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Newest Concern: Pension Under-Funding

Pension under-funding is becoming the latest problem for corporations.

In the last couple days, Hershey , U.S. Steel , Delta , and Canadian Pacific have noted that their company pensions were underfunded.

This means more cash will have to be put into them in 2009 (barring an amazing turnaround in the markets), which will be an additional hit to earnings.

It's not a minor amount, either. For example, in the case of Hershey, pension expenses might cost $70 million in 2009, a hit of $0.20 per share to earnings (they are expected to earn $1.90).

There's no doubt pension fund managers have been stunned by the rapid decline in the value of assets under management.

The question is, what do they do? Remember, they have to match their assets with liabilities.

Aside from getting more cash from their parent companies, they have to decide whether they want to:

1) Increase their investment risk for higher return, or

2) Get more conservative to preserve assets.

Judging by the move to cash, many have clearly opted for option 2. Either way, the implication is for a shift in asset classes and among asset managers.

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