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We study the potential effects of pension underfunding on corporate investment, financial constraints and improved employee bonding using 10 Pacific-Basin countries (including the United States, Australia, and eight Asian countries) at heterogeneous economic development stages and different regulatory environments. We document that corporate pensions are significantly underfunded in most countries of our sample in the period of 2001–2017, when interest rates were ultralow in most countries. In addition, firms from countries with stronger employee protection and more generous retirement benefits tend to show higher levels of underfunding in their defined benefit (DB) pension plans. To the extent of pension underfunding imposing constraints on corporate investment, we find that firms in these countries can face more constraints on investment when their pension is underfunded.

The purpose of this study is to examine how pension risk shifting can be explained and constrained by debt component in chief executive officer (CEO) compensation and to explore whether a CEO’s relatively large holdings of inside debt to equity compensation would result in a well-funded pension status.

The authors use two-stage least-squares model to control the potential unobserved and uncontrolled firm characteristics that could drive both CEO inside debt determinants and firm pension funding status.

This paper finds a positive relationship between the CEO inside debt ratio and firm funding status. Additional tests show a positive association between the CEO inside debt ratio and financial slack measures and a negative association between this ratio and financial constraint measure. Additional evidence also shows that the CEO inside debt ratio is negatively associated with other contemporaneous investment activities. Overall, the findings suggest that CEO inside debt creates managerial incentives that can affect pension funding decisions and decrease pension risk shifting.

One of the difficulties facing the compensation literature is the unobservable nature of the entire compensation negotiation and design process. Pension funding status is another challenging topic given that management has discretion over the pension assumptions and the calculations themselves are complicated. Therefore, the determinants of pension status used in this paper are not all-inclusive. Although a two-stage least-squares methodology is applied to mitigate endogeneity, it is still possible that an omitted variable problem exists in both cases.

This study provides direct evidence of the executive debt-like compensation’s effect on pension risk-shifting behavior and pension funding decisions and also contributes to the literature that investigates the association between CEO inside debt and firm risk by examining the trade-off between pension funding and other contemporaneous investment activities.

With the bankruptcy of Enron and the accompanying loss of pension benefits of its employees, pensions have recently received significant press. Accounting for pension plan obligations, for defined benefit plans in particular, requires companies to make assumptions regarding discount rates, projected salary increases, and expected long‐term return on plan assets. Such assumptions, in turn, determine the funding status of the pension plan and the annual pension expense. Higher assumed discount rates reduce the pension obligation, enhance the funding status of the plan, and reduce any lump‐sum payments. Higher expected return on assets reduces the current pension expense. This study investigates the relationship between pension plan assumptions and the funding status of a pension plan. The results reveal that companies with pension plans that are more fully funded assume higher discount rates and expected long‐term return on assets than do companies with less funded plans. The effect of these assumptions is that higher discount rate assumptions lead to better funding status, and higher expected long‐term rates of return on assets partially offset the pension expense impacts of these higher discount rate assumptions. We are doubtful that more funded plans collectively should be assuming higher discount rates and expected long‐term return on plan assets, especially since the actual return on plan assets investigated did not correlate with these assumptions.

We examine and compare funding status, actuarial assumptions and asset investment allocations of defined benefit pension plans in the public and private sectors across time, using information as reported under GASB and FASB. We find that pension plans in both sectors are underfunded and that inferences about pension funding in the public sector would be different if pension assets' fair values were required in the computation of funding status. Actuarial assumptions of public employee plans appear to be both more optimistic and less variable than those of private sector plans. Finally, we document that public sector plans allocate invested assets somewhat differently than in the private sector, although our findings do not confirm anecdotal reports of riskier pension investment strategies relative to the private sector.

The choice of accounting methods is critical in measuring the performance and sustainability of a public defined benefit pension (DBP) plan, and such measurement has an impact on the effectiveness of the entire pension system. Prior literature rarely discusses the choice and rationale of the accounting assumptions for public DBP plans. This study fills the gap by investigating whether crucial plan characteristics, including operational performance, financial health, sponsor fiscal stress, and audit quality, are associated with the accounting assumptions of public DBP plans.

The sample includes 1,170 plan-years from the intersection of the Center for Retirement Research and public DBPs' annual financial reports for the years 2001–2013. This study develops regression models to examine the relationship between the characteristics of public DBP practices and DBP accounting choices.

The empirical results show that the public DBPs that have better investment performance, higher funding status, less fiscal stress, and that are audited by Big 4 accounting firms are more likely to adopt conservative accounting choices.

