Chapter 9

PENSION FUNDS

Pension Plans

A fund established for the eventual payment of retirement benefits.

Plan Sponsors Corporate or private plans Public plans Individual plans

Types of Pension Plans

Defined Benefit Plans

Defined Contribution Plans

Hybrid Plans

Cash Balance Plans

Regulation

Employee Retirement Income Security Act (ERISA) of 1974 Funding standards Fiduciary standards Minimum vesting standards Insurance program

Management of Pension Funds

Plan Sponsors

Management Firms

Both Sponsors and Management

Firms

Consulting Firms

Retirement Resources

Public Pension Plans

Private Pension Plans

Personal Savings

Social Security

A public defined benefit retirement plan supported by payroll taxes.

Features: Pay-as-you-go system Treasury securities fund Revenues are based on payroll taxes of

employed personsDependency ratio is currently low,

but is expected to increase in the future.

Future of Social Security

Investing a portion of the Social Security portfolio in non-Treasury assets.

Privatizing a portion of an individual’s retirement assets.

Retirement Planning

Loss of public confidence in Social Security

Shift from defined benefit pension plans to defined contribution pension plans

IRAsVarious types of personal savings

Pension Funds Around the World

Germany Public Pension

System Aging Population Pension Reform Private Pension

Funds

Japan Public and

Corporate Pension Program

Aging Population Defined Benefit

Plan Defined

Contribution Plan