys can give me some insight.

My company just started a corporate DC program. Just before that I was thinking about opening an iDeCo account, so now I am trying to see the pros and cons of both and try to decide.

After a consultation with my company, they told me the following:

• I can have both the corporate DC and iDeCo at the same time.

• The total monthly limit for both DCs is 27500 yen.

• iDeCo itself has a possible range of premiums between 5000 and 12000 yen (in 1000 yen increments).

• The corporate DC takes precendence in the total monthly limit.

• Company will pay corporate DC fees, I would have to pay iDeCo fees.

Considering this, I see two scenarios (please, correct me if I am wrong):

• No iDeCo and max out into the corporate DC.

• Allocate some amount to iDeCo and a different amount to the corporate DC (for example: 18500 yen to the corporate DC, 9000 yen to iDeCo)

Now, the reasons why I am considering iDeCo despite having the corporate DC are:

• I am not very happy at my current company and I do not see myself there more than one more year (maybe 1.5 years top). If I quit and if my new company does not have a DC plan, the corporate DC assets can be transfered to an iDeCo account. So I just think I would be good to have an iDeCo already just in case.

• The funds and the fees (and this is where I am a bit lost). The funds and fees offered by the corporate DC provider are:
  
  三菱ＵＦＪ銀行確定拠出年金専用１年定期預金 預金 - -
  三菱UFJプライムバランス（8資産）（確定拠出年金） バランス パッシブ 0.352%
  三菱UFJ　DC年金バランス（株式１５） バランス パッシブ 0.154%
  三菱UFJ　DC年金バランス（株式４０） バランス パッシブ 0.154%
  三菱UFJ　DC年金バランス（株式６５） バランス パッシブ 0.154%
  東京海上・年金運用型戦略ファンド（年1回決算型） バランス アクティブ 1.3695%
  トレンド・アロケーション・オープン バランス アクティブ 0.693%
  三菱UFJ DCバランス・イノベーション（KAKUSHIN） バランス アクティブ 0.660%
  東京海上・円資産インデックスバランスファンド バランス アクティブ 0.418%
  東京海上・日経２２５インデックスファンド 国内株式 パッシブ 0.2475%
  東京海上セレクション・日本株式 国内株式 アクティブ 1.650%
  ＜DC＞ベイリー・ギフォード世界成長株ファンド 外国株式 アクティブ 1.0395%
  東京海上セレクション・外国株式インデックス 外国株式 パッシブ 0.220%
  野村新興国株式インデックスファンド（確定拠出年金向け） 外国株式 パッシブ 0.275%
  東京海上セレクション・日本債券インデックス 国内債券 パッシブ 0.154%
  東京海上セレクション・外国債券インデックス 外国債券 パッシブ 0.198%
  野村新興国債券インデックスファンド（確定拠出年金向け） 外国債券 パッシブ 0.275%
  DC・ダイワJ-REITオープン 国内REIT パッシブ 0.605%
  野村世界REITインデックスファンド（確定拠出年金向け） 外国REIT パッシブ 0.363%
  三菱UFJ　純金ファンド その他 パッシブ 0.990%
  
  Does this look like a decent selection? According to my VERY LIMITED knowledge I should go for passive,
  global, low fees (less than 1%) funds. This would mean either 東京海上セレクション・外国株式インデックス or 野村新興国株式インデックスファンド（確定拠出年金向け）are good options, am I right?
  In case this selection is not good enough, having an iDeCo would at least give me access to more funds and (maybe?) lower fees.

What do you think? Do you see any flaw in my rationale?
Thank you for your feedback!

(Additional question: When they say company will pay fees, I suppose they mean the management fee (手数料), and not the fund fees above (信託報酬）, am I right?)

[sutebayashi]

Sorry to hear you are feeling like quitting your company, that’s a hassle. I guess I am currently in a similar situation though.

I have an iDeCo, but am currently making no extra contributions to it. I can switch around what is already there though. I had this since before I joined my current company.

And I have a DC with my company. In my case the company is doing matching contributions, so I am paying the circa 27,000 and the company is matching this amount. I imagine this part is an advantage over iDeCo which you would have to fully fund yourself, I think. Not sure if your company does this kind of matching, but I think it might be a kind of standard thing that is done.

I think you highlighted the most attractive passive funds that would be available to you. (I personally see this DC stuff as a part of my total investment portfolio and don’t worry about diversification within the DC itself)

[adamu]

• Company will pay corporate DC fees, I would have to pay iDeCo fees.

...either 東京海上セレクション・外国株式インデックス or 野村新興国株式インデックスファンド（確定拠出年金向け）are good options, am I right?

