FIRM FINANCIAL STRESS AND PENSION PLAN CONTINUATION REPLACEMENT DECISIONS

This paper examines the proposition that firms switching to defined contribution plans after asset recaptures were more financially stressed than firms continuing defined benefit plans after recaptures. The examination was motivated by statements concerning the accounting and public policy implications of switching. The theoretical basis for the inquiry comes from the labor economics literature. The results of comparisons of dividend paying ability, financial stress scores, and prerecapture and postrecapture pension plan formulas for firms switching to defined contribution plans and for firms continuing defined benefit plans indicate that the switching firms were less able to pay dividends and were more financially stressed.