Pension Liabilities Dilemma
Abstract
This case study examines the ethical tensions confronting Harry Markham, a CFA charter holder working with public pension boards. Markham is expected to offer investment advice on behalf of Investment Consulting Associates (ICA) based on financial assumptions he believes are misleading—specifically, an 8% discount rate that understates pension liabilities. His ethical challenge is heightened by the lessons of the 2008 financial crisis, which revealed the devastating effects of ignoring risks and concealing financial truths. This case study applies the CFA Code of Ethics, stakeholder theory, and values-based leadership models to explore how financial professionals can act ethically in flawed systems. We will investigate three possible solutions: providing dual liability valuations, offering a utilitarian analysis to show long-term consequences, and promoting internal ethics reform. Each option is evaluated for its capacity to protect vulnerable stakeholders and uphold professional integrity. The case also integrates biblical ethics, highlighting the moral courage required to act righteously in flawed systems. The central question is how ethical leadership can be a redemptive force in the financial industry.
Introduction
Financial advisors are crucial in protecting clients' long-term interests, especially when managing public pension funds affecting millions. In the case of Harry Markham, a CFA charter holder at ICA, this responsibility comes with a serious ethical dilemma. Markham is expected to give investment advice to public pension boards. He is restricted from challenging a commonly used assumption—the 8% discount rate approved by the Government Accounting Standards Board (GASB). While legal, this rate significantly understates the true size of pension liabilities (Rauh & Novy-Marx, 2009). As a result, Markham is being asked to make recommendations based on financial data that may mislead stakeholders such as retirees, public employees, and taxpayers. This creates an “accounting illusion” that could hide financial risk and erode public trust (Minahan & Reavis, 2012, p. 5).
This dilemma is especially difficult given the financial industry's recent history. The 2008 financial crisis revealed what can happen when firms ignore ethical responsibilities—millions lost jobs, savings, and retirement security due to risky behavior and misleading financial reporting. For advisors like Markham, who remember the consequences of that crisis, ignoring red flags feels irresponsible. Yet, raising concerns in his current role could cost him his job or reputation. He is caught between his loyalty to his firm and clients and his duty to act with honesty, independence, and integrity as required by the CFA Institute’s Code of Ethics (CFA Institute, 2023).
Markham’s case highlights a bigger issue in financial ethics: professionals' responsibility to their employers and all stakeholders affected by their decisions. These include pensioners counting on benefits, taxpayers who may have to cover shortfalls, and policymakers who rely on accurate data. Ethical frameworks like stakeholder theory (Freeman, 1984) and universal values (Donaldson, 1996) suggest that managers must look beyond short-term goals and act to protect the broader public. Markham must now consider ethical strategies that uphold these responsibilities—such as offering alternative financial projections, advocating for truth within his firm, or speaking out externally if needed. His decision will reflect how well ethical leadership can function in an industry that still bears the scars of past mistakes.
Analysis of Main Issues and Problems
The 8% Discount Rate and Dual Liability Valuations
Harry Markham faces a complex ethical dilemma rooted in the tension between his obligations as a CFA charter holder and the structural limitations imposed by his firm and clients. The CFA Institute’s Code of Ethics and Standards of Professional Conduct emphasizes that financial professionals must act with integrity, exercise independent judgment, and base their recommendations on fully understanding the client’s financial condition (CFA Institute, 2023). However, Markham is constrained from questioning the actuarial assumptions embedded in pension fund valuations, particularly using an 8% discount rate permitted by the Government Accounting Standards Board (GASB). This rate, though legally acceptable, significantly understates the financial shortfall in many public pension systems (Rauh & Novy-Marx, 2009), leading to misleading advice and a false sense of security for all involved stakeholders—including pensioners, taxpayers, public servants, and policymakers.
This situation presents a critical ethical issue related to the principle of suitability. Markham asserts, “The first thing you want to understand is the client's circumstances. That’s a basic ethical precept” (Minahan & Reavis, 2012, p. 5). If those circumstances are distorted due to optimistic assumptions, any investment advice based on them becomes inherently flawed. The result is what Markham describes as an “accounting illusion” that misrepresents the financial health of pension plans and may result in underfunded liabilities, placing future beneficiaries at risk. Because stakeholders rely on accurate and transparent data to make informed decisions, such illusions damage public trust and undermine fiduciary responsibilities.
