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How Do Pension Funds Work?

Many public employees and some private ones are still covered by these plans

By

Eric Whiteside

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Eric Whiteside is the creator of the Capitalist Fool blog. He has 40+ years of experience in trading, investing, and finance.

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Updated August 29, 2021

Reviewed by

Khadija Khartit

Reviewed by Khadija Khartit

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Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.

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Table of Contents

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Table of Contents

• How Pension Funds Work

• How Pension Plans Are Regulated and Insured

• How Pension Funds Invest Their Money

• The State of Pension Funds Today

For some years now, traditional pension plans, also known as pension funds, have been gradually disappearing from the private sector. Today, public sector employees, such as government workers, are the largest group with active and growing pension funds. This article explains how the remaining traditional pension plans work.

Key Takeaways

• Traditional defined-benefit pension plans are vanishing from the retirement landscape, especially among private employers, but many still exist.
• Pension plans are funded by contributions from employers and occasionally from employees.
• Public employee pension plans tend to be more generous than ones from private employers.
• Private pension plans are subject to federal regulation and eligible for coverage by the Pension Benefit Guaranty Corporation.