Effects of Pension Plans on Corporate Valuation

Published March 31, 2026

This report provides a comprehensive literature review on the effects of pension plans on corporations and presents an enterprise discounted cash flow model for firm valuation incorporating pension risks. Under this model, only the pension service cost from the pension-related items is included in the operating earnings calculation, and the adjusted net pension balance is later added to the equity value as nonoperating asset or debt equivalent. Importantly, by introducing a surplus excise penalty into the valuation framework, the model provides an effective way to compare various pension surplus management strategies.

The authors find that, under the pension-consolidated valuation approach, the pension funding and asset mismatch risks have significant impact on the cost of equity. It is important to understand and determine pension funding and investment policies from a corporate financial perspective. The case studies also show that pension de-risking strategies should be considered under the firm's optimal capital structure. The firm can carefully evaluate the financing strategies for buy-out in order to maximize the debt interest tax shield and create shareholder value. Finally, the model also emphasizes the importance of managing pension surplus. While the primary goal of pension surplus is to enhance the benefit security of plan participants, pension surplus may also be a strategic asset that can potentially improve the corporate value.

Authors

Tianxiang Shi, FSA, MAAA, PhD

Dekun Zhai, ASA, CFA, PhD

Materials

Effects of Pension Plans on Corporate Valuation

Effect of Pension Plans on Corporate Valuation – Case Studies Workbook

Suggested Citation

Shi, Tianxiang and Zhai, Dekun. Effects of Pension Plans on Corporate Valuation. Society of Actuaries Research Institute, March 2026. https://www.soa.org/resources/research-reports/2026/pension-plans-corporate-valuation/

Acknowledgements

The Society of Actuaries would like to thank the Project Oversight Group for their diligent work overseeing, reviewing and editing this report for accuracy and relevance:

Project Oversight Group members:
Gavin Benjamin, FSA, FCIA
David R. Cantor, ASA, CFA, ACIA, FRM
David DiMartino, ASA, MAAA
Guanfeng Jiang, ASA
Diana Yen, ASA, MAAA
Maria Zaharia, FSA, FCIA
Zhongyang Zhang, FSA

At the Society of Actuaries Research Institute:
Steven Siegel, ASA, MAAA, Senior Practice Research Actuary
Barbara Scott, Senior Research Administrator

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