Considerations for Fiduciary Duty in the Corporate Pension Law - Specialization of Fund Functions and the Litigation Rights of Participants

Osamu Tonami

Introduction

The Corporate Pension Law， which the government has been working on since 1997， finally appears tobe ready for passage in the current Diet session.The law is expected to set appropriate rules to protectparticipants and beneficiaries of corporate pension plans - specifically the Employees’ Pension Fundand Tax Qualified Pension Plan - to better guarantee that the plans provide income after retirement.

This paper considers what provisions for fiduciary duty should be included in the law. We first outlinethe functions of corporate pensions， and then examine issues surrounding fiduciary duty for the fund-typeand contract-type plans proposed in the law.

In late 2000， five ministries and agencies (Finance， Health and Welfare， Labor， International Trade andIndustry， and Financial Services) presented an outline of their jointly proposed law. Among the proposedmeasures to protect benefit rights are funding standards， reporting and disclosure requirements，and the following:

: Fiduciary duty - From the perspective of protecting the benefit rights of participants and beneficiaries，with regard to employers and others engaged in management and investment activitiesfor corporate pensions， responsibilities are to be stipulated including the duty of loyalty toparticipants and beneficiaries and duty of diversified investment， and rules of conduct are to beclarified including the prohibition of conflicts of interest.

The concept of fiduciary duty， which is derived from trust law in the U.K. and U.S.， allows for theexercise of discretion while preventing abuses.In addition to trustees， any person appointed as fiduciaryhas a duty to act in good faith and in the best interests of another. Specifically， the duties includeloyalty， care， and reporting.

Recently， in corporate pensions and other instances where assets are being managed in the interest of others (at their risk)， the importance of fiduciary duty has come to be keenly felt in Japan as well.