Economic Consequences of Unfunded Vested Pension Benefits

This paper examines the relationship between unfunded vested pension liabilities and the market value of a firm's shares. This relationship has important implications for the mechanism by which private pensions influence aggregate savings. Attention is paid to modeling the institutional determinants of this relation implied by ERISA legislation. These considerations require a nonlinear regression model with very special properties which are developed and discussed. Estimation results suggest that ERISA has had an important effect on the relation between unfunded benefits and firm value that previous investigations have neglected.