Pension Plan Property Rights: Evidence from Debt Ratings and SFAS 87 Data

Posted: 28 May 1998

See all articles by Thomas M. Carroll

Thomas M. Carroll

University of Nevada, Las Vegas - College of Business - Department of Economics

Greg Niehaus

University of South Carolina - Darla Moore School of Business

Abstract

We examine the property rights to excess pension assets and to unfunded pension liabilities by estimating the relation between debt ratings and the funding status of firms' pension plans. We test the hypothesis that a dollar of unfunded pension liabilities augments corporate liabilities more than a dollar of excess pension assets augments corporate assets. This asymmetry hypothesis is motivated by pension laws that restrict the opportunities of firms to shift unfunded pension liabilities to the federal insurer of pension benefits (PBGC), but that require a large proportion of excess pension assets obtained through pension plan terminations (reversions) to be shared with employees and the IRS. The alternative hypothesis -- a symmetric relation -- is based on the premise that firms can avoid the sharing of excess pension assets. For example, the excess assets nominally shared with employees in a reversion can be "recouped" by reductions in some other form of employee compensation. Moreover, firms can obtain excess pension assets and avoid the sharing rules associated with reversions by reducing future contributions to the existing plan. Overall, the evidence is most consistent with an asymmetric relation: unfunded liabilities augment corporate liabilities more than excess pension assets augment corporate assets.

JEL Classification: G23

Suggested Citation

Carroll, Thomas M. and Niehaus, Greg, Pension Plan Property Rights: Evidence from Debt Ratings and SFAS 87 Data. Available at SSRN: https://ssrn.com/abstract=6122

Thomas M. Carroll

University of Nevada, Las Vegas - College of Business - Department of Economics ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States
702-895-3776 (Phone)
702-895-1354 (Fax)

Greg Niehaus (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

College of Business Administration
Francis M. Hipp Building
Columbia, SC 29208
United States
803-777-7254 (Phone)
803-777-6876 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,057
PlumX Metrics