School of Management, Boston University.
Spinoff/Terminations and the Value of Pension Insurance
Article first published online: 30 APR 2012
1985 The American Finance Association
The Journal of Finance
Volume 40, Issue 3, pages 911–924, July 1985
How to Cite
MARCUS, A. J. (1985), Spinoff/Terminations and the Value of Pension Insurance. The Journal of Finance, 40: 911–924. doi: 10.1111/j.1540-6261.1985.tb05018.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
This paper derives the value of Pension Benefit Guarantee Corporation (PBGC) pension insurance under two scenarios of interest. The first allows for voluntary plan termination, which appears to be legal under current statutes. In the second scenario, termination is prohibited unless the firm is bankrupt. Empirical estimates of PBGC liabilities are calculated. These show that prospective PBGC liabilities greatly exceed current reserves for plan terminations, that even under a bankruptcy-only termination rule, PBGC liabilities still would be quite sensitive to discretionary funding policy, and that the increasingly common practice of pension spinoff/terminations, substantially increases the present value of the PBGC's contingent liabilities.