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Why It s Important For Businesses to Assess Risks Over Pensions

What are the risks to businesses that spend too much money on their pension funds for employees? Could they be putting the future of their company at risk? Some believe when the economy turned worse in 2008-2009, many companies found themselves at risk because of how much they had spent on pension funds. These included General Motors and the Ford Motor Company. Even many government agencies found themselves losing money through investments of pension funds in the Stock Market.

Many government agencies have been trying to make up for money lost in the Stock Market. They are seeking higher returns for their investments, so they can make up for the money the lost when the economy worsened. They need the extra money to be able to pay for the future retirement of their employees. Experts say the problem is such a strategy could make more money, but it also comes with many risks. On the other hand, many businesses have lost so much money on pension funds they are moving out of the Stock Market, out of risk as much as possible.

'In effect, theyre going to Las Vegas', Frederick E. Rowe, a Dallas investor and the former chairman of the Texas Pension Review Board, said in an interview in the New York of the government agencies. 'Double up to catch up'.

While state agencies are now investing in junk bonds, foreign stocks, commodity futures, mortgage securities that have been deeply discounted, and margin investing, businesses are trying to avoid the risk. They may have to, because they lost too much money already when the Stock Market crashed.

J.C. Penny, Boeing, General Motors, Federal Express, and Ashland Oil Company have been taking the money they had in stocks for decades out of the market. Many other companies plan to do the same thing. More than 50% of corporate funds were reducing the amount invested in United States equities.

Andrew T. Ward, the chief investment officer for Boeing, said in the New York the bigger the pension fund is the 'lower risk strategy' should be involved for the money in it.

In 2007 Boeing shifted much of its pension money out of stocks, and its pension funds were not hurt as much when the Stock Market collapsed. When the Stock Market hit its lowest point many companies found their pension funds had lost 25 to 30 percent of their value. By comparison, the money in the Boeing pension funds lost only 14 percent. Ward estimated the company saved billions of pounds in the process.

Many companies that are following the Boeing strategy are investing in bonds that are scheduled to pay many years in the future, when their employees will retire. The bonds are called 'fixed instrument'. Even though the value of the bonds may fall, the companies that invest in them will hold them for interest payments that will go to employees when they retire.

According to Towers Watson, 2/3 of companies investing their pension funds in the Stock Market will decrease that money spent by the end of 2010.

An article reported in Yahoo News on April 15, 2010, reported that although General Motors is no longer the biggest automaker in the world, it does still operate the largest pension fund in the world. The article reported that as of April 7 its pension plans were under funded by 27 billion pounds. More than half of that amount is owed to United States workers and retirees. The article also reported that the Government Accounting Office reported that the pension crisis that auto industry is involved in could create unprecedented problems for the Pension Benefit Guarantee Corporation, an organization sponsored by the government to secure company pensions. Chrysler faces its own pension problems.

Even though when Chrysler and General Motors were reorganized after bankruptcy people though pension problems were not an immediate problem, they were wrong. Neither company has had a profit since it went bankrupt. A GM spokesperson has not said his company will be profitable this year. Chrysler CEO Sergio Marchionne has said he hopes his company will break even.

Many experts have wondered if the companies possible overspending on pensions not only contributed to their bankruptcy, but also if taxpayers will be responsible for the pension funds.
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Article Added on Tuesday, July 12, 2011
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