Pension system

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Pension policy
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A pension system provides retirement income for a group of employees, be they the same category of employees (such as teachers, first responders, etc.) or those who all work for the same employer or organization. A pension system can be public or private. Public pensions are administered and regulated under public law and offered to public employees at the local, state, and federal government levels. Public pensions are financed through a combination of employee and employer contributions and investment earnings, and that combination varies from state to state and often even system to system. These plans may be in the form of a defined-benefit or a defined-compensation plan.

Defined benefit plans provide employees a guaranteed lifetime retirement benefit based on an employee's years of service and salary. Although most statewide plans require employee contributions, the retiree's benefit is not tied directly to his/her contribution amount. The majority of public pension plans are defined benefit plans. In 2009, 84% of state and local workers had a defined benefit pension plan, compared to 21% of private-sector employees.[1]

In defined contribution plans, both employers and employees contribute to the employees account. The employee determines how the contributions are invested, usually selecting from options presented by the plan administrator. At retirement, the amount of money in the fund is the basis of the employee's retirement benefit. The sponsoring public entity does not ensure a particular benefit amount, and usually does not provide post-retirement benefit cost of living increases.[1]

The 100 largest public retirement systems in the U.S. had a combined $2.7 trillion in the first quarter of 2011, an increase of 3.6% from the start of 2011 and 10.2% above the first quarter last year, according to a U.S. Census Bureau report.[2]

Currently, the nation’s largest public pension fund is the California Public Employees’ Retirement System (CalPERS), which holds $237.5 billion in assets for the year ended June 30, 2011.[3]

Pension members

Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[4]