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Analysis of Pension Funding Under Erisa

  • Jeremy I. Bulow
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    This paper begins by describing the tax, funding, and insurance aspects of the Pension Reform Act of 1974. Next, the implications of those laws are analyzed from the standpoint of the funding decision of the firm. The tax advantage of early funding appears to be quite small. Because there are insurance and other reasons (related to asymmetries in the pension law) why firms might wish to underfund their plans, there is no good reason to expect all firms to fund to the limit. The final section discusses the magnitude of the firms' unfunded pension liability, properly defined. This debt is shown to be quite small. A major reason for this is the substantial increase in long- term nominal interest rates, which have decreased the present value of accrued benefits and, equally, unfunded pension obligations.

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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0402.

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    Date of creation: Nov 1979
    Date of revision:
    Publication status: published as Bulow, Jeremy. "WHat are Corporate Pension Liabilities?" Quarterly Journal of Economics, Vol. 97, No. 3, (August 1982), pp. 435-452, Contains only a subset of WP#402.
    Handle: RePEc:nbr:nberwo:0402
    Note: PE
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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
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