Pension fund

A pension fund is a large pool of money set aside to pay retirement benefits to a group of employees, funded by contributions from an employer, employees, or both, and invested over time to grow large enough to meet those future obligations. Public pension funds serve government employees such as teachers, police, and other civil servants, while corporate pension funds serve employees of a specific company.

Because pension funds need to pay out benefits for decades into the future, they invest across stocks, bonds, real estate, private equity, and other assets, aiming for returns that keep pace with their long-term liabilities. Their size means individual pension funds can be among the largest shareholders in major public companies, and their buying or selling can move markets simply because of the scale involved.

A pension fund's health depends on whether its assets are large enough to cover what it has promised to pay out, a gap known as being underfunded when assets fall short. Underfunded pension obligations can pressure the finances of both governments and corporations, since they may need to divert cash toward closing the gap rather than other priorities, which is one reason analysts watch pension funding status when evaluating a company's or municipality's financial health.