Grant-in-Aid for Scientific Research, Category (C)Japan Society for the Promotion of Science, 2010-2012
No. 22530919

Survey Research toward Establishment of a Sustainable
Retirement System for Colleges and Universities in Japan

March 2013

Principal Investigator: Satoshi P. Watanabe
Research Institute for Higher Education
Hiroshima University, Japan

Survey Research toward Establishment of a
Sustainable Retirement System for JapaneseColleges and Universities
1. Introduction
As Japan’s modern society faces declining birth rates, extended longevity, andrising divorce rates,1 improvement of post-retirement financial security has become agrowing concern for the ageing population with a conventional pay-as-you-go (PAYG)
state pension system.

Apprehension throughout the nation about a quickly depleting

reserve in both private and public pension funds also poses a serious challenge formany employers and governments, particularly as the first wave of baby-boomers havebegun to leave the active workforce with hefty retirement lump-sum payments andannuities.

Moreover, since the Japanese government announced the termination of

Tekikaku Taishoku Nenkin as of March 31, 2012, which had stood as one of the mostpopular privately-managed defined benefit pension programs, the issue of reinforcing
post-retirement income sources has been raised as an important policy agenda in thedomain of social debates for the nation.

In addition, as career mobility in theJapanese workforce increases owing to voluntary and involuntary job changes, alongwith chronically high unemployment rates, the mobility risk associated with the loss of
For instance, according to the Summary of Vital Statistics released by the Ministry of
Health, Labour and Welfare of Japan, the number of newborns declined sharply in the last
60 years from 2,005,162 in 1952 to 1,033,000 in 2012, which represents a decrease of 48.5
percent. During the same period, the divorce rate acutely rose from 79,021 in 1952 to
237,000 in 2012, representing an increase of nearly 200 percent (http://www.mhlw.go.jp/
english/database/db-hw/ populate/.html; accessed January 30, 2013).
1

1

retirement benefits has become a non-negligible issue in planning a long term career
for all employed individuals in the country.
In order to respond to the emerging social needs in providing new retirementsavings vehicles, the Japanese government passed new pension laws in the early 2000s
permitting employers to shift their services from a conventional defined benefit (DB)pension scheme to defined contribution (DC) and cash balance plans.

However, notonly did the recent financial crisis that originated with the market crash of 2008 shakeharder than ever DB-providing employers’ anxiety in regaining the financial health oftheir retirement funds, but it also highlighted the potential investment risks embeddedin the DC pension scheme, which is largely borne by individual DC account holders.
Higher education institutions (HEIs) are not immune to this potential weakness ofvulnerable retirement benefits and insolvent pension systems in today’s highlyinterdependent organizational structures which heavily rely on external financial andasset management institutions.

The recent global financial crisis has awakened theivory towers of even the world’s leading institutions to the potential danger of thecurrent institutional investment strategy caused by unpredictable market volatility.
For instance, Harvard University, which is the highest endowed institution of higher
education in the U.S., lost 27.3 percent, lopping off $10 billion and shrinking its total
endowment down to $26 billion, in the aftermath of the Lehman shock.

Similarly,

Yale University, another wealthy institution in the U.S., reported a loss of 30 percent
in the same period, shrinking its endowment to $16 billion.2“Harvard and Yale Report Losses in Endowment,” an article published in The New YorkTimes on September 10, 2009.
2

2

A number of private colleges and universities in Japan are considered to havesuffered significant losses as well.

According to Nihon Shiritsu Gakkō Shinkō Kyōsai

Jigyōdan (The Promotion and Mutual Aid Corporation for Private Schools of Japan
2008), at least 75 private colleges and universities in the country held high-risk bearing
derivatives as of March 2006, and one large private university located in the Tokyo
metropolitan area was found with a loss of ¥15.4 billion by November 2008, throughhigh-risk bearing derivative trading.3
The research presented in this report was motivated by these detrimental crises
experienced by today’s colleges and universities throughout the world.

Numerous

scholarly contributions have been made, particularly in the U.S., on faculty preferences
for the choice of pension options as well as the associated retirement behaviors andproductivity of university faculty (see, for example, Clark & Pitts 1999, Clark & Ghent
2009, Conley 2007, Kim 2003).

However, the scholarly outputs in this research field

are particularly lacking for Japan’s higher education institutions as no previous
studies are found for the industry in this respect although the domestic higher
education industry employs more than 540 thousand individuals.

This study, perhaps

as the first effort in the academic community of higher education research in Japan,
attempts to shed light on this critical aspect of HEI management, analyzing theperceptions and the level of relevant knowledge of individual employees with regard totheir retirement savings and pension programs.

The study also illustrates alternative

schemes currently available in Japan, the United States and the United Kingdom and“Komadai Shisan Unyō Sonshitsu 154-oku-yen: Campus Tanpo de Anaume,” an article
published in The Asahi Shimbun on November 19, 2008.
3

3

examines the potential strengths and weaknesses of these alternatives within theinstitutional contexts of each country.

Descriptive findings are presented todemonstrate critical gaps existing in individual preferences among different age groups,
genders, job types and ranks, as well as establishment types of institutions.
The report presents a rather descriptive picture of the contemporary issues faced
by Japanese HEIs, based on our preliminary findings obtained from survey results,
which was locally conducted in 2011-2012 academic years covering 27 colleges anduniversities in the prefecture of Hiroshima.

The research is no doubt at the

preliminary stage, and a more concrete analysis still remains as a future agenda.
Further scrutiny of the data set with more rigorous and advanced methodologies iscertainly required, but the main focus of this report is on timely delivery of thedescriptive results on the current and emerging issues in Japan, in order to emphasize
the urgency of the subject.

The ultimate aim of this study, which is part of an ongoing

research project, is to provide a means for all institutions of higher education toreconsider the importance of establishing sustainable retirement benefit systems.

2. Historical background: de facto
As Watanabe (2010a) describes, the employer-sponsored retirement savings
programs for faculty and administrators in Japan’s HEIs have been highly segmented
by the establishment type of institutions.

Typically, full-time employees of thenational and municipal (i.e., prefectural and city) colleges and universities areequipped with the national and local government-administered benefit programs,4respectively, while private colleges and universities normally provide their full-time
employees with the retirement savings plans that are privately managed by Nihon

Shiritu Gakkō Shinkō Kyōsai Jigyōdan (The Promotion and Mutual Aid Corporation
for Private Schools of Japan).
One of the critical issues of the retirement allowance systems for Japan’s HEIs is
considered to be rooted in this highly segmented coverage of employees in the industryof higher education.

For instance, full-time faculty and administrators of the national

university corporations have been covered by the National Public Service Mutual Aid
Association (Kokka Kōmuin Kyōsai Kumiai), which is designed “to issue a pension
and/or other allowances to any public employee or their surviving family on the basis of
the national government's special relationship with that public employee when that
employee retires, after having served faithfully for a specified number of years, or when
they have retired due to an injury or illness stemming from their service, or when they
have died due to their service” (Ministry of International Affairs and Communications2010).4

Similar retirement allowance benefits are also provided to employees of public

institutions established by the local governments, i.e., prefectural and city colleges anduniversities, through the Local Public Employees’ Mutual Aid Association (Chihō

Kōmuin Kyōsai Kumiai). Therefore, full-time professors and administrators in these
two types of public institutions have typically been covered by the retirement savings
programs, which have been independently administered by separate publicThis pension program for public servants was founded in 1875 and is the oldest pension
program in the country. For further information, please refer to the website of the
Ministry of Internal Affairs and Communications of Japan (http://www.soumu.go.jp/
english/ppb/index.html)
45

authorities.5
Parallel to these retirement allowance programs for employees in the public sector,
the benefit coverage of the majority of academic and administrative staff members inprivate colleges and universities are administered by the Retirement Allowance
Foundation of Private Colleges and Universities (Zaidan Hōjin Shiritsu Daigaku

Taishokukin Zaidan). The Foundation which was established and began its functionsin the early 1980s currently holds 599 institutional members as of March 31, 2012,
covering about 90 percent of the overall private institutions of higher education in the
country (The Retirement Allowance Foundation of Private Colleges and Universities
2012).

