Pension Funds

Pension Funds

Shruti Chand

In this article, Shruti Chand (ESSEC Business School, Master in Management, 2020-2022) elaborates on the concept of Pension Funds

This read will help you get started with understanding pension funds and its significance.

What are pension funds:

Term pension liability refers to the amount that a company or government owes to the pension fund obligations due to retirees. A pension liability will only occur in defined benefit schemes.

The traditional pensions are pre-defined benefit schemes. These funds consist of contributions from employees and the company over a period of time. The employees agree to contribute a certain amount into the fund in return of a guaranteed source of fund flow upon retirement.

Not all pension funds have liabilities attached to them. Most common pension fund in this regard is 401k where the company is under no obligation to contribute towards the fund. It is pre-defined by the company and the employee to contribute towards the fund which may or may not guarantee obligation upon retirement.

So, what is pension fund liability?

Pension fund liability is the difference between the total amount due to retirees and the actual amount of money the company has in order to meet these fund obligations.

If the company or the government has more money than the future payment obligations, it is said to have a pension surplus, and if this is not the case, it is referred to as pension deficit which results in a pension fund liability.

Relevance to the SimTrade certificate

This post deals with Pension fund liability.

About theory

  • By taking the SimTrade course , you will learn more about the markets. It’s important to remember that pension funds has not much to do with investing directly. But, it is important to understand it as it’s an important activity for the companies investors invest in.

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About practice

  • By launching the series of Market maker simulations, you can extend your learning about financial markets and trading approaches.

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About the author

Article written by Shruti Chand (ESSEC Business School, Master in Management, 2020-2022).

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