By erisa insure defined benefit pension plans the

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Pension Benefit Guarantee corporation- est. by ERISA. Insure defined benefit pension plans The Effect of Regulation on Funding- o Contributions to pension are deductible as an expense and the earning are tax free so firms used to overfund them and then draw on the accounts when they were in trouble o ERISA decreased the attraction of overfunding- sponsor remained liable for shortfalls in Pensions but it was harder to benefit if pension fund assets exceeded liabilities of plan Regulation on Fund Management – o Pension funds can invest as the please Individual Retirement Plans Keogh Plans- tax deferred retirement savings for the self-employed Pension Reform act of 1978- authorized Individual retirement accounts- a tax deferred retirement saving plan for low income employees or those without an employer sponsored plan Roth IRA- contributions of post-tax income can accumulate tax deferred Pension Plans Today- The Continuing Importance of Social Security- o Significant retirement income in US The Decline of Defined Benefit Plans- o Share covered by defined contribution plans is growing o Reason for shift- Declining importance in economy of large unionized firms Restriction that tax reform act placed on overfunding Trends in Pension Fund Assets- o Pension fund liabilities are relatively illiquid Pension Funds in Other Countries o Pension fund assets are smaller in other countries compared to US The Effect of the Growth of Pension Funds on Financial Intermediaries and Markets o Size of pension funds is what makes them an important factor in the market for long term securities Mutual Funds Serve the needs of pension plans, selling them investment products and managing their assets. In addition, MF play a general role, people need long term savings for a lot of things not just retirement Investment Companies and Mutual Funds Close-end investment company = issues a fixed number of shares and invests the proceeds in a portfolio of assets, shares are transferable 10/7/2019 12
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Open- end investment company = not a fixed number of shares, it accommodates investors at any time by issuing new shares or redeeming outstanding ones o Net asset value- price at which new shares are sold and outstanding shares are redeemed o COMMONLY KNOWN AS MUTUAL FUNDS The Evolution of Mutual Funds Origins- Boom and Bust- After the Great Crash- Money Market Mutual Funds- o A mutual fund that invests in money market instruments o Good alternative to stocks and bank deposits o Sold shares to investors, pooled the money, and invested in a diversified portfolio of money market assets Investment Objectives Typology of Investment Strategies- o Growth funds- invest in stock o Income funds- aim to produce current income o Balanced funds- more general investment goals- both stocks and bonds o International funds- invest in foreign securities o Global- both us and foreign securities Managed Funds and Index Funds o Managed- engage in active trading o Index- passive investors o Are extra cost of managed funds worthwhile?
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