Tax Aspects of Corporate Pension Funding Policy

36 Pages Posted: 18 Aug 2004 Last revised: 26 Jun 2010

See all articles by Jeremy Bulow

Jeremy Bulow

Stanford University; National Bureau of Economic Research (NBER)

Date Written: July 1981


This paper explores four models of firms' pension liabilities. All of the models yield the result that if it is the stockholders who gain or lose from a change in the market value of pension fund assets, a pension fund invested entirely in bonds will maximize that gain. If a firm's pension liabilities are considered to be no more than the present value of accrued benefits, then most plans for salaried employees would maximize the pension's value by having their assets entirely in bonds. However, for less well funded plans such as most union plans, holding both stocks and bonds or even all stocks may maximize the value of the firm.. Implicit contracts on the liability side of the pension balance sheet can encourage holding some stock, but implicit contracts on the asset side are likely to encourage increased bond holdings.

Suggested Citation

Bulow, Jeremy I., Tax Aspects of Corporate Pension Funding Policy (July 1981). NBER Working Paper No. w0724, Available at SSRN:

Jeremy I. Bulow (Contact Author)

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