CFOs questioning the heavy commitments to equities by their companies’ defined benefit pension funds may create "the potential for forced selling of stocks,” according to a report issued by Bridgewater Associates. The report, by Bob Prince, director of research and trading, said defined benefit plans with falling asset values and higher pension liabilities have "the potential to be the defining U.S. financial crisis of the 2000s, like the S&L squeeze of the 1980s,” and they might require a bailout.
With lower stock prices contributing to lower interest rates, "this is very bad news for pension funds who hold a huge asset-liability mismatch,” the report said. That could mean corporations increasingly will have to make contributions to their pension funds, which will come out of corporate earnings and cause a drag on corporate earnings growth, it said.
