1. Describe the regulatory cycles on pension fund accounting and pension funding.

2. Explain the conflicts issue in the management of pension plans.

3. Give a list of the economic and ethical issues in pension funding, employee wages, and RIFs.

4. Did noble goals on all sides result in unintended consequences at United, GM, and for the public employees at bankrupt government entities?

5. What ethical issues do you see in the government intervention to save GM?

Case 5.7 Pensions: Promises, Payments, and Bankruptcy The city of Detroit pays out almost s200 million per year in pension benefits to its retired workers. The city's annual contributions to its pension plan are less than half of that sum. 2 As payments out have increased, payments in have decreased. How is it pos- sible to have a fully funded pension plan with these numbers? Professionals, including auditors, fiduciaries, and actuaries, have certified that the aggressive investment policies for the fund should make up the difference 43 Still, the firefighters-who one day expect to be beneficiaries and in turn receive their payouts recognize the harsh real that is playing out with pension funds throughout the United States." Despite all the imprimaturs from professionals, benefits elsewhere have been cut, plans changed, and, in some cases, payments to retirees stopped altogether s With Detroit in bankruptcy they appear to have rights to collection of their pensions When United Airlines declared bankruptcy in 2002, of its Chapter 11 proceedings relieved the company of its pension liabilities The ability of a company to renege sion benefits when so many protections were built into the law under the Employee hearings ment Income Security Act (ERISA) has been a ongoing concern. Congressional for following the losses in the United case uncovered loopholes in the accounting processes that permitted United, and many others, to report pension pension than it actually wa The loopholes were Enron- that made the health of the fund look better esque in nature, allowing obligations to be spun off the books so that the existing levels of obligations of the plan looked small and the assets very rich. Federal Regulation of Pensions Because pension bailout, Congress changed the accounting for pension plans to avoid of the funds need further funding. The Pen- the problem of the rosy picture when ing and provides greater assur Act of 2006 closed the ance for employees that their promised pensions and the funding for them would be their retirement. The effect of the changes is to require companies t