Japanese funds in big turnaround.

After long years of stagnation, the Japanese economy has been showing signs of growth in recent months. And that's been having a dramatic impact on corporate pension funds.

While the news in the U.S. is all about huge companies freezing or eliminating their defined-benefit (DB) plans and fears over upcoming funding mandates (the result of the Pension Protection Act of 2006), Japanese pension funding has been surging. According to new research from Greenwich Associates, the typical Japanese corporate pension plan is now 96 percent funded, up from 83 percent of liabilities in 2005 and just 65 percent in 2003.

Greenwich Associates attributes the resurgence to an improving economy and a rebound in domestic equity markets. In its 2006 Japanese Investment Management Research Study, the research firm observes that "the overall funding position of Japanese corporate pension plans is considerably stronger than that of pensions in the United States and Europe."

With the huge gains in funding levels, Japanese companies are far less inclined to close their DB plans. The proportion of DB plans closed to new employees inched up from 12 percent in 2005 to 13 percent in 2006. However, in 2005, 11 percent of Japanese plan sponsors said they expected to close their DB plans to new workers within the next three years. That number fell to just 3 percent in 2006.

At the same time, Japanese corporations continue to establish defined-contribution (DC) plans, though they are far less prevalent than in the U.S. The proportion of Japanese plan sponsors telling Greenwich that they have an established DC plan rose from 16 percent in 2005 to 20 percent this year, and another 5 percent said they expect to set one up in the next 12 months.