You are an accountant for Lanthier Company. The company president calls you into her office and says, We have to find a way to reduce our pension costs. They are too high, and they are making us uncompetitive against our foreign competitors whose employees have state-funded pensions. I think we might have to abandon our defined benefit plan. I was also thinking that perhaps we could raise the discount rate we use up to the high end of the acceptable range. I also think we need a trustee who will pursue a more aggressive investment strategy for the pension funds; that way we can raise our expected rate of return.

1) Do you think it is a good idea for the company to abandon its defined benefit plan? Why or why not?

2) If the company does decide to abandon its defined benefit plan what could they do instead?

3) If the company keeps its pension, do you think it is a good idea to raise the discount rate and/or pursue a more aggressive investment strategy? Be sure to explain your answer.