Markham’s first potential response—presenting dual liability valuations—offers a way to maintain ethical transparency without directly opposing institutional norms. This approach would involve presenting both the GASB-sanctioned 8% valuation and a second, more conservative valuation using a market-based rate. It aligns with CFA Standard I(C), which prohibits misrepresentation, and Standard V(A), which requires a reasonable basis for investment advice (CFA Institute, 2023). However, it may still be viewed by ICA leadership or the pension board as politically risky or overly alarmist. The risk is that even this transparent strategy may be resisted if stakeholders perceive it as a challenge to their authority or a disruption to the status quo. Yet, managers and advisors must remember that they serve a broad community of stakeholders whose long-term well-being should supersede short-term institutional convenience.
Political and Fiscal Consequences and Internal Advocacy at ICA
Social and institutional pressures further complicate Markham’s position. Many plan sponsors resist recognizing the extent of pension underfunding due to the political and fiscal consequences. Markham explains, “Plan sponsors don’t want to hear the news that they are less well funded than the numbers show and may blame the messenger” (Minahan & Reavis, 2012, p. 5). This culture of avoidance creates systemic disincentives for transparency and honesty, effectively penalizing those who attempt to tell difficult truths. Managers who prioritize stakeholder accountability must be willing to face discomfort if it serves retirees' long-term financial security and the public's trust. Ethical leadership involves advocating for the needs of often-silent stakeholders affected but not always represented in the room.
An alternative strategy involves internal advocacy within ICA. Markham could propose that the firm adopt a formal policy for disclosing assumptions and limitations related to pension valuations. This would help institutionalize ethical best practices and bring ICA’s culture closer to CFA ethical standards, particularly Standard III(A), which emphasizes loyalty and care toward all stakeholders, not just immediate clients. However, this course of action carries its own risks, including internal backlash and the potential perception that Markham is undermining client relationships. Change from within requires patience and political skill, and success is not guaranteed—but it is an essential pursuit if the firm is to honor its duties to society.
Perpetuate the Denial and Stay Silent or Whistleblow
From a broader ethical perspective, Markham’s dilemma can be understood through Thomas Donaldson’s (1996) framework in “Values in Tension: Ethics Away from Home.” Donaldson warns against cultural relativism and promotes the idea of universal ethical principles. While inflated discount rates may be normalized in Markham’s professional environment, Donaldson would argue that this norm should not excuse unethical behavior. Markham’s recognition that continued participation in the status quo makes him an “enabler of denial” mirrors Donaldson’s concern with systemic ethical failure. His professional integrity and broader responsibility to the public and all affected stakeholders demand that he resist being complicit in a flawed system.
A more extreme but ethically principled alternative is whistleblowing. If internal efforts fail, Markham could escalate his concerns to external regulators, professional bodies, or even the media. This step could expose the systemic underreporting of pension liabilities and drive much-needed reform. However, it also carries significant personal and professional risks. Despite formal protections, whistleblowers are often ostracized or punished in subtle ways. Markham would need to carefully weigh the long-term impact on his career and personal life—but he must also consider the long-term harm to the pensioners, future employees, and taxpayers if nothing is done.
The final option—remaining silent—would preserve Markham’s job security and professional relationships. It would allow him to continue working within the constraints of his role without confronting his clients or his firm. However, this choice directly contradicts the ethical obligations outlined in the CFA Code, including Standards I(C), III(A), and V(A) (CFA Institute, 2023). It also undermines his own stated values and risks contributing to a future pension funding crisis that could harm thousands of retirees. In this case, silence would be an abdication of both professional duty and moral responsibility—not only to clients but to all stakeholders depending on sound financial stewardship.
In sum, Markham’s dilemma reflects a collision of ethical, institutional, and practical forces. Each possible response—dual valuations, internal advocacy, whistleblowing, or silence—carries distinct trade-offs. Yet, ethical frameworks such as the CFA Code and Donaldson’s universalist approach clearly point toward transparency, truth-telling, and stakeholder accountability as the higher moral ground. Markham can redefine what it means to act ethically in a deeply flawed system by choosing a path that upholds these principles, even at personal cost.
