Alexander Ellington, President of Ellington Foods, has contacted your firm to discuss the company's defined-benefit pension plan. He has provided the following information about the company and its pension plan: Ellington Foods has annual sales of $300 million. The average payroll is about $100 million. The average age of the workforce is 43 years. 30% of the plan participants are now retired. Company profits last year were $10million and have been growing at 10% annually. The Ellington Foods pension plan has $80 million in assets and is currently overfunded by 10%. The duration of the plan's liabilities is 15 years. The discount rate applied to liabilities is 6%. Fund trustees wish to maintain 5% of plan assets in cash. Ellington would like to achieve a rate of return of 7% on its pension fund (which is less than the 9% that the fund has historically achieved). Ellington would like to be able to reduce contributions to the pension fund and possibly increase employee benefits. A. Formulate and justify investment policy objectives for the Ellington Foods pension plan in the following three areas (use the following template): i. Return Objective. ii. Risk tolerance. iii. Time horizon. Template for Question 1A Investment Policy Statement Elements for Ellington Foods Pension Plan Element Discussion i Return objective ii. Risk tolerance iii. Time horizon B. State whether the original allocation to each asset class (as shown in the table) should be lower, the same, or higher for the Ellington Foods pension plan. Justify your response with reference to each of the asset classes (use the following template): Asset Class Original Allocation (%) T-bills U.S. intermediate-term bonds (5-year duration) 5 Expected Total Return (%) 30 6 U.S. long-term bonds 15 7 (20-year duration) U.S. equities 50 12 International development market 0 13 Equities Emerging market equities 0 16 Template for Question 1B Ellington Foods Pension Plan's Asset Allocation Asset Class and Original Allocation Circle the change (lower/same/higher) and justify your response. STATE YOUR ASSUMPTIONS CLEARLY U.S. Treasury bills (5%) LOWER SAME HIGHER U.S. intermediate-term bonds LOWER SAME HIGHER (5-year duration) (30%) U.S. long-term bonds LOWER SAME HIGHER = (20-year duration) (15%) U.S. equities (50%) LOWER SAME HIGHER Developed market equities (0%) LOWER SAME HIGHER Emerging market equities (0%) LOWER SAME HIGHER 2. Ellington appreciated your advice but decided to handle the situation: in house." The company also decided to stay with the original allocation. Assume ten years have passed and Ellington has re returned to you for advice. The average age of the workforce is now 50 years. Sixty percent of the plan participants are now retired. The duration of the plan's liabilities is four years. The fund is currently underfunded by 20%. The discount rate applied to the liabilities is 9%. Company profits have been in decline for the past two years but are expected to turn around in the upcoming year. Given the updated information: emp late A. Formulate and justify investment policy objectives for the Ellington Foods Pension Plan in the following three areas (use the following template): i. Return Objective. ii. Risk tolerance. iii. Time horizon. for Element Que stio n 1A . Return objective ii. Risk tolerance iii. Time horizon Investment Policy Statement Elements Ellington Foods Pension Plan Discussion