This paper examines the characteristics of three funding strategies for pension plans and analyzes the investment strategies that complement these strategies. Although the primary focus is on defined benefit plans, which include Social Security, it also applies to employees’ defined...

The asset allocation of defined benefit pension plans is a setting where both risk shifting and risk management incentives are likely be present. Empirically, firms with poorly funded pension plans and weak credit ratings allocate a greater share of pension fund assets to safer securities such...