What should a portfolio manager do when instructed to invest more aggressively in an underfunded pension plan?

When a portfolio manager is instructed to invest more aggressively in an underfunded pension plan, prioritizing the protection of beneficiaries' interests is paramount. This reflects an ethical obligation to act in the best interest of the plan participants, whose financial security relies on prudent investment decisions.

While it might be tempting to take on more risk with the aim of achieving higher returns to address the funding shortfall, this approach carries inherent dangers. Aggressive investments can lead to significant losses, which could endanger the plan further and compromise the benefits owed to the participants. A portfolio manager's responsibility includes assessing the risk-reward tradeoff and ensuring that investments align with the long-term viability of the pension plan.

Furthermore, making changes in investment strategy based solely on a sponsor's advice without careful consideration of the potential ramifications could lead to ethical and legal complications. It is crucial to weigh the potential for higher returns against the risks involved, ensuring that beneficiaries are not exposed to unnecessary jeopardy. Therefore, choosing not to invest aggressively is the most responsible and ethical course of action in this context.