The Integration of Insurance and Taxes in Corporate Pension Strategy

Authors

  • JAMES L. BICKSLER,

  • ANDREW H. CHEN

    Search for more papers by this author
    • Rutgers University and Southern Methodist University, respectively. The authors wish to thank Guilford Babcock, Chris Barry, Fischer Black, Ed Kane and Larry Merville for helpful comments. Any remaining errors are, of course, our own responsibility.


ABSTRACT

This paper examines the implications of the joint effects of insurance and taxes for the optimal corporate pension strategy. It is shown that neither the “mini-max” nor the “maxi-min” strategy advocated by previous authors is necessarily best in corporate pension management. In the presence of capital market imperfections, the analysis via a single-period contingent-claims model indicates that optimal corporate pension strategy in both asset-allocation and funding decisions can be a noncorner interior solution.

Ancillary