By Richard F. DeMong
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Extra resources for Broader Perspectives on the Interest of Pension Plan Participants
If employee safety is not jeopardized, then firm ownership interests should be considered. Given a firm's orientation, full funding of pension obligations may or may not be in the interest of firm's owner. Although theory and research indicate that firm value is maximized by full funding, pension funding practice does not always coincide with theory. O n the other hand, creating unfunded pension liabilities is not necessarily done at the expense of the employee. Employee and stockholder interests are typically not contradictory; rather they are complementary.
McDonald and W. " Journal of Employee Benefits6 (September 1981): 38-44. S. J. Thompson, "Sources of Systematics Risk in Common Stock," Journal of Busii l 173-188; and B. Rosenberg, and W. McKibben, "The ness 49 ( ~ ~ r1976): Prediction of Systematic and Specific Risk in Common Stock," Journal of Financialand QuantitatiueAnalysis8 arch 1973): 317-334. showing that the full funding of pension liabilities is best, due to tax ~ o n s e ~ u e n c e s . , bonds) and into pension liabilities. Pension liabilities are different from conventional debt because of measurement problems and because of the interface between a firm and its pension fund.
T h e importance of defined benefit plans to corporate sponsors is likewise visible. ' With respect to vested funding status (pension assets minus the present value of vested benefits), most of the companies had a vested funding status which was within +/- ten percent of net worth. 1 percent. As important as pension funding is, pension funding theory and management practices are often inconsistent, particularly as they relate to questions of when and by how much a corporation should fund its pension fund.