The annual average of more than 137,000 full-time faculty and personnel ofprivate colleges and universities are covered by the Foundation’s premise in 2012.
Due to this clearly divided administration of the retirement benefit programs by
establishment type of institutions, individuals in the industry of higher education in
Japan have been exposed to mobility risk as they change their institutions.

That is,Japanese faculty and administrators would be offered no options other than receiving a
lump-sum payment every time they change employers across different establishment
types.

As a result, portability of retirement benefits has emerged as an important

agenda for today’s academic workforce as the employees in the industry become
increasing mobile.
The Japanese government then passed pension laws in 2002, which permitted

However, administrative support staff with a short-term contract or with a part-timestatus, in general, are not entitled to the retirement allowances at the termination of theiremployment contracts.
5

6

financially struggling employers to shift their services from a burdensome defined
benefit (DB) retirement scheme to new defined contribution (DC) savings vehicles andcash balance plans.6

It is commonly understood that under the typical DB retirement

scheme employers offer a guaranteed payout to retirees in the form of a lump-sum
and/or annuity, calculating the final amount of receipts based on a pre-determined
formula which normally takes into account a worker’s number of service years in an
organization and some of the highest salaries during his or her service.

However, theMinistry of Health, Labour and Welfare raised, as the primary reason for introducing
the new DC scheme, the fact that the conventional DB retirement plans have not been
implemented by many small- to medium-sized firms, leaving workers at these firms at
a disadvantage with no employer-sponsored retirement savings options.7

The second

issue pointed out by the Ministry is the inability of DB benefits to be rolled over asworkers change their jobs.

It is claimed that these two issues have historically put

female workers in Japan at a disadvantage because women tend to work for smallerfirms with no corporate retirement benefits and experience career interruptions as theyreach the childbearing stage of life.

Moreover, from the employers’ viewpoint the

introduction of the DC pension scheme was imperative as the corporate-sponsored DB
retirement programs have imposed an enormous financial burden on many insolvent
employers in the past decade (Japan Business Federation 2006).
More precisely, the Defined Benefit Corporate Annuity Law and the DefinedContribution Corporate Annuity Law were enacted and became effective in October 2001
and April 2002, respectively.
7 Cited from the official website of the Ministry of Health, Labour and Welfare of Japan,
http://www.mhlw.go.jp/topics/bukyoku/nenkin/nenkin/ kyoshutsu/gaiyou.html, accessed
January 9, 2009.
67

Nonetheless, most retirement savings programs currently available for employees
in public services or of private organizations in the country are predominantly based on
the traditional final-pay DB scheme.

While many US firms have made a dramatic

shift away from the DB pensions to the alternative DC scheme in the last 30 years, andmany private European firms have followed this trend, the majority of Japaneseemployers continue to offer the DB plans as the backbone of their retirement savings
programs.

Therefore, the conventional DB plans are expected to play a continuously

important role in securing post-retirement income sources for the country’s private
sector employees.

In fact, only two incorporated educational institutions (Gakkō

Hōjin), which operate private institutions of higher learning in Japan, offer the DC
options to their employees as of December 31, 2012.8
In the following section, typical retirement savings programs provided for
employees of colleges and universities in the U.S. and U.K. are briefly illustrated.

The

descriptions, despite their brevity, help us understand and highlight the strengths andweaknesses of the alternative models in a comparative manner with the current
Japanese system.

3. Retirement savings programs in the U.S. and U.K.
3.1 United States
Teaching and administrative staff members of many US colleges and universities

Cited from the official website of the Ministry of Health, Labour and Welfare of Japan,
http://www.mhlw.go.jp/topics/bukyoku/nenkin/nenkin/kyoshutsu/company-list.html,
accessed January 31, 2013.
88

are typically covered by 401(k) or 403(b)-type tax sheltered DC plans, provided by
Teachers Insurance and Annuity Association–College Retirement Equities Fund
(TIAA-CREF).

The organization, which has served the academic, research, medical,

cultural and nonprofit fields for over 90 years, is a leading provider of retirement
services for the community and one of the largest institutions in the financial services
industry in the U.S. with $487 billion in combined assets under management as ofMarch 31, 2012.

TIAA-CREF currently supports and meets the financial needs ofapproximately 3.7 million active and retired employees participating at more than
15,000 institutions.9
Conley (2007), using a sample of 567 public and private institutions of higher
education in the U.S., finds that 42 percent offered DC pension plans through financial
institutions such as TIAA-CREF.

An additional 41 percent of institutions allowed

faculty members to choose either a DC plan or a DB option such as a state plan whichcalculates final receipts of benefits based on the standard DB formula that might
include years of service, final average salaries, and age.

Conley’s findings also show

that, where faculty members were given such a choice, the majority (72 percent) ofinstitutions required participation in the DB system as the default plan.

Only 12percent of responding institutions reported offering only a DB option, and 5 percent
offered a combined plan that includes features of both types of pension programs.
In contrast to the guaranteed employer-sponsored DB scheme with certain final
allowances, DC-providing employers and workers make a deposit of a proportion of his
Please refer to the TIAA-CREF website (https://www.tiaa-cref.org/public/index.html) for
detailed information.
99

or her monthly salary into a tax-deferred retirement account.

Individual workers are

responsible for the management of their own account, and the amount of final receipts
depends on the performance of the investment market as well as individual portfolios
during their active career.

Some US institutions provide a combination of these two

types of plans, permitting faculty members to choose between the types of plans, orallow them to participate in both types (Conley 2007).

Unlike the retirement savings

programs for the Japanese higher education community, sponsoring colleges anduniversities may participate in TIAA-CREF’s services regardless of the establishment
type; that is, regardless of public or private institutions.

Moreover, the participating

institutions are not restricted to tertiary education, but include from primary andsecondary schools to research and nonprofit organizations.

As a result, portability ofthe pension benefits is guaranteed as a vested employee changes from a public
university position to, say, a private university or a non-profit research organization, or
vice versa.

3.2 United Kingdom
The Universities Superannuation Scheme (USS), established collectively by UK
universities in 1974, is the principal pension scheme for 374 participating universities
and other higher education and research institutions.

Headquartered in Liverpool, it

is one of the largest UK pension schemes with more than 287,000 individual members,
mainly academics and senior administrators with total assets worth about £34.2 billion

10

as of March 31, 2012.10
Although the USS provides the final-pay DB pension benefits to the plan
participants, vested employees are endowed with the flexible portability of the benefits
since the majority of UK colleges and universities participate in the USS services as
institutional members.

Thus, employees of participating institutions are allowed tocarry over their DB pension benefits as they change jobs among the member
institutions, and individuals do not need to cash out the cumulative benefits at the timeof retirement or separation from their employers.

The USS programs also permit

individuals to increase their benefits by paying Additional Voluntary Contributions(AVCs).

The scheme critically differs from Japanese DB plans in that part-time

employees may be eligible for the USS pension benefits.

The scheme is alsocharacterized by the flexible and continuous coverage of individuals during theirmaternity and paternity leaves.

However, coverage by the USS benefits are restricted

to only academic and higher-ranked senior administrative staff, and non-teaching
non-professional staff members are normally covered by the locally sponsored plans,
typically provided by their employers or local governments.

