Financial Markets and Institutions (2-downloads)

5. Pension plans are rapidly growing as a longer-lived

generation plans for early retirement.

6. There are two primary types of pension plans:

defined-benefit and defined-contribution. Defined-

benefit plans pay benefits according to a formula that

is established in advance. Defined-contribution plans

specify only how much is to be saved; benefits depend

on the returns generated by the plans.

7. The largest public pension plan is Social Security,

which is a pay-as-you-go system. Current retirees

receive payments from current workers. Many people

are concerned that as the number of retirees

increases, the amount paid in to the Social Security

system will not be sufficient to cover the sums being

paid out.

8. Most private pension plans are insured by the Pension

Benefit Guarantee Corporation, which pays benefits

when a plan’s sponsor goes bankrupt or is otherwise

unable to make payments.

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Chapter 21 Insurance Companies and Pension Funds