How Do Private Equity Buyouts Affect Employee Pension Plans?
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Date
2024-08-07
Authors
Zhong, Wensong
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon
Abstract
Using data from the Form 5500 filings, I analyze the impact of private equity (PE) buyouts on the defined benefit (DB) plans of target firms. I find that following a buyout, DB plans are more likely to be frozen or terminated, and defined contribution (DC) plans are not likely to provide sufficient substitutes. Regarding the actuarial assumption and the pension characteristics, I find an increase in the pension liability discount rate and decreases in the projected benefit obligations (PBO), pension assets (PA), and contributions, but I do not find significant effects on funding ratio. Additionally, I find that investment strategies for these plans become riskier, with a higher allocation to equities and lower allocations to cash, government securities, insurance accounts, and mutual funds. However, there is no significant effect on realized returns. Overall, these results suggest that private equity buyouts may negatively affect the retirement welfare of DB plan participants of target firms.
Description
Keywords
defined benefit plan, employee benefit, Private equity