Barriers
Though the plan sounds beneficial, it has only been adopted by a few companies since its proposal as early as 2005.
Criticisms are the first barrier. "A China-style 401k will not be the savior of the A-share market," said Pi Haizhou, a Beijing-based fiscal commentator, who added that in the current stock market, great importance has been attached to financing, while returns are belittled. It is not the right time to invest, he said.
The insider from the CSRC disagreed, arguing that "there must be trials, and you cannot expect to get instant results once a policy takes effect."
"You should look at the long-term development. In 20 or 30 years, will the stock indexes still be at 2,000 or 3,000?" the insider added.
Liu Yunlong also noted that the inflow of pension funds would eventually bring sound developments to the capital market, since "higher expectations and demands will be placed on listed companies, which will help build and improve related systems."
Uncooperative government departments could be yet another barrier.
Implementation of the plan would affect the interests of several departments. Experts believe that the Ministry of Finance and the State Administration of Taxation may be reluctant to adopt the 401k-style plan, as tax revenues would be reduced by applying preferential tax policies.
He Ping, director of the Institute for Social Insurance Research at the Ministry of Human Resources and Social Security, once calculated that if the plan was adopted by the companies participating in the basic pension system, total tax revenue would decline by 948 billion yuan ($148 billion) by 2020.
Immature supplementary pension systems could also hinder 401k implementation.
A few large and middle-sized state-owned enterprises have in fact carried out a similar supplementary pension system that allows retirement savings to be invested in the capital market.
However, the system is still far behind the 401k in the U.S., where even though the plan is typically administered by the employer, the employee may select from different kinds of investment options that emphasize stocks, bonds, money market investments, or some mix of the above. In China, employees are not allowed much say in managing their accounts.
Liu Yunlong believes that the lag is mainly caused by insufficient tax incentives. According to related policies, only a deposit to the account within 4% of the salary can enjoy favorable tax policies, which has dampened employee enthusiasm.
