How Japan benefits from the U.S.-Japan Totalization Treaty, (but not vice versa.)

A little bit more on how America is cheated when Japan ignores Americans’ rights to Japanese social insurance (shakai hoken).

What I’ve done is visit the Social Security administration website and downloaded information for all the years in which the totalization agreement was in effect between Japan and the United States. Since it began on October 1, 2005, there is information for the years 2006 through 2010.

By 2010, over 32,000 Japanese citizens were getting social security on claims of less than 10 years’ contributions. Recall that anyone (who is not an illegal alien) who has 10 years (technically, 40 credits) of contributions can receive a check. So the numbers listed above are people who contribued for fewer than 10 years, and/or their spouses/survivors.

Even though the agreement with Japan is relatively new, you see how Japan quickly rocketed to the Number Two spot if you list the different countries that have agreements with us. Canada is Number One. Makes sense.

I highly doubt that there are 32,000 Americans collecting government pensions from the Japanese. Excluding, of course, Japanese who come to America and get PR or citizenship. I doubt that there have even been 32,000 Americans who have participated for any length of time in kokumin nenkin or the Shakai Hoken equivalent. Even 3,200 would surprise me.

Why? Because the Japanese systematically deny these coverages to Americans. They do this by not enforcing the social insurance laws. Once employers realize that the social insurance laws are, in large part, voluntary, they do nothing to right this wrong. In fact, righting the wrong just means that they are giving an advantage to their competition, which might still skirt the law.

I am all for old people not living in poverty. But why should it be that young Americans being sent over to work in Japan get shafted out of their future pension, but young (and not-so-young) Japanese coming to America will get theirs?

That number series above will just grow and grow. As you can see, it’s only people born before 1949 who were getting the regular retiree benefit. (There are different rules for survivors and disabled people. I note 13 disabled on the list. I know of just one in Japan.) At some point, it’s going to be embarrassing, with 100,000 Japanese collecting something from America—in addition to those who qualify with just the 10 years. And on the Japanese side, virtually no Americans getting anything because they were in jobs that effectively denied them social insurance coverage.

There is some mechanism to end social insurance agreements. I am reading the regs on it this weekend, and one regulation says a bit about a country qualifying if it collects social insurance taxes or pays social insurance premiums. I wonder how a judge would interpret that. I wonder who has standing to ask a judge. (These are just wonders; I’ve got enough to do.)

Why should Americans be denied the coverage, yet have it so freely be given by us to Japanese?

[Update: Here is the regulation I am wondering about:

Agreements may only be negotiated with countries that have a system of general application in effect. What does this mean? It says it means that social security taxes are collected OR that social security benefits are paid. (I presume the second option is for countries that do not collect specific social security “tax” per se, but pay benefits out of general revenues.)

My concern is this: If there is a country like Japan, with so many gaps and excuses for gaps, is the totalization agreement consistent with that regulation?]

[Update #2: Well, here is one possible way for there to be standing: If an American had done self-employment work in Japan, or intended to. Under US laws, an American is subject to Self Employment Tax (the equivalent of FICA) on earnings worldwide. One exception where that is not so is when a totalization agreement is in effect. In fact, in those situations, you cannot pay Self Employment Tax.

The way the Japanese run, or rather, mis-run, their system, an American seeking out self employment in Japan is at a competitive disadvantage to another American who dodges the kokumin nenkin. In this regard, the totalization agreement harms the first American, because he/she has to bid out his labor at a rate that considers the payment into kokumin nenkin, while the dodger is allowed to get away. In the absence of the agreement format, both Americans would be required to pay Self Employment Tax and the second American would be a tax evader. With the agreement in place, the dodging American can get away with it, and bid lower for work. Therefore, the first American is harmed.]

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10 comments

  1. Pingback: How many Americans in Japan are covered by Japanese pension? | Hoofin to You!
  2. Steve van Dresser · May 29, 2011

    While it is true that Japanese do get Social Security pension benefits based on less than a full career in the U.S., for those with fewer than ten years of U.S. employment, the benefits are reduced. As the treaty notes:

    “When a U.S. benefit becomes payable as a result of counting both U.S. and Japanese Social Security credits, an initial benefit is determined based on your U.S. earnings as if your entire career had been completed under the U.S. system. This initial benefit is then reduced to reflect the fact that Japanese credits helped to make the benefit payable. The amount of the reduction will depend on the number of U.S. credits: the more U.S. credits, the smaller the reduction; and the fewer U.S. credits, the larger the reduction.”

    It should also be noted that many Americans working temporarily in Japan can get a refund of their pension contributions for up to 3 years of contributions. The is no similar rebate available from America.

    There is a separate problem with many workers not being in work with pension plans, but it is a problem faced by both foreigners and Japanese workers.

    If there is an unbalance in the relationship between the two countries, it is this: In the United States the pension is based on the highest earnings in the qualifying period. Any contributions for more than 10 years don’t affect the benefits. In Japan, pensions based on the total amount of the contributions. A person in Japan who contributes for thirty years will receive higher pension benefits than a person who contributes for ten years. Thus a person who works 10 years in America and 25 years in Japan will, in fact, receive double pensions, but the American Social Security may be reduced for failing to have 30 years of substantial income (Windfall Elimination Provision). The table is slightly tilted in favor of the Japanese pensioner, but not grossly so, in my opinion.

    • hoofin · May 29, 2011

      Steve writes:

      While it is true that Japanese do get Social Security pension benefits based on less than a full career in the U.S., for those with fewer than ten years of U.S. employment, the benefits are reduced.

