justin88

Neveruse,

Can we agree that the pension's allocation between equity and fixed income does NOT affect the leverage on the balance sheet (between Liabilities and Equity on the right)?

It DOES affect the riskiness of the pension assets, and thus the pension asset beta.

Only the funded status would affect the leverage of the balance sheet (since a pension deficit would mean Pension Liability > Pension Assets; a pension surplus means Pension Assets > Pension Liabilities, which, on an extended balance sheet, would result in different allocations on the right side between Liabilities and Equity).

If you write out an extended balance sheet, you'll see what I mean.

justin88

Pay close attention, this is NOT the WACC calculation you've seen at LI or LII.