Pension Plan Risk-Taking: Does It Matter If the Sponsor is Publicly-Traded?

Abstract

We use a large sample of private sponsors’ defined benefit pension plans to document economically significant differences in the magnitude of plan return volatility for private versus publicly-traded sponsors. The main drivers of pension plan risk taking are different for public and private firms. The impact of the funded status of pension liabilities on volatility for publicly-traded sponsors is more than two times higher than for private sponsors. The impact of sponsor contributions for private sponsors is more than four times higher than for public sponsors. The results suggest that the alignment of the incentives of owners and plan beneficiaries is different for private versus publicly-traded sponsors.