As with the Japanese DB

retirement schemes, the USS faces a serious challenge in its long-term sustainability
as investment risk is solely borne by the benefit-sponsoring employers and their
liabilities have been growing more quickly than assets in recent years.
Retirement schemes implemented for HEI employees in Japan, the U.S., and the

For more detailed information, please refer to the USS Report and Accounts 2012 which
is downloadable from the official website, http://www.uss.co.uk/Annual%20Reports/
Report%20and%20Accounts%202012.pdf
1011

U.K. are briefly summarized in Table 1 below, with the associated conditions andrequirements for each country’s typical employer-administered plans.

It clearlyhighlights the differences of the systems among three countries, in terms of scheme
type, coverage, and portability of the benefits.

Table 1. Retirement savings schemes of higher educational institutions in Japan, U.S. and U.K
Japan
Primary fund

NPSMAALPEMAA

MemberPublicPublicinstitutions(national)(local)U.S.
RAFPCU

TIAA-CREF

PrivateAll types

Primary scheme

Defined benefit

Staff coverage

Teaching & administrative

Part-time coverage

Definedcontribution

No

U.K.
USS

Local plans
All types

Defined benefit

Teaching &Teaching & senior

Lower grade

administrative

administrative

administrative

No

Yes

Portability
No
Yes
Yes
NPSMAA: National Public Service Mutual Aid Association (Kokka Kōmuin Kyōsai Kumiai); LPEMAA: Local Public
Employees’ Mutual Aid Association (Chihō Kōmuin Kyōsai Kumiai); RAFPCU: Retirement Allowance Foundation ofPrivate Colleges and Universities (Zaidan Hōjin Shiritsu Daigaku Taishokukin Zaidan); TIAA-CREF: Teachers Insuranceand Annuity Association–College Retirement Equities Fund; USS: Universities Superannuation Scheme Limited.

4. Related literature on retirement benefits and pensions
It is perhaps noteworthy, particularly for non-Japanese readers, that mandatory
retirement is legitimately practiced throughout the industries, both public and private,in Japan. 11

An important scholarly contribution on the interpretation of the

In many other developed countries such as Germany and France, mandatory retirement
is allowed for most workers including university faculty. In Canada, mandatory
retirement of university faculty was found constitutional in a 1990 Supreme Court decision.
However, setting mandatory retirement age is generally unlawful in the U.S. Australia
and New Zealand also abolished compulsory retirement for most workers including
university faculty.
11

12

mandatory retirement system in DB-sponsoring organizations dates back to Lazear’s(1979) seminal work.

According to Lazear’s model, the design of the “back-loaded” DBfeature along with a tilted compensation profile over one’s career enhances employee
morale and commitment in the form of reduced shirking, increased effort, and longtenure with the organization (Lazear 1979, 1982, 1990).

Despite its advantageous

features, however, the conventional DB pension scheme has imposed tremendous
financial liabilities on the benefit-sponsoring employers, particularly since the fiscal
collapse attributed to the “Lehman Shock” of 2008.

For many Japanese employers,

the prolonging economic slump has also posed an enormous financial challenge since
the country’s infamous bubble economy ended in the early 1990s.

Muto and Ishizuka(2002) report that Kosei Nenkin Kikin and Tekikaku Taishoku Nenkin, Japan’s two
most popular privately-managed DB pension programs, have been undergoinginsufficient reserves due to weak performance of faltering financial markets since theburst of the bubble economy.
The industry of higher education is not immune to this financial volatility as its
retirement systems typically depend on private annuity and investment markets.

Asa result, many colleges and universities are facing unprecedentedly challenging
financial situations in maintaining the health of their retirement funds.

Based on the

published data released from the annual reports of the Retirement Allowance
Foundation of Private Colleges and Universities (Zaidan Hōjin Shiritsu Daigaku

Taishokukin Zaidan), which is the largest retirement fund for Japan’s private colleges
and universities, Watanabe (2010a) warns of the structural unrest of privately-13

administered retirement funds for academic and administrative staff employees in theJapanese HEIs.

In fact, the Foundation has seen heavy losses in its institutional

membership from a peak of 612 institutions in 2001 to 599 in 2012.
In order to supplement the deteriorating DB environments as well as to rescue theunderfunded DB-providing employers in serious deficits, the Japanese government
passed pension laws in 2002, permitting employers to offer the DC pension scheme inaddition to the traditional DB benefits.

The new DC scheme provides notably

advantageous features for individual account holders.

Firstly, portability of anindividual-based DC retirement account offers remarkable benefits to the Japanese
workforce with increasing mobility.

In the conventional DB programs, workers withhigher job turnovers are likely to suffer disadvantageously lower receipts of final
retirement allowances due to the back-loaded feature of the DB scheme, relative to thetheir colleagues who spend their career with the same employer (Pesand 1992).
Secondly, a DC plan is typically characterized by front-loaded tax incentives; that is,the contributions are deductible from income, and the accrued investment return
generates no tax liability until withdrawn.

Under the DC pension scheme, however,investment risk is passed onto individual account holders from benefit-sponsoring
employers, leaving the workers with uncertain final receipts of cumulative retirement
allowances.
Since the passage of the related DC laws in Japan, the choice between theconventional DB pensions and a portable DC plan has drawn serious attention ofindividual workers as well as employers in Japan (Kubo 2001).

14

According to theeconomic model by Ippolito (1997), the preferred type of pension coverage would depend
on whether one finds the “indenture premium” associated with DB pensions sufficient
to overcome the inherent cost of less mobility.

If a woman faces a smaller prospect offinding an equivalently well-compensated job outside the current firm than a man,then she might find the cost of less mobility low, leaving the relative value of her
current DB indenture premium sufficiently high.

Thus, a significantly high indenture

premium faced by women would reduce the efficacy of their choosing a DC plan in
response to the portability benefit.

Watanabe (2009), using a sample of Japanesefull-time employees, obtains a result which supports this argument.

The findingshows that corporate-pension covered female employees are significantly less likely
than their male counterparts to choose a DC plan in response to the portability benefit.
Watanabe (2010b) also provides evidence that Japanese female full-time workers areless likely than their male counterparts to choose a DC plan over DB pensions due tothe associated investment risk as well as the unpredictable nature of the financial
markets.

The non-popularity of the new DC scheme among Japanese female workers

is found in a survey result which reports that only 32% of corporate DC pension eligible
female workers were enrolled in a DC plan in 2004, while 75% of DC eligible men chosethe plan in the same year (Ministry of Health, Labour and Welfare 2005).
While Ippolito and Thompson (2000) found that the complete termination of the
DB scheme in favor of DC alternatives was a rare event and that the vast majority ofthese plans might survive in the U.S., Butrica et al. (2009) report that the US
retirement market has seen a significant shift away from the traditional DB pension

15

programs to DC plans in recent years.

Butrica et al. also predict that the shift may

even accelerate as an increasing number of financially solvent companies cease toprovide their conventional DB benefits by replacing them with new DC pension plans.
In contrast to the U.S., in the U.K., although the DC scheme remains a small segmentof the market (Clark 2006), there has been a gradual trend away from DB plans with
employers setting up new retirement programs which tend to opt for DC schemes(Mayhew 2001).

5. Survey questionnaire and data
The survey was conducted in 2011-2012 with the financial support from the Japan
Society for the Promotion of Science (JSPS) in the form of Grant-in-Aid for Scientific
Research (Category C), with the full-time faculty and administrative staff members
employed in Hiroshima prefecture as the sample target of the study.

There are 27

colleges and universities in the prefecture, which include one national university, fourmunicipal (one prefectural and three city) universities, and 22 private institutions ofhigher education.12

The survey questionnaires were mailed to each institution, whichwere then distributed among their full-time employees within each institution.

Morethan seven thousand questionnaires were mailed to all the 27 institutions, and 1,628.
full-time teaching and administrative staff members returned their forms.
Summary characteristics of the sample respondents are provided in Table 2.