Strategies and Solutions
Dual Liability Valuations: Accounting Illusion/Transparency Solution
In light of some of the alternatives discussed, one of the strongest alternatives or solutions is to present two versions of the pension fund's liabilities. One version could use the current legally accepted 8% discount rate. The second could use a more conservative, market-based rate, such as 3–4%. This strategy does not require outright opposition to the current system but enables ethical transparency. By offering a dual analysis, Markham can inform the board and other relevant stakeholders—such as pensioners, taxpayers, regulators, and the broader investing public—about the financial gap between optimistic and realistic assumptions, promoting better-informed and more responsible decisions. Managers and financial professionals have a duty not only to their direct clients but also to the broader network of stakeholders who are affected by financial decisions. Public pension funds include retirees who depend on the promised benefits, taxpayers who may bear the burden of underfunding, and public employees who rely on the system’s solvency for their future. Stakeholder theory (Freeman, 1984) suggests that ethical management requires attending to the interests and well-being of all affected parties—not just shareholders or paying clients. Offering clear, accurate data honors these stakeholders' right to transparency and protects them from being misled by overly favorable reporting practices.
To implement this approach, Markham would need to: (1) define and explain the reason for providing a second valuation, (2) seek approval or at least internal review of the methodology from within ICA, (3) include both sets of figures in client-facing materials with clear explanations, (4) guide the pension board through the pros and cons of both approaches, and (5) keep detailed records of his rationale and process for professional protection. These steps promote clarity and protect Markham from professional liability. This approach supports the CFA Institute's ethical standards, especially Standard I(C), which prohibits misrepresentation, and Standard V(A), which calls for a reasonable and adequate basis for investment decisions (CFA Institute, 2023). It also satisfies ethical decision-making frameworks like the “family test,” which asks whether you would feel comfortable explaining your decision to your family; the “newspaper test,” which prompts reflection on how it would feel to have one’s decision appear on a front page; and the “mentor test,” which encourages professionals to imagine what a respected ethical mentor would do in the same situation (Siedel & Ladwig, n.d.).
Markham expressed concern for the misleading nature of current valuations: “Perhaps our advice would be different if the client knew they were starting from a multi-billion dollar hole” (Minahan & Reavis, 2012, p. 5). He also affirmed, “The first thing you want to understand is the client’s circumstances. That’s a basic ethical precept” (Minahan & Reavis, 2012, p. 5). Markham fulfills these ethical precepts by presenting a dual valuation while promoting trust. This solution effectively promotes transparency and ethical clarity without creating unnecessary confrontation. It equips decision-makers with honest data, allowing them to weigh options with a complete understanding. General Electric employed a similar approach when it adopted more conservative pension liability disclosures in response to criticism (Reuters, 2019). The Christian principle of honest witness is reflected in Ephesians 4:25: “Speak truthfully to your neighbor.” Ethically, the steps here promote truthfulness, transparency, and long-term risk awareness, all while fulfilling the professional obligation to serve the interests of all stakeholders—not just those in the boardroom.
Utilitarian Cost-Benefit Analysis (Utilitarian Ethics Solution)
Building upon the theme of stakeholder-focused transparency, another strong strategy for Markham is to develop a utilitarian cost-benefit analysis. It will allow ICA to evaluate actions by weighing the 8% discount rate for its potential benefits against its costs, aiming to maximize overall well-being and happiness for the greatest number of stakeholders. Rather than prioritizing only the expectations of the pension board, this method weighs the impact of funding decisions on taxpayers, employees, pensioners, and other vulnerable groups. Since the utilitarian lens asks, “Which decision results in the greatest good for the greatest number?” conservative estimates help prevent future funding crises and safeguard long-term societal well-being (Mill, 1863). Managers have an ethical obligation to serve the interests of all stakeholders—not just those in positions of authority or those who generate revenue. Pensioners rely on fund solvency for retirement income, taxpayers shoulder the burden when public plans fall short, and employees depend on accurate forecasts for future planning. Stakeholder theory (Freeman, 1984) underscores that managers are responsible for considering how their decisions affect the entire community. Failing to do so erodes public trust and shifts unjust risks onto those who cannot respond.
