EconPapers    
Economics at your fingertips  
 

Pension underfunding and the expected return on pension assets: The impact of the 2008 financial crisis

Alexander Michaelides, Andreas Milidonis and Panayiotis Papakyriakou

Journal of Risk & Insurance, 2025, vol. 92, issue 3, 627-664

Abstract: We use the 2008 crisis as an exogenous shock to the pension funding status of U.S. corporate defined benefit (DB) pension plans to examine its impact on the assumption of the expected return on pension assets (ER). Contrary to prior literature, we find that DB pension plans transitioning from funded to underfunded status make expense‐reducing assumptions by increasing their ER. We also document that the ER manipulation is larger for plans whose funding after 2008 drops significantly. The funding deterioration conservatively generates a 28–79 basis points increase in ER, reducing the pension accounting expense by about 5.23%–14.76% ($3.49 to $9.85 million). Our results are robust to controlling for the shock induced by the global financial crisis on corporate performance and other potential channels affecting ER.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/jori.70003

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:92:y:2025:i:3:p:627-664

Ordering information: This journal article can be ordered from
http://www.wiley.com/bw/subs.asp?ref=0022-4367

Access Statistics for this article

Journal of Risk & Insurance is currently edited by Joan T. Schmit

More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2025-08-29
Handle: RePEc:bla:jrinsu:v:92:y:2025:i:3:p:627-664