The

Based on the Official Site of the Prefectural Government of Hiroshima. The list of 27
institutions (in Japanese) may be viewed at http://www.pref.hiroshima.lg.jp/soshiki/44/
hiroshima-univ-guide.html.
12

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Table 2. Summary characteristics of the sample respondents
N%

National

967

60.3

Municipal

184

11.5

Private

452

28.2

Male

1,113

68.5

Female512

31.5Type of establishment:

Gender:Age:
20 – 29 years old

121

7.7

30 – 39 years old

447

28.6

40 – 49 years old

418

26.8

50 – 59 years old

368

23.6

60 + years old

208

13.3

Executive officer

13

0.8

Dean/chairperson

48

3.0

Full professor/associate professor

621

38.4

Assistant professor (including Jokyō, Kōshi, and Joshu)

319

19.7

Research associate (kenkyūin)/postdoctoral

55

3.4

Senior administrative staff

92

5.7

Junior administrative staff

469

29.0

Job category/rank:largest proportion of the sample came from the national university employees (60.3%),
followed by private (28.2%) and municipal (11.5%) colleges and universities.
Approximately two-thirds of the respondents are male employees (68.5%) with the restof the sample identified as female employees (31.5%).

The average age is 44.9 years

old, with the sample being relatively evenly distributed among age groups 30s through50s (28.6%, 26.8%, and 23.6%, respectively).

The largest proportion of the sample wasobtained from full and associate professors (38.4%), followed by junior administrative
staff members (29.0%), as well as assistant professors (19.7%) who may be on a17

tenure-track but typically have not attained a tenure status yet.

Further detailed

statistics on all the questions included in the survey questionnaire are provided in the
appendix table at the end of the report.

6. Preliminary and descriptive findings
In this section, some preliminary findings obtained from the descriptive analysis
with raw data are discussed in detail.

A particular emphasis is given to the researchinterests deriving from the original aims of the survey, i.e., (a) the level ofunderstanding or employee knowledge with regard to their retirement and pension
benefits and (b) individual preferences for different benefit schemes.

The categoricalresults are presented by (6.1) establishment type of institutions, (6.2) gender, (6.3) age
group, and (6.4) job category and rank of the respondents.

6.1

Descriptive findings by establishment typeFirstly, the survey questionnaire directly asked individual respondents theircurrent perceptions about the necessity for increased information on financial asset
management, available retirement and pension programs, as well as ongoing systems
for the purpose of planning post-retirement savings.

Figure 1 below shows that no

significant differences exist among faculty and administrative staff members ofnational, municipal (prefectural and city), and private colleges and universities locatedin Hiroshima prefecture, in terms of their urgent needs for improved financial
knowledge or related information.

It is noteworthy, however, that over 80 percent of18

the employees at all types of institutions revealed the necessity of the retirement andpension related information in planning their retirement savings.

Only less than five

percent in each type required no further information.

Figure 1. "Do you need more information on financial asset
management, retirement and pension programs?"
Percent
90.0

81.4 81.4

84.0

80.0
National

70.0

Local (prefectural/city)

60.0

Private

50.0
40.0
30.0
20.0

14.0 14.2

12.4

10.0

4.6

4.4

3.6

0.0
Agree/somewhat agree

Neither

Disagree/somewhat
disagreeDespite the high proportions of university faculty and administrators revealing thenecessity of improved relevant knowledge, only less than 30 percent of the employees ineach type of institutions actually sought and obtained information on retirement andpension programs from their employers (Figure 2 below).

As a result, 68 percent of

national university employees were unable to answer the question on the approximate
amount of monthly annuity payments that they expect to receive after retirement, anda similar two-thirds of faculty and staff at municipal and private institutions were able
to do so.
19

Figure 2. Acquired information and the level of knowledge
Percent80.0
68.4

National

70.0

66.3

67.0

Local (prefectural/city)
60.0

Private

50.0
40.0
28.5

30.0
20.6

21.7

20.0
10.0
0.0
Obtained information about retirement/
pension programs

Unable to answer monthly value ofannuity payments

The questionnaire also asked the respondents a basic question as to their eligibility
status for the employer-sponsored retirement savings programs.

Surprisingly, nearly

half of the national university employees (47.7%) as well as municipal university
employees (47.8%) were unable to answer to this simple question (Figure 3 below).

In

contrast, two-thirds of employees at private institutions were able to give a definite
answer to the same question.

Nevertheless, our result shows that only less than

one-half of the sampled employees in each type of institution positively identified
themselves as eligible for employer-sponsored retirement plans.

Table 3 also showsthat six to eight percent of full-time employees self-identified as ineligible although thebenefits are available from their employers.

20

Figure 3. Eligibility for and availability of retirement benefits
Percent
60.0
50.0

49.1

47.7 47.8

National

43.3 42.4

Local (prefectural/city)
37.8

Private

40.0
30.0
20.0
10.0

5.9

7.1 8.4
2.6 2.2

4.2

0.0
Eligible

Available but noteligible

Unavailable

Don't know

Figure 4. Desirable attributes of retirement benefits
Percent70.0
National

59.3 58.7 58.6

60.0

48.1

50.0

50.5

Local (prefectural/city)

48.7

47.1
36.4

40.0

Private

36.0

36.4
35.3

32.1

30.0
21.9

20.0

17.9

16.8

10.0
0.0
Being able tomanage own
retirement assets

Being able to view Being able to carry
Being able toown accountover the benefit as receive retirementbalance any time one changes a job allowances evenwith short tenure21

Tax emempt
contributions andprofits

The questionnaire then asked what attributes each respondent would desire if
their employers introduced new retirement benefit programs or expanded the current
programs.

Figure 4 (above) shows that the highest proportions (59%) of the sample at

all institution types identified “being able to view own account balance any time” as adesired attribute, which a traditional DB scheme would not offer.

Approximately halfof the sample of each establishment type also revealed “being able to carry over the
benefit as one changes a job” as a desirable attribute, reflecting their higher inclinationof career mobility.
A significantly higher proportion (47.1%) of private university employees, inparticular, listed “being able to receive retirement allowances even with short tenure”
as a preferable characteristic for their retirement benefits, in comparison with lower
proportions of their counterparts employed at the national(36.4%) universities identified it as a favorable attribute.

(36.0%) and municipal

The different perceptions on

the concern for the length of service or tenure is perhaps due to a larger proportion ofstaff being employed on a definite-term contract in private institutions than theircounterparts in public colleges and universities.

The least favored attribute by all

employees regardless of the establishment type was “being able to manage own
retirement assets”, reflecting the reluctance to individually manage risk-bearing
investment portfolios.
In fact, all the benefit characteristics discussed in Figure 4 are inherently carriedby the newly introduced DC scheme, and none of the attributes are generally equippedwith the conventional DB retirement plans.

22

In response to a question inquiring aboutthe familiarity with this new DC scheme, however, only limited proportions of
employees at all types of institutions (i.e., 11.5%, 17.5%, and 13.1% at national,
municipal, and private institutions, respectively) were positively familiar with the DC
scheme, and nearly 30 percent possessed very limited knowledge about the new scheme(Figure 5).

More than a half of the sample of each institution type did not know at all

what a DC scheme was.

Figure 5. "Do you know what a DC scheme is?"
Percent
60.0

53.7

National

51.9

56.6

Local (prefectural/city)

50.0

Private40.0

34.8
30.6 30.4

30.0
20.0

17.5
11.5

13.1

10.0
0.0
Know DC

6.2

Only heard of nameDon't know of it at all

Descriptive findings by gender
Our preliminary and descriptive findings suggest that no significant male-female

differential exists in terms of their perceptions on necessity for financial information in
preparation for their retirement savings.

