How do I Evaluate Pension Fund Performance?

A pension fund is any plan that is designed to provide individuals with financial security in retirement or in old age. In many cases fund are provided by employers, and the individual benefit yielded by the fund is often determined by each retiree's tenure with the company. In some cases, pension funds are provided by governments. In order to evaluate pension fund performance, it is important to determine which kind of fund you have. It may also be helpful to determine the various factors that may impact the value of the fund, such as which benefits are included.

Employers may offer one of two different kinds of pension funds. A defined benefits plan allows the individual to collect a specified amount of money each month after he or she retires. The money from these funds is often invested in stocks, bonds, and other financial assets. Pension fund performance in these cases is generally determined by the strength of an investment portfolio, which predicts factors such as risk and projected financial returns gained from the investments.

The other type of employer-provided pension fund is called a defined contribution plan. This is a pension fund to which individual must contribute. Whenever an individual contributes money to the plan, the employer match their investment by contributing an equal amount. Because this type of plan requires individuals to first invest money in their own plans, an employer is not required to guarantee pension benefits to retired employees. The pension fund performance is determined by market shifts and individual investment contributions.

In cases when a company does not necessarily have to guarantee pension, an individual may perform a process called vesting. Vesting occurs when an employee gives money to the pension fund for a minimum number of years. The minimum changes from company to company. Once the minimum is met, however, the employee is considered vested and his or her pension fund performance is significantly increased since it is guaranteed, whether or not the employees leaves the company or is terminated from his or her position.

Sometimes governments provide pension funds for their citizens. These benefits may be available only to some members of the community, as in cases when pension funds are set up for veterans or government employees, or, in some countries, some form of benefit may be made available to all citizens. These funds may be in place of or in addition to pension funds provided in the private sector by employers. In order to evaluate the pension fund performance of a fund provided publicly by the government, one might analyze larger economic issues, such as national debts, deficits, and spending since these factors could determine the amount of money available for retirees.