The study documents the impact of crucial pension plan characteristics on public DBP managers' accounting choices, which were not extensively discussed in pension literature. The findings help us understand the rationale for employing different accounting treatments in the context of public pension fund practices. In addition, the study sheds light on policy implications for the future reform of public pension regulations.

The objective of the paper is to test the existence of a direct effect between the funding level of a firm's pension fund and its respective market price in Portugal, from 2010 to 2015, using a selected sample of Portuguese Stock Index (PSI Geral) firms. Although this relationship has been contemplated in the literature, especially in the United States and the United Kingdom, there is no finding concerning Portugal. The study of pension assets and obligations is of particular importance to investors and market makers alike.

The paper utilizes two distinct methods – a cross-sectional model and a variable-effect event study – to assess the hypothesis that an increase in pension deficit is reflected in the market value of a firm by a decrease of equal magnitude.

This paper finds that a firm's market value is not reduced by an increase in pension deficit and that pension liabilities are already integrated in corporate debt. These results suggest that shareholders fail to take into account occupational pension plan funding status when valuing a firm in such a way that contrasts with the normal evaluation of debt.

To the best of the authors' knowledge, this is the first attempt to examine this relationship in Portugal.

The deferred nature of retirement benefits provides public officials with a means of postponing to later years the retirement financing burden. This practice is aided by the fact that the Employee Retirement Income and Security Act of 1974 (ERISA) does not apply to the public sector. Failure to provide for full actuarial funding violates the concept of interperiod equity, which the Governmental Accounting Standards Board cites as a fundamental responsibility of public administrators. Underfunding also violates the just savings principle developed by the philosopher John Rawls. This paper examines the extent of retirement system underfunding in state and local government and considers the various ways in which underfunding imposes an unfair burden on future generations. The ethical significance of underfunding is tied to the works of Rawls, and remedial measures are proposed which are consistent with Rawls’ just savings principle.

Given the ongoing attention surrounding public sector defined benefit pensions, the participating plan sponsors such as local units of government may be tempted to reduce their future pension liabilities, possibly at the expense of their former employees. Alternatively, public sector employees may act to withdraw their pension contributions if they have concerns related to the sustainability of their employer's pension plan. Nonvested, terminated employees have the option of leaving their contributions on account or taking them as a distribution in the form of a rollover to a qualifying retirement account, or a cash-out. Because a cash distribution carries with it the potential for retirement savings ‘leakage,’ it continues to be of public concern.

This study contributes to the literature by examining determinants of the distribution decisions of terminated employees and is first to specifically explore the association of pension funding levels as a determinant of such decision. Decisions of 46,608 employees who separated employment between 2010 and 2013 were examined. The results suggest that a decrease in the employer's pension funding is associated with increased probability that the terminated employee will take a refund of their contributions. Additionally, the data reveal that 88% of the terminating employees who took a refund requested to receive it in the form of a cash-out, totaling about $38 million of cash distributions. Lastly, about 1,000 of those employees each cashed out more than $8,000, thus suggesting the pension leakage problem warrants further research and perhaps policy changes.

This study aims to examine whether and how the experience of specialized external governance mechanisms mandated by the Employee Retirement Income Security Act of 1974 – the actuary and auditor – affect pension plan funding.

This study uses data from annual pension plan regulatory reports (Form 5500), Form 10-K filings, Form DEF 14A filings (company proxy statements) and publicly available data sources. The hand-collected data include information related to the pension plan’s actuary and auditor and various pension plan data disclosed in the company’s financial statement footnotes.

The author finds that more experienced actuaries and auditors are associated with better funded pension plans, especially when the company has higher financial risk or lower board independence. Additional analyses indicate that companies with more experienced actuaries and pension plan auditors are more likely to make higher annual pension plan contributions and hold fewer Level 3 fair value assets.

The dearth of pension plan governance research generally focuses on whether and how internal governance mechanisms affect pension plan funding. To the best of the author’s knowledge, this is the first empirical study of the relationship between external pension plan governance mechanisms and pension plan funding.

The surging stock market in the late nineties lifted the funding level of most pension plans and led to plan management decisions that left them vulnerable to the stock market decline of 2000-2002. In this study, an analysis was conducted on the descriptive data of 51 state pension plans for the period 1998-2003 and it was found that overfunded plans were more likely to substantially increase benefits while simultaneously reduce contributions. This led to widespread underfunding and a need for sudden increase in contributions as market conditions grew worse and funding levels dropped sharply. This investment cycle emphasizes the need for more prudent surplus management strategies to protect pension plans from the consequences of stock market volatility.