Pension parachutes: more weapons in your arsenal to ward off a hostile takeover
Companies with overfunded pension benefit plans are likely targets for hostile takeovers; consequently, these companies have developed "pension parachutes" to deny purchasing firms the cash flow improvements expected from the overfunded plans. These parachutes generally take one of the following forms: (1) the plan is amended to automatically dispose of surplus assets by accelerating or increasing participants' benefits under the plan, should a corporate takeover occur; (2) the plan is amended to require the application of surplus assets to health benefits for plan members only; (3) the plan is amended to terminate upon a change in corporate control, with surplus assets flowing into a then-established employee stock ownership plan; or (4) the plan is amended to increase participants' benefits immediately. Each type of parachute is explained.
Publication Name: FE: the Magazine for Financial Executives
Pension and benefit perspectives: the changing climate
Changes in the economy, work force, employee attitudes, and legislative climate demand corresponding changes in the content and management of company benefit programs. New trends that have emerged include: a decline in defined benefit plans, a growth in 401(K) plans, an increase in cafeteria plans, a wide representation of employee stock ownership plans, and corporate efforts to control benefit costs.
Publication Name: Cashflow Magazine
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