Title

What Drives Corporate Pension Plan Contributions: Moral Hazard or Tax Benefits?

Document Type

Article

Publication Date

7-2013

Publication Source

Financial Analysts Journal

Abstract

In testing moral hazard and tax benefit hypotheses regarding defined benefit plan funding and contribution incentives by incorporating sponsors’ bankruptcy risk, the authors proposed that high-bankruptcy-risk sponsors have a strong moral hazard incentive because the put value of the U.S. Pension Benefit Guaranty Corporation guarantee is high. For low-bankruptcy-risk sponsors, the put value is low; maximizing tax benefits associated with pension contributions becomes a powerful incentive. Results based on sponsors’ voluntary contributions support both hypotheses.

Inclusive pages

58-72

ISBN/ISSN

0015-198X

Comments

Permission documentation is on file.

Publisher

Chartered Financial Analyst Institute

Volume

69

Issue

4

Peer Reviewed

yes