Commentary on: Firms Using Stock to Help Pension Funds

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expert perspective telescopeExpert Perspective by Grahall’s Robert Cirkiel

In an article published in Market Watch on December 16, 2008, Christopher Hinton (journalist for Market Watch) addresses the issue of pension plan funding and says: “Some companies think they have a solution though by contributing their own stock to the plan in lieu of cash, particularly if they think the market is undervaluing their shares.”

With the advent of PPA funding rules in 2009, and with pension funding levels very low due to market losses, a number of public companies will fund their pension plan with stock in lieu of cash. This is a double-edged sword.   For example, the article points out that the plan potentially can gain tremendous influence over the company. Also, the plan now has more at risk since pension distributions tend to be counter-cyclical to company performance (since staff terminations and retirements increase in those times.) Said another way, when the plan most needs money, it will have the least. Email Robert Cirkiel at robert.cirkiel@grahall.com

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