Markham should take five key steps: (1) develop side-by-side projections showing the long-term effects of different discount rates, (2) use actuarial and economic studies to support his assumptions, (3) design visuals that clearly explain the financial and social impact of underreporting, (4) emphasize the board’s fiduciary responsibilities to all stakeholders, and (5) pitch this approach as a reputational benefit for ICA and the pension board. This strategy uses ethics to strengthen both trust and public policy. It aligns with CFA Standard III(A), which requires that members act with loyalty, prudence, and care, and with Standard I(B), which emphasizes maintaining independence and objectivity (CFA Institute, 2023).
Tesla offers a useful real-world example. When it opened its patents for electric vehicle technology, it made a decision that benefited the industry and the planet, not just the company. This approach built credibility and advanced long-term innovation (Spector, 2014). The Christian value of servant leadership is supported here, echoing Philippians 2:4: “Look to the interests of others.” These steps are ethically important because they promote fairness, build trust, and protect vulnerable populations. Markham can gain traction where direct confrontation might fail by reframing the discount rate debate regarding public good and future outcomes. Presenting the board with a utilitarian argument ensures that they understand how small decisions today shape large consequences tomorrow for all who are impacted.
Internal Advocacy and Ethics Training (Integrity and Objectivity Solution)
Markham’s third major path forward is to promote long-term internal reform at ICA through advocacy and ethics training to complement these external-facing strategies. The goal is not just to resolve a single issue but to cultivate a workplace culture where ethical behavior is normalized, encouraged, and structurally supported. A strong ethical culture reduces the risk of future dilemmas, strengthens stakeholder trust, and improves organizational resilience. This approach acknowledges that culture often drives behavior more than formal policies do. Managers hold fiduciary and moral responsibilities to stakeholders—employees, clients, pension beneficiaries, regulators, and the general public. When firms fall short of ethical norms, it is not only the leadership or shareholders who bear the consequences. Pensioners may lose security, employees may face moral injury, and taxpayers may shoulder the burden. Stakeholder theory (Freeman, 1984) reinforces that managers must proactively shape ethical systems that reflect these wider obligations. When ethics are built into a company’s culture, stakeholders are more likely to be treated fairly, respectfully, and thoughtfully.
Markham could initiate reform by: (1) having confidential conversations with firm leaders to build support for change, (2) showing examples from the CFA Institute or other firms where ethics programs made a difference, (3) proposing a recurring ethics workshop or speaker series, (4) leading initial sessions using real ethical dilemmas from the field, and (5) establishing a confidential channel for advisors to share concerns. These actions create transparency and psychological safety—essential for ethical integrity and stakeholder advocacy.
This solution aligns with CFA Standard I(B), which stresses maintaining objectivity and sound judgment, and Standard VII(A), which encourages behavior that reflects positively on the profession (CFA Institute, 2023). Within conversations, Markham can exemplify his point with the “family test,” where one considers how they would feel if their child worked in the same environment, and the “mentor test,” imagining how a trusted advisor might act (Siedel & Ladwig, n.d.). Markham clearly saw the depth of the issue: “We have these funds that are grossly short of money, but the accounting doesn’t show them as being grossly short of money” (Minahan & Reavis, 2012, p. 5). This insight reflects a deeper duty—not just to clients and superiors but to every stakeholder affected by institutional decisions. By addressing root causes through ethics training, Markham contributes to a culture that encourages transparency, protects whistleblowers, and ensures that decisions are evaluated for their long-term stakeholder impact.
A similar example is Merck, which created a culture of ethics by distributing Mectizan at no profit to combat river blindness (Merck, n.d.). That decision showcased corporate character by prioritizing public health over short-term gains. The Christian principle of moral courage undergirds this, seen in Joshua 1:9: “Be strong and courageous... the Lord your God is with you.” These steps are ethically significant because they promote a sustainable ethical culture, empower employees, and reduce future risk to internal and external stakeholders alike. By choosing this strategy, Markham becomes more than an advisor—he becomes an ethical leader. Promoting long-term change within his firm can amplify his values and protect others from facing the same dilemmas in silence. This solution balances courage with diplomacy, making it both impactful and realistic.
