Approximately 20 per cent of corporate pension liabilities are unfunded, and roughly half of fund assets are invested in U.S. common stocks. What considerations lead executives to manage pension funds in this way? Interviews with executives and surveys of Fortune 1000 firms give some indication of the factors affecting pension funding and asset allocation decisions.

Results suggest that tax considerations and actuaries’ recommendations are important determinants of contribution policy. Many firms aim to fund vested liabilities fully, but funding is also affected by the company’s financial position, flexibility requirements and the availability of internally generated funds. Most executives apparently view their pension portfolios as equity-based, but consider asset class diversification important to control risk. Managers are also proponents of active management, particularly in the case of equities.