TY - JOUR AU - Bulow,Jeremy I. AU - Scholes,Myron S. TI - Who Owns the Assets in a Defined Benefit Pension Plan JF - National Bureau of Economic Research Working Paper Series VL - No. 924 PY - 1982 Y2 - July 1982 UR - http://www.nber.org/papers/w0924 L1 - http://www.nber.org/papers/w0924.pdf N1 - Author contact info: Jeremy I. Bulow Stanford University Graduate School of Business Stanford, CA 94305 - 5015 Tel: 650/723-2160 Fax: 650/725-0468 E-Mail: jbulow@stanford.edu Myron S. Scholes Platinum Grove Asset Management Reckson Executive Park Building 4 1100 King Street Rye Brook, NY 10573 Tel: 650/234-0521 Fax: 650/234-0525 E-Mail: mscholes@pgamlp.com M1 - published as Bulow, Jeremy I. and Myron S. Scholes. "Who Owns the Assets in a Defined Benefit Pension Plan." Financial Aspects of the U.S. Pension System, edited by Zvi Bodie and John B. Shoven. Chicago: UCP, (1983), pp. 17-36. AB - The liability to employees in a defined benefit pension plan is the present value of vested benefits, the present value of the benefits that employees would receive on the immediate termination of the pension plan. This is the literal and simple definition of the liability. Although it leads to an understanding of the economics of the promise of a pension, several common provisions of pension plans make it necessary to expand the definition. Anomalies such as vesting, early retirement benefits, lump sum provisions, and ad hoc increases in benefits for retired employees indicate that employees accrue benefits that exceed their benefits on a termination of the plan. These anomalies, however, can be explained by requiring that employees as a group possess specific human capital. Although losing one or a few employees from the group would be a small loss, losing the group of employees would be a great loss. In this group model, employees bargain with the stockholders over the compensation of the entire group; they allocate . their compensation according to marginal product, returns from previous equity investments in the human capital of the group, and to purchases and sales of claims on this capital. The model explains the anomalies as a natural outgrowth of the transactions of members within the group. In addition, the model explains the use of defined benefit pension plans, and how employees could have claims, in excess of vested benefits, on the assets in the pension plan. ER -