Personal Experience
In my personal experience, I have worked in multiple environments where speaking the truth was frowned upon—especially when that truth reflected poorly on the company. I often found myself in loyalty dilemmas, where I had to choose between expressing my proven concerns or preserving favorable relationships with higher-ups. Maintaining the prevailing narrative often created more short-term peace and long-term relational stability than “stirring the pot” and risking professional position or reputation. This is an unfortunate but common reality for many professionals. The fear of jeopardizing future promotions or internal goodwill often discourages constructive dissent, even when ethical concerns exist.
However, in my personal relationship with my significant other, I have adopted a different mindset—one rooted in moral courage and ethical integrity. While sometimes temporarily disruptive, this approach has laid a strong foundation for long-term relational success when I call out a potential injustice. Rather than avoiding conflict or suppressing concerns, I take opportunities to speak up about issues—big or small—in a respectful and inquisitive tone. For instance, when I notice a behavior that feels misaligned with our values or expectations, I ask open-ended questions to better understand the reasoning behind it before sharing my perspective. This form of stakeholder communication allows for a dialogue, not a confrontation. In these moments, I aim to express how I perceive the situation and give my partner space to agree, disagree, or share their own insights. Often, we arrive at a resolution—or at least, a greater understanding of each other’s perspectives. In some cases, multiple conversations have been needed to find a middle ground that feels mutually respectful and sustainable. This approach has helped us foster an environment of trust and transparency, even when the conversations are uncomfortable.
In contrast, I’ve found that I still struggle to apply the same level of openness in professional settings. While I can stay true to my identity as a Christian and an ethical employee, the power dynamics and dependency on leadership for career progression often make it difficult to voice every concern. Nevertheless, I realize it may require personal growth in communication and courage, which I am always committed to. Learning how to balance diplomacy with transparency is a skill I continue to refine.
Biblical Integration
In ethical dilemmas such as the one faced by Harry Markham, the biblical concept of leadership under authority becomes highly relevant. Scripture consistently calls believers to uphold integrity, courage, and truth—even when doing so brings tension with institutional powers. Markham’s challenge—balancing the demands of his employer, his duty to professional ethics, and the truth about pension liabilities—mirrors the kind of complex leadership decisions faced by the early church. In Acts 15, the apostles navigated competing expectations, community needs, and divine wisdom. As the Theology of Work Project observes, “The Jerusalem Council did not act unilaterally or authoritatively, but humbly acknowledged the movement of God and sought consensus through discernment” (“Leadership and Decision Making,” n.d.). Like them, Markham must seek moral clarity through discernment, even when pressured to conform.
Scripture offers guidance for responding to human authority. Romans 13:1 says, “Let everyone be subject to the governing authorities, for there is no authority except that which God has established.” However, this is balanced by Acts 5:29, where Peter asserts, “We must obey God rather than human beings.” Markham’s dilemma lies within this tension. While he is called to respect organizational structures, he must also prioritize God’s moral law, particularly truth, justice, and protection for the vulnerable. Advocating for transparency and adhering to CFA ethical standards aligns with his professional responsibilities and biblical principles of righteousness and stewardship.
The Theology of Work Project also emphasizes that “leaders in Acts resisted the pressure to yield to cultural norms when those norms threatened to compromise their values” (“Leadership and Decision Making,” n.d.). Similarly, Markham faces pressure to maintain accepted financial practices, even when they obscure the truth. His response should be grounded in Galatians 1:10: “Am I now trying to win the approval of human beings, or of God? ... If I were still trying to please people, I would not be a servant of Christ.” Markham’s fidelity to ethical truth is not just a professional obligation—it’s an expression of his faith and character.
Faith-based perspectives on work further enrich this understanding. The Gospel Coalition states, “God cares about how we conduct our work—not only for productivity but for faithfulness, honesty, and love” (Keller, n.d.). Similarly, the Center for Faith and Work at Redeemer Church affirms, “All work has dignity because it reflects the image of God in creativity, service, and stewardship” (Redeemer, n.d.). Markham’s role is not merely analytical—it is vocational. It reflects a divine mandate to protect truth, serve others, and challenge systems perpetuating harm.
Ultimately, Markham is called to walk the narrow path of respecting institutional authority while refusing to compromise biblical or professional truth. His vocation is a form of stewardship that requires wisdom, discernment, and moral courage. In a system that incentivizes silence and conformity, his faith demands that he be a voice of ethical resistance, reflecting Christ's justice, integrity, and humility.
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