Fire Your Stock Analyst!: Analyzing Stocks on Your Own

Pension Plan Income

Most corporations establish pension plans for employees. Older corporations maintain defined-benefit plans, meaning that the company funds the plans with cash that the plan invests in stocks and other assets. Theoretically, the plan’s assets should approximate its future obligations, that is, the money it will be required to pay out to its retired employees.

The defined-benefit’s pension plan’s assets depend, however, on the returns it receives from investing the assets. The assets total will not necessarily match the plan’s liabilities at any given time. If assets exceed liabilities, the plan is said to be over-funded. It’s under-funded if its assets fall short of liabilities.

If the plan is over-funded, the company can ...