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Contribution Details

Type Journal Article
Scope Discipline-based scholarship
Title The Asset Allocation of Defined Benefit Pension Plans: The Role of Sponsor Contributions
Organization Unit
  • Artem Dyachenko
  • Patrick Ley
  • Marc Oliver Rieger
  • Alexander Wagner
Item Subtype Original Work
Refereed Yes
Status Published in final form
  • English
Journal Title Journal of Asset Management
Geographical Reach international
Volume 23
Page Range 376 - 389
Date 2022
Abstract Text What percentage of its assets should a defined benefit pension plan invest into stocks as its funding ratio varies? We show that the answer to this question depends on the institutional setting and in particular on the extent to which the sponsoring company contributes to the fund as the funding ratio varies. We consider two settings: in one setting, the sponsoring company contributes to its pension fund only if the funding ratio is below the target level (as is the case, for example, in the US); in the other setting, the sponsoring company always contributes to its pension fund (as is the case, for example, in Switzerland). We show that these two institutional frameworks lead to two different dynamics, conditional distributions of the funding ratios, and relationships between the current funding ratio and investment into stocks. For settings like the US, that relation is non-monotonic while for settings like in Switzerland, it is monotonically decreasing. Previous empirical findings point towards a similar pattern.
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Digital Object Identifier 10.1057/s41260-022-00277-x
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