The chief financial officer of a profitable firm asks you to explain the advantages, if any, to his firm of overfunding the firms defined benefit pension plan. Alternatively stated, the excess return of overfunding compared to investing within the firm is approximately 20% = (1 - 0.831)/0.831.

a. Do these advantages accrue to a firm with a defined contribution pension plan?

b. How might employees feel about overfunding the defined benefits plan?

c. Is there an advantage to the employer of overfunding a defined contribution plan? Why or why not?