Underfunding in Defined Benefit Pension Plans and Firms’ Contribution Behavior by: Youngkyun Park Discussant: Cassandra R. Cole Florida State University.

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Presentation transcript:

Underfunding in Defined Benefit Pension Plans and Firms’ Contribution Behavior by: Youngkyun Park Discussant: Cassandra R. Cole Florida State University ARIA 2007

Background and Research Question  Methods of funding pension obligations  Factors affecting decision to use external financing  The question is: “At what funding levels are firms likely to use debt financing to fund pension obligations?”

Motivation  Adverse market conditions  Decline in pension funding  Change in pension rules

Analysis  Debt financing for pension contributions and expected net benefit of liability relocation  Pension contributions and capital expenditures

Results  Contributions are positively related to change in LTD at low funding levels  Employer contributions are negatively related to capital expenditures for low funding levels

Items to Consider  Focus analysis on individual quartiles and movement from FL t-1 and FL t  Additional analysis of firms with multiple plans in which some are underfunded and others are not  Re-examine models for possible econometric issues with 1Q, 2Q, 3Q, 4Q, and OF vs combined models  Additional analysis of firms that report combined US and non-US plans