Reference no: EM132915449

Question - You are the CEO of a major metropolitan healthcare system and one of your roles is oversight of the pension plan for your 1500 employees. Based on current employees as well as currently retired individuals, you typically use a 50 year projection of financial obligations based on mortality, etc. Given the number of employees and the estimated pension per employee, you anticipate (in real dollar terms) that at any time, you would have approximately 1,000 retirees drawing benefits that would average $40,000,000 per year. You have historically assumed that your fund would earn 8% per year...a rate that most public funds have used in the past 30 years. Of course, we now know that has resulted in significant underfunding of such pensions. The Wall Street Journal said "U.S. public pension funds face a shortfall of more than $3 trillion, based on the balance sheets of the nation's top 25 public pension funds.

Using the 8% expected rate of return assumption that you have been using, how much should be in your pension fund balance as of today if you fund was fully funded?