23

Figure 6 demonstrates that highproportions of both male (82.4%) and female (81.7%) full-time faculty andadministrators responded positively to the question inquiring on the necessity for the
In contrast, very few respondents in the sample, i.e., 4.5 percent

related information.

of male and 3.7 percent of female employees, were satisfied with their knowledge offinancial asset management as well as retirement and pension-related information
currently held.

Figure 6. "Do you need more information on financial asset
management, retimrent and pension systems?"
Percent
90.0

82.4

81.7

80.0
70.0

Male

Female

60.0
50.0
40.0
30.0
20.0

13.1

14.6

10.0

4.5

3.7

0.0
Agree/somewhat agree

Neither

Disagree/somewhat disagree

Despite the similar perceptions found for both genders, however, our data suggest
a significant gender gap as to their understandings on expected receipts of monthly
annuity payments.

Figure 7 (below) shows that 77 percent of female full-time faculty

and administrative staff members failed to respond with their clear expectation to aquestion inquiring the monthly value of annuity payments, while 63 percent of male24

counterparts failed to do so.

The figure also shows that a slightly smaller proportionof female employees obtained from their employers information with regard to theirretirement and pension programs.

Figure 7. Acquired information and knowledge level
Percent
90.0
77.1

80.0
70.0

Male

Female

63.3

60.0
50.0
40.0
30.0

24.8

20.7

20.0
10.0
0.0

Obtained information about retirement/ Unable to answer monthly value ofpension programs
annuity payments

Perhaps more importantly, a significant gender differential was found in the statusof eligibility for employer-administered retirement benefits which provide lump-sum
retirement allowances and annuitized payments after retirement.

As shown in Figure

8 below, although one-half of our male respondents are eligible employees, only a thirdof the female counterparts identified themselves as eligible for employer-sponsored
retirement benefits.

Furthermore, over 13 percent of the female sample self-identified

as non-eligible employees albeit the retirement benefits are available at their25

institutions, whereas four percent of their male colleagues identified themselves withsuch a limited contract.

The result also demonstrates that a critically large

proportion (48.1%) of female employees did not know whether they are eligible for the
benefits or not, while 44 percent of males responded similarly.

Figure 8. Eligibility for and availability of retirement benefits
Percent
60.0
50.4
50.0
40.0

Male

48.1

Female

43.5

34.4

30.0
20.0

13.5

10.0

3.6

2.5

3.9

0.0
Eligible

Available but noteligible

Unavailable

Don't know

Our descriptive finding presented in Figure 9 (below) suggests that female faculty
and administrative staff members particularly favor benefit attributes such as “being
able to receive retirement allowances even with short tenure” over their malecounterparts (51.4% of female and 33.5% of male samples) and “being able to carry overthe benefit as one changes a job” (50.6% female and 47.2% male).

A relatively larger

proportion of male employees in contrast tend to favor such attributes as “being able tomanage own retirement assets” than female counterparts (21.9% versus 15.2%) and26

“being able to view own account balance anytime” (60.6% versus 55.1%).

These

results are consistent with the findings by Watanabe (2010b) which analyzed theJapanese workers employed at small- to medium-sized private firms and identified
different tendencies between genders in their preferences for various characteristics
carried by DC pension schemes.

Figure 9. Desirable attributes of retirement benefits
Percent
70.0
60.6
60.0

Male
55.1
47.2

50.0
40.0
30.0
20.0

Female

51.4

50.6

33.5

34.9 33.2

21.9
15.2

10.0
0.0
Being able tomanage own
retirement assets

Being able to view Being able to carry
Being able toown accountover the benefit as receive retirementbalance any time one changes a job allowances evenwith short tenure

Tax emempt
contributions andprofits

In response to the question which inquired whether the respondents are familiar
with the DC scheme, nearly two-thirds (64.2%) of female respondents did not know
exactly what a DC scheme was, whereas only a half (49.6%) of male counterparts fell inthe same category (see Figure 10 below).

Only limited proportions of male (15.2%)

and female (7.4%) samples responded with definite familiarity with the scheme.
Mitchell (1988) points out the possibility that the lack of information impedes27

individuals from making optimal decisions on their annuity choice.

Therefore, themale-female difference in relevant knowledge has important policy implications for
future income distribution and poverty among the coming generations of elderly
Japanese.

Figure 10. "Do you know what a DC scheme is?"
Percent
70.0

64.2
Male

60.0

Female
49.6

50.0
40.0

35.2
28.4

30.0
20.0
10.0

15.2
7.4

0.0
Know DC

6.3

Only heard of nameDon't know of it at all

Descriptive findings by age group
Figure 11 (below) shows no significant differences existing among different age

groups, in terms of the perceived necessity for information directly related to financial
asset management, retirement and pension programs.

However, similar to thedescriptive findings presented for the establishment type and gender, more than 80
percent of all age groups revealed that they need more information in this respect inpreparation for their retirement savings.
28

Figure 11. "Do you need more information on financial asset
management, retirement and pension programs?"
Percent
90.0

82.5 81.7 82.7 83.3 82.1

80.0
70.0

20s

30s

40s

50s

60+

60.0
50.0
40.0
30.0
20.0

13.3 15.4 12.9 13.1

10.1

10.0

4.2 2.9 4.3 3.6

7.7

0.0
Agree/somewhat agree

Neither

Disagree/somewhat disagree

Figure 12. Acquired information and the level of knowledge
Percent
90.0

82.6

80.0
70.0

75.8
20s

30s

40s

50s

60+

74.9
64.4

60.0
50.0
39.7

38.9

40.0

35.1
26.1

30.0
20.0

17.7

19.6

10.0
0.0
Obtained information about retirement/
pension programs

29

Unable to answer monthly value of annuity
payments

In Figure 12 above, a decreasing trend is identified among different age groups inthe proportions of respondents being unable to answer the expected approximate valueof monthly annuity payments.

The result clearly indicates that the older cohorts are

better informed and knowledgeable about their future benefits than the younger
cohorts.

Although more than one-third (39.7%) of the youngest cohort obtained

information related to their retirement benefits and pension systems, the highest
proportion (82.6%) of the cohort was still unable to give the approximate value of futuremonthly pension receipt.

The result implies that there exists a gap between thecontents of information they obtained and how precisely the knowledge is related totheir future needs.

In Figure 12, full-time faculty and administrators in their 30s

were identified as the most passive or unmotivated cohort with only 18 percent having

Figure 13. Eligibility for and availability of retirement benefits
Percent
70.0

64.4
58.7

60.0

20s

30s

40s

50s

60+

50.0

54.5 56.4
49.0

42.1
40.0

33.9
31.1

32.6

30.0

24.0

20.0
9.9 8.5

10.0

5.7 5.1

7.7
1.7

3.6 2.6 2.4 3.4

0.0
Eligible

Available but noteligible30

Unavailable

Don't know

sought information on retirement and pension programs from their employers.
Figure 13 (above) illustrates that more than half of younger cohorts (54.5% and56.4% for age group 20s and 30s, respectively) failed to answer whether they are
eligible for the retirement benefits sponsored by their employers, whereas
approximately a third of the same cohorts (33.9% and 31.1%) responded with aneligible status.

The oldest cohort (age 60+) was more knowledgeable than any of their

younger cohorts with regard to their understanding about eligibility status, with nearly
two-thirds (64.4%) positively self-identifying as eligible whereas only a quarter (24.0%)
failed to provide a definite answer.

