How is a pension plan funded?
A pension plan is funded using contributions received from employing companies and plan members plus interest on investments (the plan’s assets).
These assets are to be used solely for the benefit of the members of the plan and are held in trust until the member is eligible to receive a benefit. Members of the board of trustees who are also members of the investment committee oversee the investment of the assets of the plan.
How are the assets of the pension fund invested? The assets of the pension fund are invested in stocks (both domestic and international), bonds, and real estate.
In order to determine the percentage of the fund invested in each of the investment opportunities, or markets, the board of trustees in conjunction with consultants to the board, developed an investment policy. The investment policy is reviewed each year. The plan’s investment strategy is geared to ensuring the necessary growth of the pension fund over the long term while keeping risk within acceptable limits.
How do we know how we are doing? Investment returns will rise and fall in response to changing market conditions. We measure our investment results against indices, or benchmarks, that reflect the performance of the markets in which the plan invests.
Each of the investment managers is also measured against a benchmark and against the performance of other investment managers in the same markets.