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With 70% of Genentron’s pension assets allocated to a health care fund, the correlation between the firm’s pension assets and profits is likely to be strong. Pyle’s statement is correct – if the health care industry has strong performance, both Genetron’s profits and the performance of the pension plan are likely to be high. When a firm is generating high profits simultaneously with high returns, the probability of the firm having to make a pension contribution is low, and if a contribution is made, the amount is likely to be small.

DeGroot’s statement is incorrect. Since the correlation between Genentron’s operations and its pension portfolio is high, if the firm’s profitability is low, the firm has a higher probability of making a large pension contribution. To avoid the problem of having to make a large contribution at a time when the ability to make contributions is low, companies should seek to have a low correlation between pension assets and firm operations.