Despite the integration of international capital markets and the relaxation of capital
controls, U.S. defined benefit pension plans do not sufficiently diversify their assets
across international holdings. In this paper, we explore whether incorporating liabilities
in the asset allocation decision can help explain pension plans’ home bias. We find that
incorporating pension liabilities proves not to explain pension plan home bias in the case
when returns are nominal. Furthermore, when we focus on real returns, incorporating
pension plan liabilities makes the home bias puzzle worse. The fact remains that U.S.
defined benefit pension plans could benefit substantially from more international