Explanation:
The fall in expected surplus growth may be less of concern because it has been predicted that the firm will continue enjoying greater operating profits. This is because the firm's increased operating profits can potentially offset the decrease in the surplus growth of the pension fund. In other words, the firm's strong financial performance can provide a buffer against the negative impact of the falling surplus growth. This is a concept known as economic risk, which refers to the risk of variation in the total economic earnings of the plan sponsor. In this case, the firm's high operating profits can help mitigate the economic risk associated with the decrease in the surplus growth of the pension fund.
Choice A is incorrect. While it may seem intuitive to act urgently in response to a potential decrease in expected surplus growth, this is not necessarily the best course of action. The firm's increased operating profits could provide a buffer against the potential decrease, and rushing into action may be unnecessary.
Ultimate access to all questions.
No comments yet.
Q.2495 A firm enjoys greater operating profits. The firm is a sponsor of a defined benefits pension plan. The firm’s pension fund manager predicts that going forward, the expected surplus growth may fall, but the firm will continue enjoying greater operating profits. Which of the following is most likely correct?
A
The firm must act urgently to restrict the fall in expected surplus growth.
B
The fall in expected surplus growth will affect the operating profit of the firm.
C
As the firm will continue enjoying greater operating profits, the fall in expected surplus growth may be less of a concern.
D
As the firm will continue enjoying greater operating profits, the fall in expected surplus growth is of grave concern.