Stocking Up Pensions, Literally

By LYNN COWAN
Some corporations, facing the need to make higher contributions to their pension plans, are turning to a little-used financing strategy: Pouring their own newly issued stock into defined-benefit plans.

The tactic, used by about a half-dozen companies since May, allows them to preserve cash for other uses at a time when balance sheets are stretched thin and the value of their pension assets has been reduced by the market decline in 2008.

It also results in tax benefits and an earnings boost, according to Caitlin Long, head of the pensions-solutions group at Morgan Stanley.


"It's not brand new, but in years past, companies did not need to contribute as much" to their pension plans, largely because pension funding status was much healthier and companies had more cash-flow flexibility, says Ms. Long, who believes more companies will take this route in the months ahead. "Many companies may not realize this option exists, and it may be attractive under the right circumstances."

Stock contributions don't come without complications. Because company pensions owe a fiduciary responsibility to employees, an unaffiliated third party -- usually a trust company -- must be hired to properly manage the shares to benefit retirees. Often, that means quickly selling them to convert to cash so that the pension isn't weighted down with its own sponsor's stock.

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