Why do defined contribution plans have no effect on enterprise value? The pension expense would reduce net income and thus also the resulting free cash flows for the company. Why then, according to several articles, do they have no effect on EV and the defined benefit plans have an impact?
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Pension liabilities most of the time are considered debt like items and will influence your bridge. The contribution they make on a specific year won't accumulate and is specific to a specific year.
But for a defined pension contribution plan, no liabilities are formed; the pension payments are simply recognized as an expense in the P&L. Only in the case of a defined benefit plan is a pension provision recognized, which increases the net debt. Or have I misunderstood this?
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