pension parachute


Also found in: Wikipedia.

Pension parachute

A form of poison pill providing that in the event of a hostile takeover attempt, any excess pension plan assets can be used to benefit pension plan participants. This prevents the raiding firm from using the pension assets to finance the takeover. In the context of corporate governance, these provisions prevent an acquirer from using surplus cash in the pension fund of the target in order to finance an acquisition. Surplus funds are required to remain the property of the pension fund and to be used for plan participants' benefits.

Pension Parachute

An antitakeover measure where a company forbids the use of funds in its pension plan to finance a hostile takeover. Many pension plans contain cash over and above what is necessary to pay retired employees. Without a pension parachute, an acquiring company could use debt (or another mechanism) to finance a hostile takeover, and then use the excess cash in the target company's pension to pay itself back. The pension parachute requires the excess cash to go to pensioners only.

pension parachute

A pension agreement stating that, in the event of an unfriendly takeover, a firm can use any surplus pension assets to increase pension benefits. A pension parachute is used to make the firm less attractive to takeover, for it prevents the acquiring company from using the excess pension assets to help finance the acquisition.