Corporate Pension Risk-Taking in a Low Interest Rate Environment

We examine how funding deficit pressures shape the risk-taking of U.S. corporate defined-benefit pension plans and how targeted regulatory relief can mitigate these incentives. Using the 2012 Moving Ahead for Progress in the 21st Century Act reform, which temporarily eased funding pressure by revising discount rate calculations, we show that plans receiving greater relief significantly reduced their equity allocations and shifted toward safer assets. This derisking was most pronounced among active plans and those sponsored by more financially constrained firms. Our findings demonstrate that targeted regulatory relief can curb risk-taking incentives even without altering underlying economic conditions or financial reporting standards and shed light on the likely (and unlikely) frictions driving such behavior. This paper was accepted by Bo Becker, finance. Funding: R. Pinto acknowledges financial support from the Lancaster University Management School Pump Prime Program. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2025.02928 .