Pension Plan

finance a la shmoop. what is a pension? well it rhymes with tension, and likely

for good reason. if you're a teachers pension or a fireman's pension or [person wearing dark glasses writes something down]

another state employees pension that's backed up by a state that's going

bankrupt. Hi, California, Hi Illinois. well we're looking at you. all right people

well a pension is another term for a retirement fund. but what's special about

a pension is that the employer essentially forces you to put away money

for your retirement and then they invested for you.

how nice. or at least be sure you invest it well on a salary of 75 grand a state [gambling table shown]

employed ditch-digger might get a contribution of say 10 grand a year into

her pension, and that's each year 10 grand of forced savings for as long as

she you know digs ditches for the state. and in some states where the unions are

strong in the governing financial knowledge is weak the government

guarantees a minimum financial return on the pension investment made on behalf of

the employees. that is in California for example the state guarantees a 10% per

year return on their invested pension savings. if the invested return like [equation]

investing it in Wall Street and stocks and bonds and private equity funds and

all that stuff well if that invested return is less than that number less

than that 10%, then the state rights to the pinch and a check to cover the

incremental difference. yeah it's a huge Delta and it's well pretty much why you

a Californian Illinois you're going bankrupt remember. Jesus Saves

but Moses invests. [ Moses, holding stone tablets glares and demands interest]