1. Pension Funds

2. I. Definitions A. Pension Plans A pension plan is a fund that is established for the payment of retirement benefits.

3. B. Plan Sponsors The pension sponsor is the entity that establishes a pension plan. Private Plans –Corporations –Unions –Self-Employers Public Plans

4. I. Definitions (Cont.) C. Pension Management In-House Staff Money Management Firms –Insured Pensions –Trusted Pensions Discretionary Directed

5. II. Industry Structure A. Defined Contribution Plans In a defined contribution plan, the plan sponsor is responsible only for making specified contributions into the plan on behalf of qualifying participants.

6. Money Purchase Pension Plans It requires the employers and participants to set aside periodic contributions according to a predetermined, or agreed upon, formula.

7. 401(K) Plans –Savings or Thrift Plans An employee is asked to make voluntary contributions to a plan. –Profit Sharing Plans An employer is allowed to vary his contributions to a plan according to the annual profitability.

8. Employee Stock Ownership Plans (ESOP) –Payroll Deduction ESOP (PESOP) –Leverage ESOP A plan borrows funds to acquire stocks with repayments made by the sponsoring company or by using the dividends paid on ESOP stocks.

9. B. Defined Benefit Plans

10. C. Hybrid Pension Plans (Designer Pensions) Floor-Offset Plans: The employer contributes a certain amount each year to a fund. The employer also guarantees a certain minimum level of cash benefits. If the plan does not generate sufficient growth to achieve the preset level of benefits, the employee is obliged to add the amount of the deficit.

11. D. Keogh Plan (Individual Retirement Plan)

12. III. Financial Operations A. Pension Advisory Services B. Funding Funded Plans

13. Non-Funded Plans –Pay-As-You-Go Funding It uses current revenues to cover current benefit payments. –Terminal Funding It uses current revenues to purchase annuities only at the retirement time of the retirees.

14. C. Asset Portfolios Vested vs. Non-Vested The right to retain a portion of the benefit. Portable vs. Non-Portable The right to transfer the benefits to another plan.

15. D. Benefit Distribution Annuity –By Length of Payments Pure Annuity (Straight Life Annuity) Period Certain Life Annuity

16. –By Length of Payments –By Amount Fixed Annuity An annuitant receives a series of fixed payout after a prespecified date. Variable Annuity The payouts vary according to the returns of an annuitant’s accout.

17. –By Length of Payments –By Amount Fixed Annuity Variable Annuity Refund Annuity The total of the payouts equals to or exceeds the premiums paid.

18. IV. Government Regulations A. The Employee Retirement Income Security Act of 1974 (ERISA) Funding Standards Fiduciary Standards Vesting Standards Portability Pension Insurance

19. B. Pension Benefit Guaranty Corporation (PBGC)