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The recent financial crisis resulted in an unprecedented deterioration of Defined Benefit (DB) pension plans' funding ratios all over the world. Companies sponsoring these underfunded plans are typically required by law to make additional financial contributions to close the funding gap. These days sponsoring companies often have limited ability to obtain outside finance. Additional contributions to pension plans can worsen the financial constraint even further. In this paper, the authors develop an investment strategy for sponsoring companies aiming to mitigate the impact of liquidity shocks caused by the pension plan underfunding.
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