Figure 14. Desirable attributes of retirement benefits
Percent
70.0
60.6

60.0

57.0

60.8
59.2
56.7

20s
54.1
51.7
50.4

50.0

45.1

50s

60+

45.4
36.8 38.0

31.3

20.0

40s

53.7

40.0
30.0

30s

38.3 38.6
34.0

30.4

24.5
23.1
19.1
16.8
17.3

27.9
24.0

10.0
0.0
Being able tomanage own
retirement assets

Being able to view Being able to carry
Being able toown accountover the benefit as receive retirementbalance any time one changes a job allowances evenwith short tenure31

Tax emempt
contributions andprofits

Overall, large proportions (57-61%) of respondents in all age groups identified“being able to view own account balance any time” as a desirable attribute ofretirement benefits (Figure 14).

Moreover, the younger cohorts, particularly

employees in their 20s (50.4%), 30s (54.1%), and 40s (51.7%) favor “being able to carryover the benefits as one changes a job” than their older cohorts.

Furthermore, theyoungest cohort (20s age-group) of employees favor “being able to receive retirement
allowances even with short tenure” (53.7%), whereas less than 30 percent of older
cohorts favor this attribute (36.8%, 30.4%, and 38.0% for age groups 40s, 50s, and 60+).

Figure 15. "Do you know what a DC scheme is?"
Percent
80.0
70.2
70.0
20s

60.0

30s

40s

50s

61.5

60+

53.6
48.1

50.0

43.3

40.0
30.0
30.0
20.2
20.0
10.0

12.7
5.8

33.3

35.9 36.5

23.1

15.5

8.5

0.0
Know DC

Only heard of nameDon't know of it at all

Finally, the proportions of employees who are familiar with the DC scheme
increase with age as demonstrated in Figure 15.

32

Only small proportions of employees

in the younger cohorts answered that they know what a DC scheme is (5.8% among 20s
and 8.5% among 30s) however, while one-fifth of the oldest cohort (age 60+) responded
positively to the question.

The proportions of those who did not know at all what theDC pension scheme is conversely decline with age.

6.4

Descriptive findings by job category and rank
The largest proportion of senior administrative staff members (90.2%), in

particular, reveal their urgent needs for increased information on financial asset
management, retirement and pension programs (see Figure 16 below).

However, thefigure shows that the lack of information is in general commonly perceived by the
majority of employees, regardless of their job category and/or rank.

Figure 16. "Do you need more information on financial asset
management, retirement and pension programs?"
Percent
100.0
90.0

90.2
79.9 79.6 80.0

85.1
Professor/associate professor

80.0

Assistant professor

70.0

Research associate/post doctoral

60.0

Senior staff

50.0

Junior staff

40.0
30.0
20.0

14.7 15.4 10.9

10.0

7.6

12.2
5.2 4.7

9.1
2.2 2.3

0.0
Agree/somewhat agree

Neither

33

Disagree/somewhat disagree

Figure 17. Acquired information and the level of knowledge
Percent
90.0
80.0
70.0
60.0

Professor/associate professor
Assistant professor
Research associate/post doctoral
Senior staff
Junior staff

77.7

76.4

71.6

64.6

52.2
50.0

41.3

40.0
30.0
20.0

27.7
21.9
11.6

12.7

10.0
0.0
Obtained information about retirement/
pension programs

Unable to answer monthly value of annuity
payments

Despite the highest proportion of senior administrators revealing their needs for an
increased amount of information, Figure 17 above demonstrates that the senior staff
members were also highly motivated group of employees on campuses, with regard togathering retirement and pension-related information.

More than one half of senioradministrators (52.2%) sought relevant information from their employers, while
significantly smaller proportions (e.g., 11.6% for assistant professors and 12.7% forresearch associates and postdoctorals) of employees in other job categories and ranks
previously sought the similar information.

As a result, a significantly smaller

proportion (41.3%) of the senior administrators failed to give the predicted amount ofmonthly pension payments than their colleagues of other job categories and ranks.

34

Figure 18. Eligibility for and availability of retirement benefits
Percent
80.0
70.7

Professor/associate professor

70.0
60.0

66.5

Assistant professor

58.2

Research associate/post doctoral
52.8

Senior staff

50.0

Junior staff

45.2

41.9

40.0

39.0

30.9
30.0

26.3
19.6

20.0
10.0

11.1

7.3
2.6

6.0

2.2

2.1 1.3

3.6

7.6

4.3

0.0
Eligible

Available but not eligible

Unavailable

Don't know

The survey results suggest that junior faculty and researchers critically lackknowledge on their own retirement benefits.

Figure 18 shows that two-thirds (66.5%)of assistant professors did not know whether they are eligible or not for
employer-sponsored retirement benefits or whether such benefits are available fromtheir employers.

Only a quarter (26.3%) of assistant professors responded that they

are eligible for employer-sponsored retirement programs.

Similarly, only sevenpercent of research associates/postdoctoral researchers identified themselves as eligible,
whereas 58 percent failed to answer whether they are eligible employees or theretirement benefits are available from the employers.

Perhaps more importantly,

research associates and postdoctoral researchers may be placed in disadvantageous
positions without organizational support for securing post-retirement income sources.
35

Nearly one-third (30.9%) of the junior non-faculty researchers responded that they are
not eligible for employer-administered retirement benefits even though such benefits
are available at the employing institutions.
These results highlight that entry-level faculty and junior researchers, who areperhaps most inclined to change employers due to their non-tenured status, are notnecessarily as well protected by the long-term organizational effort in preparing fortheir future retirement spending as their non-faculty colleagues as well as seniorranked faculty members.

In contrast, senior administrators are much better off inthis respect with more than 70 percent responding eligible for retirement savings
programs and only 20 percent being unable to answer the eligibility status question.

Figure 19. Desirable attributes of retirement benefits
Percent
80.0
69.3 67.2

70.0
59.4

60.0

52.7

55.2

50.2

50.0

20.0

49.5
38.0
34.1 35.1

40.0
30.0

67.2

63.3 64.1

28.3
19.8 19.7
14.5

38.6
25.0

34.1 34.2 34.8 34.3
29.1

18.6

10.0
0.0
Being able to
Being able to view Being able to carry Being able to receive
retirement
manage own
own account balance over the benefit asretirement assets
any time
one changes a job allowances even withshort tenure
Professor/associate professor
Research associate/post doctoral
Junior staff

Assistant professor
Senior staff

36

Tax emempt
contributions andprofits

As shown in Figure 19 (above), research associates/postdoctoral researchers arealso concerned about the nature of their short-term employment contract, in relation
with their retirement benefits.

Two-thirds (67.2%) of this group responded “being able

to receive retirement allowances even with short tenure” as a desirable attribute of aretirement program.

The same proportion of the junior researchers also identified“being able to carry over the benefits as one changes a job” as a desirable characteristicof a retirement program.

Similarly, nearly 70 percent (69.3%) of assistant professors

also identified the merit of “portability” as a desirable attribute.

Both senioradministrators and junior staff members seem to be less concerned about theportability of the benefits, owing perhaps to their smaller probability of changing
employers than faculty members.
These results suggest that junior faculty and researchers who have not obtained
tenured status are particularly concerned about the “vesting” requirement as well as
the portability of the benefit as their employment contract terminates due to their
non-tenure track career or the possibility of being unable to obtain tenure as a faculty
member.

Reinforcement of their long-term benefits is also an urgent matter as

increasing proportions of junior faculty and researchers in Japanese colleges anduniversities are placed in limited-term or non-tenure track positions.
Consistent with the findings presented in Figure 18, junior faculty and researchers
also lack their knowledge on the newly introduced DC retirement scheme (Figure 20).
Over 60 percent of research associates and postdoctorals as well as 68 percent ofassistant professors did not know what a DC scheme is, more than ten years after the37

introduction of the scheme by the central government.

