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Craig Brokaw, newly appointed controller of STL, is considering ways to reduce

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Question;Craig;Brokaw, newly appointed controller of STL, is considering ways to;reduce his company?s expenditures on annual pension costs. One way to do;this is to switch STL?s pension fund assets from First Security to NET;Life. STL is a very well-respected computer manufacturer that recently;has experienced a sharp decline in its financial performance for the;first time in its 25-year history. Despite financial problems, STL still;is committed to providing its employees with good pension and;postretire- ment health benefits. Under its present plan with First;Security, STL is obligated to pay $43 million to meet the expected value;of future pension benefits that are payable to employees as an annuity;upon their retirement from thecompany. On the other hand, NET Life;requires STL to pay only $35 million for identical future pension;benefits. First Security is one of the oldest and most reputable;insurance companies in North America. NET Life has a much weaker;reputation in the insurance industry. In pondering the significant;difference in annual pension costs, Brokaw asks himself, ?Is this too;good to be true??1. Why might NET Life's pension cost requirement be $8 million less than First Security's requirement for the same value?2. What ethical issues should Craig Brokaw consider before switching STL's pension fund assets?

 

Paper#39832 | Written in 18-Jul-2015

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