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Ethics Question


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Years ago when Congress was quiet and the PBGC was not suffering, the general session at the EA meeting dealt with professional ethics. I remember conjuring up a scenario but never took it anywhere.

Suppose you are representing client A who is purchasing client B. Client B has an underfunded DB plan and your task is to determine how much Client B should compensate A in the purchase transaction for A to assume the pension plan liabilities. You scratch your head and recall about 7-8 years ago you did a similar study for client C who was purchasing client D and would merge D's plan into C's plan. Both C and D were multi-zillion dollar companies. So, you review the old study and low and behold you determine that D had a subsidy that you had failed to value appropriately. Your recalculation showed that Client C should have gotten another $10 million.

Now, some more tantalizing facts: You are a small company and your E&O limit is $5. You don't haappen to have the other $5 million laying around so that full restitution would bankrupt you and your 4 children in private schools would be doomed to a public school education, plus even after selling your house, your wife would have to start doing her nails herself. Client C has shown record profits since purchasing client D. Client C has also referred you to a number of clients as they were highly satisfied with your efforts on the acquisition. You are stilll the actuary for client C and miraculously, C's AFTAP as of 1/1/2009 was 115%.

What would you do?

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You are a small company and your E&O limit is $5.

I think I have the same carrier.

What would you do?

1) Lose a lot of sleep.

2) Consult an attorney.

3) Lose some more sleep.

4) Consult an authority hire than an attorney.

5) Approach the client and hope for the best.

(Not necessarily in that order.)

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Let's add to the facts that client C is now owned by a South American Company that is known for hostile takeovers and forcing their suppliers to extend 120 days for payment or else. They were also the victor in a lawsuit against Potrezebie, Inc. who when they assisted with an IPO of a subsidiary, misvalued the subsidiary by $10 million.

I.e., assume if you take it to this client, they will seek reparations, damages, and your first born.

By the way, I am in no way recommending the only approach is to do nothing. Simply, the exercise is to weigh your ethics against the practical aspects of losing everything to people whom you know to be bastards*.

*Of course, as long as they pay your bill, they are nice bastards.

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Wow. For those of you who would 'fess up, you have my admiration. Being brutally honest with myself, I'm just not sure what I would do. I'd like to think I'd do the right thing, but I suspect I might keep silent. I just don't know.

We had a similar discussion about what happens if you go to Las Vegas, and someone gives you a dollar to play a slot machine for them. If it wins 1 million, are you going to turn over the 1 million to them, or was that suddenly your dollar that was the winning dollar? (This one is a little easier, since your wife doesn't have to start doing her own nails when you give the 1 million away.)

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Wow. For those of you who would 'fess up, you have my admiration. Being brutally honest with myself, I'm just not sure what I would do. I'd like to think I'd do the right thing, but I suspect I might keep silent. I just don't know.

We had a similar discussion about what happens if you go to Las Vegas, and someone gives you a dollar to play a slot machine for them. If it wins 1 million, are you going to turn over the 1 million to them, or was that suddenly your dollar that was the winning dollar? (This one is a little easier, since your wife doesn't have to start doing her own nails when you give the 1 million away.)

I would offer the $1 million to Company C as a good-faith settlement.

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What happens if after another few years you (or someone else) discover that your recalculation was erroneous?

If you made a mistake then, you could be making a mistake now.

How can you be sure of what amount they might have negotiated or compromised? It could have been for less than $10 million, couldn't it ?

In any case, Is bankruptcy and subsequent restart of the business, all that bad or unusual? It seems that some "big business" does it very often. How many times have we heard bankruptcy and Trump being associated ? Airlines ? Chrysler? Asbestos using companies ? etc. It is not the end of the world, it is only a minor blip.

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