Figure 20. "Do you know what a DC scheme is?"
Percent
80.0
Professor/associate professor
Assistant professor
Research associate/post doctoral
Senior staff
Junior staff

70.0
60.0
50.0

54.2
48.1
42.4
34.3

34.5
26.0 27.3

30.0
16.7

15.2
10.9

10.0

61.8

42.4

40.0

20.0

67.7

11.5

6.0

0.0
Know DC

Only heard of nameDon't know of it at all

7. Some implications and thoughts
In this section, we summarize our main findings obtained from the survey results
and draw some implications on individual preferences and employee knowledge on
retirement benefits, financial volatility, as well as faculty productivity and retirement
incentives, through comparisons between alternative schemes in Japan, the U.S. andthe U.K.

7.1

Individual preferences and relevant knowledge
Accurate understanding of the factors affecting individual preferences for38

alternative options, e.g., between DB and DC schemes or a choice of annuity versus a
lump-sum cash-out, is imperative for devising a new pension scheme which equallyprovides a post-retirement savings opportunity for all employed individuals.
Although a portable retirement account may be considered a beneficial feature for an
increasingly mobile workforce in Japan, DC savings plans typically entail investment
risk and uncertainties due to the volatile nature of the financial markets.
Clark and Pitts (1999), using a sample of faculty members at North Carolina State
University, show that workers in the academic labor market tend to strongly prefer DC
plans over DB pensions.

Clark and Pitts attribute their finding to the faculty

members trying to reduce mobility risk associated with the loss of pension benefits
inherently embedded in the conventional DB plans.

However, their findings indicatethat older new hires are more likely to choose the DB plan and that there is a strong
trend over time toward greater enrollment in the DC options although various factors
such as mobility expectations, college of appointment, and faculty rank also influence
individual choice of plan type.
Similar studies on individual preferences for different pension options are nearlynonexistent in Japan.

Watanabe (2010b), using a dataset with a sample of full-timeworkers employed in small- to medium-sized private firms, examines the preferencesfor DC pension plans and finds that both male and female workers prefer a DC plan to
the DB alternative in response to its portability benefit.

However, Watanabe’s finding

also provides evidence that Japanese female full-time workers are less likely than theirmale counterparts to choose a DC plan over DB pensions due to the associated39

investment risk and uncertainty.
As for the sample used in this report, a higher proportion of female faculty andadministrators in Japan tend to favor such benefit attributes as “being able to receive
retirement allowances even with short tenure” and “being able to carry over the benefit
as one changes a job” more than their male colleagues, but they also tend to shy awayfrom cumbersome management of investment portfolios.

The result implies that

simply introducing a new DC scheme in the higher education industry in Japan would
not automatically raise the DC enrollment rate for female faculty and administrators.
Similar tendencies were also found among younger cohorts, particularly junior faculty
and researchers desiring the short “vesting” requirement and “portability” of thebenefits.

While male and older cohorts are generally better informed and more

knowledgeable about their retirement benefits and pension systems, female andyounger cohorts seem to critically lack the relevant knowledge necessary to make theoptimal decisions.

Moreover, the results commonly show that smaller proportions offemale, junior faculty/researchers, and postdoctorals identified themselves as eligible
for employer-administered retirement plans, than their male and senior colleagues.
Therefore, reinforcement of relevant knowledge as well as the eligibility status forthese employees is essential to help them make well-informed decisions over the longer
horizon of their careers.
Although further investigation on individual preferences and relevant knowledge
is required for the employees of Japan’s HEIs, reduction in mobility risk is definitely an
important policy agenda as Japan’s academic labor market becomes increasingly

40

dynamic with more terminal or non-tenure track appointments, particularly among theyounger cohorts.

Efforts to integrate the currently segmented DB pension programsfor public and private institutions would certainly add the portability feature, while thefinancial liabilities may be shared by the sponsoring-employers and employees throughimplementation of a hybrid plan with combined features of DB and DC schemes.

7.2

Financial volatility
The financial health of institutional pension funds has been severely struck anddamaged on the global level due to the recent financial crisis.

The impact of themarket crash could be particularly ruthless for DC account holders who areapproaching retirement age as the significant losses caused in their retirement
accounts cannot likely be replenished in the remaining years of their active career.
Based on a simulation result, Butrica et al. (2009) project that 26 percent of last wave
boomers who were born between 1961 and 1965 in the U.S. would have lower family
incomes at age 67 and 10 percent of them would experience at least a 5 percent decline.
The damage of the economic turmoil in the global financial markets has affected
some of the leading institutions of higher education in the world.

For example,

Harvard University, which holds the largest endowment of all the US institutions,suffered investment losses of approximately 22 percent between July 1 and October 31,
2008.

The pre-crisis value of Harvard’s endowment was $36.9 billion as of June 2008,

and the value lost due to the market crash in this short period is estimated by Harvard

41

Management Company as equivalent of $8 billion.13
U.K. have also suffered significant losses.

Most leading universities in the

According to the Chronicle of Higher

Education issued on December 12, 2008, “the endowments of Britain’s top universities
have suffered losses of at least £250-million ($373-million) in the current economiccrisis,” and “the Universities of Cambridge and Oxford, whose endowments werevalued at £907-million ($1.4-billion) and £680-million ($1-billion), respectively, in July,
are understood to be the biggest losers.”
Although the potential danger of financial volatility is widely recognized by theinstitutions and their employees, investment risk and liabilities cannot be completely
swept away.

Financial liabilities of the DB scheme could be burdensome forbenefit-sponsoring employers in Japan and the U.K., but DC plans offered by many US
institutions shift investment risk from institutional members to individual benefit
participants, which creates uncertain environments for employees of colleges anduniversities in planning for their golden years.

In our survey result, only a handful of

respondents, generally less than one-quarter of the sample regardless of establishment
type, gender, age group, and job category/rank, listed “being able to manage own
retirement assets” as a desirable attribute for their retirement plans.

This perhaps

reflects both the reluctance and anxiety of these individuals in handling cumbersome
and risky investment of their retirement portfolios.

Thus, examining whether abalanced mix of shared risk and liabilities between two parties can be reached throughthe current or alternative plans is a critical area for future research.
13 Financial

update released on December 8, 2008 by Harvard University’s Office ofPresident, http://president.harvard.edu/speeches/faust/081202_economy.php.
42

7.3

Faculty productivity and retirement incentives
Retirement systems in Japan and the U.K. critically differ from that of the U.S. as

mandatory retirement ages are still legally used in the former countries, while setting
such an age is prohibited by law in the U.S.

In this short sub-section, we consider

faculty efforts on improving productivity towards the closing stage of the academic
career and the incentive to retire.
In the United States, a special exemption from the 1986 Age Discrimination Act
legally allowed colleges and universities to enforce the mandatory retirement of faculty
members at age 70 until 1994.

Ashenfelter and Card (2002), using a survey that

permits comparison of faculty turnover rates before and after the law enforcement at asample of DC-providing institutions, find that the retirement rates of 70- and71-year-olds fell by two-thirds after the elimination of compulsory retirement.

Basedon this result, Ashenfelter and Card conclude with a projection of a rise over the coming
years in the number of older faculty members in US colleges and universities.

Clark

and Ghent (2008) also obtained a similar result using a dataset from the University ofNorth Carolina system.
As an interesting and contrasting case, the University of California offered its
older and longer-service employees financial incentives to leave the institution in
response to budgetary shortfalls experienced in the early 1990s.

Pencavel (2000) useda dataset from this period and estimated that an individual presented with 10 percent
higher severance benefits has a 7-8 percent higher probability of quitting, although heacknowledges that quit probabilities are very difficult to forecast with accuracy.

43

Similarly, Kim (2003) used samples of several hundred faculty members at the
University of California and examined whether professors’ research productivity was
related to the acceptance of early retirement incentives.