Sounds like a good plan. That's MSCI Kokusai (developed markets ex. Japan) + MSCI emerging markets. You're only missing Japan. They don't seem to have a good option for that (just the 1.650% active fund) so maybe you could cover Japan outside of your DC Nenkin.

One thing I think it would be worth clarifying: I don't think they will pay the annual management charge in your DC plan, only the associated account fees.

Considering the funds are inferior to what you can get in iDeCo, and there is no matching, I would max our your iDeCo, then go for those two funds in your corporate DC for the remainder.

If I quit and if my new company does not have a DC plan, the corporate DC assets can be transfered to an iDeCo account.

I'm sceptical of this. You would probably have to redeem the funds into yen, then re-invest in the new account, encountering out of market risk + transfer fees. But considering your options, I think there's not much you can do about it - it's still better to max out your tax free allowance if you'll be there for a few years.

FWIW Corporate DC + iDeCo actually gives you a higher tax free allowance (27500) than company employees who only have iDeCo (23000). It's just a shame the corporate DC funds are usually inferior to the iDeCo ones . Actually my understanding that the iDeCo limit in this case is 20,000 yen (not 12,000 as you said), although I don't have personal experience of it. It's possible your HR department are confusing DB and DC plans. https://retirewiki.jp/wiki/IDeCo#Contributions

If you are thinking of quitting soon however, I would probably forget about the DC plan and just do 100% iDeCo (個人払込). The extra tax-free allowance is probably not worth the stress + complexity unless you're going to stick with it for a few years.

[turbo]

Thank you very much for your replies!

And I have a DC with my company. In my case the company is doing matching contributions, so I am paying the circa 27,000 and the company is matching this amount. I imagine this part is an advantage over iDeCo which you would have to fully fund yourself, I think. Not sure if your company does this kind of matching, but I think it might be a kind of standard thing that is done.

About the matching contributions, I do not think that is the case for my company. My understanding is that since my employer also has a DB pension fund, most of the contribution to the DC will be from my part (not sure about this though). Also, it seems that if you are matching contributions, you cannot contribute to the iDeCo anymore.

Considering the funds are inferior to what you can get in iDeCo, and there is no matching, I would max our your iDeCo, then go for those two funds in your corporate DC for the remainder.

Right, the more I think about it, the more I convince myself this is the best option.

I'm sceptical of this. You would probably have to redeem the funds into yen, then re-invest in the new account, encountering out of market risk + transfer fees. But considering your options, I think there's not much you can do about it - it's still better to max out your tax free allowance if you'll be there for a few years.

The DC provider assured us about it, although I wonder what would happen if the company that manages the iDeCo does not manage some of the funds in the DC. In that case I will have to cash those out I guess.

FWIW Corporate DC + iDeCo actually gives you a higher tax free allowance (27500) than company employees who only have iDeCo (23000). It's just a shame the corporate DC funds are usually inferior to the iDeCo ones . Actually my understanding that the iDeCo limit in this case is 20,000 yen (not 12,000 as you said), although I don't have personal experience of it. It's possible your HR department are confusing DB and DC plans. https://retirewiki.jp/wiki/IDeCo#Contributions

If you are thinking of quitting soon however, I would probably forget about the DC plan and just do 100% iDeCo (個人払込). The extra tax-free allowance is probably not worth the stress + complexity unless you're going to stick with it for a few years.

https://www.ideco-koushiki.jp/english/p ... ership.pdf
This very useful chart actually shows my situation I think, the fourth column from the left. My understanding is that going 100% iDeCo would mean I can only contribute 12000 yen since just being elegible for the corporate DC fixes the iDeCo limit, regardless if you contribute to the other DC or not (I know, this whole thing is so confusing )

Also, it looks like that the iDeCo rules for corporate DC members changed in October 2022 so the information online is not always updated and sometimes even harder to understand.

[adamu]

https://www.ideco-koushiki.jp/english/p ... ership.pdf
This very useful chart actually shows my situation I think, the fourth column from the left. My understanding is that going 100% iDeCo would mean I can only contribute 12000 yen since just being elegible for the corporate DC fixes the iDeCo limit, regardless if you contribute to the other DC or not (I know, this whole thing is so confusing )

Not sure, but if you are not enrolled in the DB it looks like you're column 3, and could get a 55k (iDeCo + Company DC) allowance.

Also confirmed by following the registration form: https://www.ideco-koushiki.jp/library/p ... sample.pdf
Not enrolled in DB: 20k. Enrolled in DB: 12k.

Nice PDF, we should update the wiki.

[sutebayashi]

The DC provider assured us about it, although I wonder what would happen if the company that manages the iDeCo does not manage some of the funds in the DC. In that case I will have to cash those out I guess.

It may be the case that you have to convert those funds to cash, but this would occur inside the pension account. You should then be able to switch into funds offered by your new provider, I seem to recall.

