Defined‐benefit pension plan funding: Does managerial ability matter?

Abstract We examine the impact of managerial ability on defined‐benefit pension plans in US firms and find that plan funding levels increase with their sponsors' managerial ability. The finding is robust to various model specifications and control for endogeneity. Further analyses show that high‐ability managers make higher employer contributions and adopt more conservative and prudent plan assumptions and investment strategies, and that their pension management is value‐enhancing. We conclude that more able managers are cognisant of obligations toward pension beneficiaries and fulfil such obligations with better‐funded plans, which ultimately benefits shareholders.