His finding shows thatprofessors who slowed down on research later in their careers were more likely to retire
early, although their overall research productivity was not related to early retirement.
Over the past few years, many colleges and universities in Japan, particularly inthe public sector, have extended their mandatory retirement ages of faculty members.
The preceding findings in the U.S. therefore suggest that the extended retirement age
in Japan may also increase the number of “self-selecting” older faculty cohorts in the
future, who would continue to demonstrate high productivity in theiractivities.

research

However, the prolonged career of senior faculty members also raises thedilemma of squeezing the career opportunities for younger researchers and educators.
Our current data set shows that the respondents desire to retire on average at the age
63.6, which is perhaps close to the actual retiring age of many employees in Japanesecolleges and universities today.

Whether and to what extent the actual retiring age

is linked to the stretched mandatory retirement age is an important future agenda ofretirement and pension policies as it directly affects the final amount of the benefits
paid and received.

8. Conclusions
The accumulating process of retirement savings, as Butrica et al. (2009) discuss,requires deliberation of complex factors that may vary with labor market experience as44

represented by the level of earnings and job changes over time as well as market
fluctuations in housing and stock prices, and simple individual preferences, among
other factors.

The impact of reforms in pension provisions on retirement well-being of

future retirees could be significant, particularly in today’s economic turmoil, andmechanisms to reduce financial risk and liabilities in retirement assets are strongly
called for in order to build a sustainable pension system.
Considering that the complete termination of DB plans in favor of the newly
implemented DC scheme is a rare event for US organizations (Ippolito and Thompson
2000), a drastic switch of the offered plan types by Japanese colleges and universities
may not be a realistic scenario.

The Committee on Retirement of the American

Association of University Professors initiated its first retirement policies survey in2000 to address a lack of reliable and systematically collected information on
retirement policies and practices across US institutions of higher education.

Similarefforts toward accurately understanding the institutional policies on pension provisions
and individual preferences for asset magnifying vehicles must be made in order todesign a sustainable scheme that meets the needs of Japan’s colleges and universities
as well as their employees.

In order to address these research agendas, we conducteda survey questionnaire which is expected to fill the deficiency in the knowledge of
optimal retirement and pension systems for the community of higher education in
Japan.
The current data set contains a number of important variables and informationthat are not used in this report.

The results are preliminary and restrictive in the45

sense that all the findings discussed in the report are based on descriptive andcategorical analyses of the selected variables.

Further scrutiny of these variables withmore rigorous and advanced multivariate methodologies, capitalized on the
preliminary findings, is certainly required and is under way in order to develop morereliable and profound discussions on the critical issues raised in this report.

46

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51

Appendix
Table A1. Survey questions and descriptive statistics of the raw data
Questions & responses
Q.1

Frequency

Max

Min

1,333

1

0

Mean

What is your perception about the necessity of information on
financial asset management, retirement and pension programs?
(Choose only one)
1.

Definitely necessary/necessary2.

Unnecessary/definitely unnecessary

69

1

0

3.

Neither

219

1

0

Total
Q.2

1,621

Have you ever obtained information on the items listed below frominstitution of employment? (Choose all that apply)
1.

Public pension, medical/health insurance programs

484

1

0

2.

Employer-administered retirement/pension plans

383

1

0

3.

Preparation for retirement savings

73

1

0

4.

Financial commodities and investment

52

1

0

5.

Never obtained information listed above

927

1

0

1,571

100

30

Q.3

What is your desired age of retirement?

Q.4

Does your institution provide retirement benefit programs which will

63.56

pay allowances in the form of a lump-sum and/or annuity atretirement? (Choose only one)
1.

Yes, and I am an eligible employee (→ go to Q5)

735

1

0

2.

Yes, but I am not an eligible employee (→ go to Q7)

109

1

0

3.

No such programs are available from my employer (→ go to Q7)

48

1

0

4.

I don’t know (→ go to Q7)

727

1

0

260

5,000

0

646

1

0

Total
Q.5

1,619

Approximately how much retirement allowance do you expect toreceive in full from your institution at retirement?
1.

A lump-sum value of (2.

I don’t know

) ten thousand yen
Total

Q.6

906

In which form of payment (listed below) would you like to receive
your retirement allowance? (Choose only one)
1.

Only a lump-sum payment at retirement

499

1

0

2.

Only monthly annuity payment after retirement

34

1

0

3.

A combination of a lump-sum and monthly annuity payment

361

1

0

52

1757.7

TotalQ.7894

Approximately how much annuity payment do you expect to receive
per month after retirement?
1.

Approximately (2.

I don’t know

) ten thousand yen per month
Total

Q.8

506

1,000

0

1,101

1

0

18.41

1,607

Do you know what a defined contribution scheme is, which wasintroduced in October 2001 in Japan? (Choose only one)
1.

Yes

207

1

0

2.

I have only heard of the name

535

1

0

3.

Not at all

880

1

0

Total
Q.9

1,622

What are the attributes you would desire if your employer expanded
the current retirement/pension programs or introduced newalternative options? (Choose all that apply)
1.

Being able to manage own retirement assets

322

1

0

2.

Being able to view own account balance any time

959

1

0

3.

Being able to carry over the benefit as one changes a job

785

1

0

4.

Being able to receive retirement allowances even with short

636

1

0

tenure5.

Tax exempt contributions and/or profits

558

1

0

6.

Other

67

1

0

Q.10

Institution name

Q.11

Establishment type (Choose only one)

1,617

1.

National

967

1

0

2.

Municipal (prefectural/city)

184

1

0

3.

Private

452

1

0

Total
Q.12

1,603

Gender (Choose only one)
1.

Male

1,113

1

0

2.

Female

512

1

0

1,563

76

23

Total
Q.13

Age

(

) years old

Q.14

What is your job category or rank? (Choose only one)

1,625

1.

Executive officer

13

1

0

2.

Dean/chairperson

48

1

0

3.

Full professor/associate professor

621

1

0

53

44.93

4.

Assistant professor (including Kōshi, Jokyō, and Joshu)

319

1

0

5.

Research associate/postdoctoral

55

1

0

6.

Senior administrator

92

1

0

7.

Junior administrator/staff

469

1

0

Total
Q.15

Does your position have a term of service? (Choose only one)
1.

Yes

557

1

0

2.

No

1,001

1

0

3.

I don’t know

62

1

0

55

0

11.02

46

0

13.69

50

0

19.11

1,142

1

0

Total
Q.16

1,617

1,620

Number of service/work years (as of March 2012)1.

At the current institution: () years2.

As a faculty/researcher and/or administrator, including previous
institutions of employment: (3.

) years

Entire career including other occupations: () years
Total

Q.17

Are you married? (Choose only one)1.

Yes (→ go to Q18)

2.

Separated/divorced/widowed (→ go to Q19)

40

1

0

3.

No (→ go to Q21)

438

1

0

Total
Q.18

What is your spouse’s occupation? (Choose only one)
1.

Private firm employee (full-time)

204

1

0

2.

Public servant

130

1

0

3.

Self-employed

45

1

0

4.

Part-time worker

199

1

0

5.

Not employed

466

1

0

6.

Other

103

1

0

Total
Q.19

1,147

Do you have a child(ren)?
1.

Yes (→ go to Q20)

985

1

0

2.

No (→ go to Q21)

206

1

0

Total
Q.20

1,620

1,191

What is/are your child(ren) categorized as (Choose all that apply)1.

Preschooler

282

1

0

2.

Elementary/junior high school student

319

1

0

3.

Senior high school student

125

1

0

54

Q.21

4.

College student (including undergraduate/graduate student)

229

1

0

5.

Completed formal schooling

339

1

0

What is your current housing/residential type? (Choose only one)1.

Own house (with mortgage)

462

1

0

2.

Own house (without mortgage)

431

1

0

3.

Rental housing/apartment

630

1

0

4.

Other

99

1

0

Total

55

1,622