[Tkydon]

I was going by the asterisk/footnote in column 2, but checking the (more official) site below, kosei-nenkin is referred to two times (both as a green box and a white box) and the white box covers the ¥55,000 category... so you're right.
Now I'm confused about the difference between kosei-nenkin kikin and kosei-nenkin hoken.

https://www.mhlw.go.jp/stf/seisakunitsu ... ousha.html

https://www.nenkin.go.jp/international/ ... index.html

https://www.nenkin.go.jp/international/ ... rview.html


Kokumin Kihon Nenkin - Basic Pension - Compulsory (with some granted exemptions; student, disabled, or unemployed experiencing financial hardship)
It must be paid in full either stand-alone of through one of the other schemes in order to qualify to participate in iDECO (see below)

https://www.nenkin.go.jp/international/ ... nsion.html
(The Yellow Box in this diagram - Fixed Y16,520 per month)
If you are not in employment, you will receive payment slips from the Pension Office.


Kousei Nenkin - Employee Pension Insurance System (EPI) - Compulsory

https://www.nenkin.go.jp/international/ ... nsion.html
(The Blue Box in this diagram - based on salary level)

https://www.nenkin.go.jp/international/ ... loyee.html

Contribution amounts are calculated by applying the same contribution rate to your monthly salary (Standard Monthly Remuneration*) and your bonuses (Standard Bonus Amount**), which are paid half by your employer and half by you.
Your employer must deduct contributions from your monthly salary and bonuses, and then pay the contribution (together with those paid by the employer) by due date*** (for example, contribution for April must be paid by May 31.)

These contributions include the Basic Pension Premium (the Minimum Payment) and the variable Kousei Premium

The EPI Contribution Tables are here:
https://www.nenkin.go.jp/service/kounen ... 00825.html
The left column shows the full premium, and the right column show the half paid by the employee

You will note the absolute minimum (Reiwa 5 - 2023)
全 額 折 半 額 等 級 月 額
Full Premium Employee's Half
18.300％ 9.150％
円以上 円未満
Monthly Salary Below 93,000
16,104.00 8,052.00
(about equal with the Basic Premium above)

and absolute maximum (Reiwa 5 - 2023)
Monthly Salary Over 635,000
118,950.00 59,475.00
(So, this includes the 16,520 + the additional salary linked Kosei Premium of 102,430 or 51,215)


Kokumin Nenkin Kikin - Self Employed People can pay this - Voluntary

https://www.nenkin.go.jp/international/ ... nsion.html
(The Left Brown Box in this diagram)

Category 1 National Pension insured persons, such as self-employed workers can select this. Participation is voluntary.
The benefit design includes the first unit, which everyone enrolls in, and the second and subsequent units, which can be selected according to your wishes. Premiums are paid according to the number of units, and the premiums are subject to social insurance premium deduction. Please note that members of the National Pension Fund cannot pay additional insurance premiums for the National Pension.

and is administered by the National Pension Fund Association
https://www.npfa.or.jp/

if the person opts in to this system, it includes the Basic Pension Contribution amount, referred to above as the 'First Unit', and voluntary incremental units.


Employees' Pension Fund

https://www.nenkin.go.jp/international/ ... nsion.html
(The Right Brown Box in this diagram)

These are Pension Funds provided by the Employer; Defined Benefit Company Pension - Taishokukin, or/and Defined Contribution Pension (Japan 401k).

These include a variety of different schemes in different sectors...

If you participate in these schemes, you may use up all of your Tax Advantaged Allowance and not be able to participate in iDECO (see below)


The Public Workers' Pension Fund.

I know nothing about this, other than the available limit for iDECO is lower than for a company employee at 12,000 instead of 23,000...
I will leave it to the people who are/were enrolled in this scheme to fill in the blanks...


Individual Pension Funds

All of the above schemes are Tax Advantaged, so the premiums paid are deducted from Gross Income, either by the employer in the Nenmatsu Chosei - Year-End Tax Adjustment True-Up, or in your Kakutei Shinkoku - Tax Filing - thereby reducing the Net Taxable Income.
Effectively, the Goverment contributes 10% Residents' Tax Reduction + Marginal National Income Tax Reduction to your Pension Account.

There is a ceiling to the Total Tax Advantaged Deduction, so there may be additional allowance not used up completely by the above schemes, which may allow you to contribute a certain amount to the limit of the Allowance to an Individual DEfined COntribution Pension Fund (iDECO).
The amounts permitted depend on which other schemes the person is participating in, and the amount of contributions being paid.

Y68,000 for Unemployed, Self Employed not in Kokumin Nenkin Kikin, etc.,
Y23,000 for Employees, housewives, etc.,
Y12,000 for Public Employees, public university professors, etc.,


Did I miss anything or omit anything?