Final answer:
A pension manager considers investments for retirement funds, balancing between traditional pension plans and modern defined contribution plans. The emphasis is on ensuring financial security for retirees against inflation and changing employment landscapes. Diversification and solid rates of return are key goals for these investment strategies.
Step-by-step explanation:
As a pension manager, you are considering investing in various financial vehicles to secure and grow the funds for retirement and disability benefits. Pension funds are essential as they provide employees with financial security when they retire or are unable to work due to disability. Pension plans are typically defined benefit plans where employees have a portion of their salary allocated to the pension fund, which is then invested by the fund managers. In contrast, defined contribution plans like 401(k)s and 403(b)s involve a fixed employer contribution to an individual retirement account which the employee can invest themselves. These contributions are tax-deferred and portable, allowing for continuity even if the employee changes employers. The real rates of return on these investments are crucial for retirees to offset the impact of inflation, ensuring that their buying power is not eroded over time.
The transition from traditional pensions to defined contribution plans like 401(k)s reflects a shift in retirement planning, emphasizing the importance of individual investment choices and the need to manage inflation costs effectively. For pension managers, the investment strategy is increasingly focused on diversification and seeking assets that can generate real rates of return over the long term.