      Yes, that is the same as with Americans in Japan. If you only pay in for two years, you are not getting a full check. The denominator will be 480 months (40 years). In America, it will be 420 months (35 years). So my example had a Japanese working 3 years in America, and getting 3/35ths of the full check. (3/35ths is what, 8 1/2 percent?)

      Steve:

      It should also be noted that many Americans working temporarily in Japan can get a refund of their pension contributions for up to 3 years of contributions. The is no similar rebate available from America.

      I point that out in a later post; however, I see that as the Japanese cheating unsuspecting, young Americans.

      Steve:

      There is a separate problem with many workers not being in work with pension plans, but it is a problem faced by both foreigners and Japanese workers.

      Ah, this one. The “both” argument. The problem is faced overwhelmingly by most foreigners, and by some Japanese. It doesn’t mean it isn’t a big problem in the treaty context. I am saying this politely, but it’s hard to convey without just saying it: It’s like America saying it doesn’t have a gun violence problem, because most Japanese don’t get shot when they need directions to a party; or that Americans get shot too, so it’s OK. The pension system is a big problem Japan has, and they don’t fix it. They should at least fix it when it comes to totalization partners.

      Steve:

      If there is an unbalance in the relationship between the two countries, it is this: In the United States the pension is based on the highest earnings in the qualifying period. Any contributions for more than 10 years don’t affect the benefits.

      That’s not right. The pension (social security pension) is based on AIME. That’s average indexed monthly earnings. It goes over a 40-year period, with the lowest five years dropped out. Totalized Japanese get the check as if they were earning the AIME for the whole qualifying period, only haircut by the actual number of years they really paid in. So, in my example, the full check is based on 35 years at the AIME for just those 3 years. Then, it’s haircut by the fact that the Japanese only put in three years.

      Steve:

      In Japan, pensions are based on the total amount of the contributions. A person in Japan who contributes for thirty years will receive higher pension benefits than a person who contributes for ten years. Thus a person who works 10 years in America and 25 years in Japan will, in fact, receive double pensions, but the American Social Security may be reduced for failing to have 30 years of substantial income (Windfall Elimination Provision). The table is slightly tilted in favor of the Japanese pensioner, but not grossly so, in my opinion.

      This is yes and no. Of course, the person who contributes for more years gets a higher check. That is true in both systems. What happens in the American system, is that if you have social security, and you participated in another plan where you didn’t have to pay social security taxes, you take a haircut on something called the “90% bend point”. It goes away for you, unless you can show that you had paid for many years (the “substantial income” test.) If you don’t understand the 90% bend point, then you don’t understand what is happening. The social security administration will credit you 90% of your AIME on the first $749 of AIME earnings. So you can build a (90% times $749) $674 benefit very quickly. Above that figure, the AIME will only produce a 32% increase, and then, above another figure, only 15%.

      Taking away the 90% bend point is called the “Windfall Elimination Provision” (WEP). What is substituted is a 40% bend point, or something higher if you have “substantial earnings” as defined in the law. Clearly 40% of $749, or about $300, is not as nice as $674. There is another test that prevents the WEP from hitting a person whose second (non social-security covered) check is very small. And we’re not talking about the second pension being from a private company. We mean something like the Maine Teacher’s Pension, or the California Pension, or the U.S. Postal Service.

      If you need totalization to get either or both of the U.S. social security and the Japanese nenkin, then WEP would not apply to the American one. The Japanese don’t have WEP.

      My question to you is if you have Japanese nenkin and 40 credits with social security, is the U.S. government actually haircutting the social security?

  3. Steve van Dresser · May 29, 2011

    Hoofin [asks]:

    My question to you is if you have Japanese nenkin and 40 credits with social security, is the U.S. government actually haircutting the social security?

    Steve:

    Answer, yes, based on my number of years of substantial earnings, my American Social security was reduced by about half of the total nenkin. At the time, my Kyosai nenkin and Kokumin nenkin came to about $200 per month and my Social Security was reduced by $100 per month. That comes under what they call the Windfall Elimination Provision.

    I didn’t complain, however. I was delighted to find that I would get anything from my contributions to nenkin, since there was no totalization treaty and nobody had ever heard of karakikan. I knew about the possible rebate of three years of contributions, but a person had to leave Japan and relinquish his permanent residency in order to claim it.

    I went with my wife to a Social Insurance office where she had some other business. I asked her to ask the clerk there if there were any way for foreigners living in Japan to get any benefit at all from less than twenty-five years of contributions. The answer about karakikan surprised me. I think I was the first person to make use of karakikan who wasn’t a refugee from some third world country. At least I haven’t heard of anyone else getting it before me.

    At my local city hall, after this encounter, I was told that I did not qualify for nenkin. The rules for municipal governments were different from those of the Social Insurance office. The two offices hashed it out before concluding that the national office rules trumped the local government rules.

    • hoofin · May 29, 2011

      Steve, now, here’s what’s not fair: you qualify under the totalization treaty. You had less than the years you needed in Japan. (I am assuming you had a combined 25 years.)

      If someone in your exact shoes went and applied, and did not use kara kikan, they would qualify under totalization. There would be no Windfall Elimination.

      This is why I advise people not to use kara kikan. I realize that, in your case, you arranged this before the totalization treaty. But I am surprised that the Japanese haven’t revoked kara kikan for anyone who qualifies under totalization anyway. There is no disadvantage to Japan or to the pensioner in doing this, since your kara kikan credit years are at zero contributions. All kara kikan does is throw U.S. social security recipients into WEP.

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