NEC Corporation


8. Pension and Severance Plans


The parent company and subsidiaries in Japan have severance indemnity plans and non-contributory defined benefit funded pension plans, or only severance indemnity plans, covering substantially all of their employees who meet eligibility requirements of the retirement regulations. Under the plans, employees whose service with the company is terminated are, under most circumstances, entitled to lump-sum severance indemnities and/or pension payments, determined by reference to current basic rate of pay, length of service and conditions under which the termination occurs. The funding policy is to make contributions that can be deducted for Japanese income tax purposes.

The parent company and certain subsidiaries in Japan also have contributory defined benefit pension plans, covering substantially all of their employees, including the governmental welfare pension benefit plan which shall be otherwise provided by the Japanese government. The pension benefits are determined based on years of service and the compensation amount as stipulated in the regulations. The governmental welfare pension contributions are funded in conformity with the requirements regulated by the Japanese Welfare Pension Insurance Law. The contributions to the contributory and the non-contributory pension plans are funded with trusteed pension funds.

Most subsidiaries outside Japan have various retirement plans covering substantially all of their employees, which are primarily defined contribution plans. The funding policy for the defined contribution plans is annually to contribute an amount equal to a certain percentage of the participants' annual salaries.

The combined funded status of the defined benefit pension plans and the severance indemnity plans at March 31, 1995 and 1996, and the reconciliation between the accrued pension and severance liability for the combined non-contributory and contributory plans and the balance stated in the balance sheets at March 31, 1995 and 1996 were as follows:

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                                                                                                                    In thousands of
                                                                                          In millions of yen          U.S. dollars 
                                                                                     ----------------------------    -------------
March 31                                                                                 1995            1996             1996
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Actuarial present value of benefit obligations:
 Vested benefit obligation .......................................................... Y 414,538       Y 462,225      $ 4,319,860
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 Accumulated benefit obligation ..................................................... Y 524,942       Y 586,639      $ 5,482,607
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 Projected benefit obligation ....................................................... Y 660,050       Y 766,342      $ 7,162,075
Plan assets at fair value ...........................................................   396,272         482,836        4,512,486
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Projected benefit obligation in excess of plan assets ...............................   263,778         283,506        2,649,589
Unrecognized prior service cost and net loss ........................................   (78,376)        (88,006)        (822,486)
Unrecognized net obligation at April 1, 1989
  being recognized over 17 years ....................................................   (33,881)        (30,834)        (288,168)
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Accrued pension and severance liability .............................................   151,521         164,666        1,538,935
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Reconciliation--
Employees' portion to the contributory defined benefit pension
 plan and the governmental welfare pension benefit plan,
 net of pension benefit obligation and plan assets ..................................    25,152          27,165          253,878
Defined contribution plans ..........................................................     1,051           2,241           20,944
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Accrued pension and severance liability stated in
 the balance sheets ................................................................. Y 177,724       Y 194,072      $ 1,813,757
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The vested benefit obligation shown above is the amount of the actuarial present value of the vested benefits to which the employee is currently entitled but based on the employee's expected date of separation or retirement.

Net pension and severance cost for the years ended March 31, 1994, 1995 and 1996 included the following components:

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                                                                                                                    In thousands of
                                                                                  In millions of yen                  U.S. dollars 
                                                                     --------------------------------------------    -------------
Year ended March 31                                                     1994             1995             1996            1996
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Service cost-benefits earned during the period ....................  Y 35,272         Y 38,550         Y 39,562        $ 369,738
Interest cost on projected benefit obligation .....................    30,909           30,914           32,073          299,748
Actual return on plan assets ......................................   (15,262)         (14,950)         (24,154)        (225,738)
Net amortization and deferral .....................................    (1,210)            (523)          13,096          122,392
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Net pension and severance cost ....................................  Y 49,709         Y 53,991         Y 60,577        $ 566,140
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The aforementioned net pension and severance cost includes 3,518 million yen, 4,316 million yen and 4,887 million yen ($45,673 thousand) which represent the employees' contributory portion to the contributory defined benefit pension plans for the years ended March 31, 1994, 1995 and 1996, respectively.

The weighted-average discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation for the year ended March 31, 1994 were 5.5 percent and 3.5 percent to 5.3 percent, respectively, and, for the year ended March 31, 1995, were 5.0 percent and 3.0 percent to 4.8 percent, respectively, and, for the year ended March 31, 1996, were 4.5 percent and 2.1 percent to 3.9 percent, respectively. The expected long-term rate of return on assets was 7.0 percent, 5.5 percent and 5.0 percent for the years ended March 31, 1994, 1995 and 1996, respectively. The plan assets consist principally of corporate equity securities, government securities and corporate debt securities.

The total cost for pension and severance plans for all plans was 46,818 million yen, 50,356 million yen and 56,149 million yen ($524,757 thousand) for the years ended March 31, 1994, 1995 and 1996, respectively.

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