"Who Benefits from Pension Underfunding?" 

In the world of company pensions, people used to think that shareholders would benefit when companies take on more risk. But a new study shows this might not be true. It suggests that top managers might use the lack of enough pension money to their advantage.

The main question of this study is: who really benefits when employee pensions are not fully funded? Is it the shareholders, or do the managers use this situation to benefit themselves?

To find out, the study looked at the actions of CEOs and top managers during times of high economic uncertainty. The results showed that companies with underfunded pensions often give large pay raises to their CEOs and top managers. This agrees with other studies that show a conflict between what is good for top managers and what is good for employees (Martin et al., 2020).

The study also checked if activities that should benefit shareholders, like research and development (R&D) and spending on new projects (CAPEX), increased when pensions were underfunded. Surprisingly, there was no significant increase in these areas. There was also no big rise in dividends, share buybacks, or stock returns.

These findings suggest that it is the managers, not the shareholders, who benefit from underfunding employee pensions. This means it is important to closely watch and control how managers handle company pension plans.

For further details, refer to the full study here or Martin's 2020 study here.