Does surplus/deficit sharing increase risk-taking in a corporate defined benefit pension plan?

Katarzyna Romaniuk*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This paper studies the surplus-/deficit-sharing effects on the risk-taking of a corporate defined benefit pension plan. Our analytical results show that when a surplus-/deficit-sharing rule is introduced, the participants’ risk-taking increases, while the direction of the surplus-/deficit-sharing effect on the equityholders’ risk-taking is ambiguous. The numerical analysis reveals that for plausible parameter values, the equityholders’ risk-taking increases due to the introduction of surplus/deficit sharing. The participants’ risk-taking increases much more substantially than the equityholders’ risk-taking when introducing surplus/deficit sharing. The participants’ risk-taking is more sensitive to the level of funding than the equityholders’ risk-taking: The participants’ risk-taking can become extremely high for low funding levels. This high sensitivity of the participants’ risk-taking to low funding levels is reduced by introducing deficit sharing. Risk-taking is independent of the funding level when the surplus and deficit proportions are equal.

Original languageEnglish
Pages (from-to)229-249
Number of pages21
JournalDecisions in Economics and Finance
Issue number1
Publication statusPublished - 1 Jun 2020


  • Deficit sharing
  • Defined benefit pension plan
  • Equityholders
  • Participants
  • Risk-taking
  • Surplus sharing

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