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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (6496)	9/18/1998 12:04:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 9980

On the basis of those numbers it appears Calpers outperformed the market. Remember Calpers has had tremendous gains in recent years and is well overfunded at this point. It would take a significant further decline to put Calpers in danger.

To: Ramsey Su who wrote (6496)	9/18/1998 12:50:00 PM
From: Alias Shrugged	Read Replies (2) \| Respond to of 9980

Ramsey - There are two types of retirement plans: "defined benefit" (DB) and "defined contribution" (DC). These labels refer to the obligation of the Plan Sponsor, which could be a corporation (public or private), govt. agency, non-profit hopsital or church, etc. In a DC Plan, the Sponsor's contribution to the Plan is defined by a formula (eg, 3% of each employee's pay; 50% of an employee's 401(k) contribution). The Sponsor's obligation ends when they make the contribution. All investment risk resides with the employee, not Sponsor. In a DB Plan, the Sponsor must contribute enough assets to provide the benefits defined by formula in the Plan. These formulas invariably involve the employee's years of service and usually the employee's compensation history. The Sponsor's obligation does not end until all employee's ultimately receive their benefits. All investment risk (both downside and upside) reside with the Sponsor. Most large companies have these DB plans, along with some kind of DC 401(k) arrangement. Most newer companies, most small companies and most high tech firms do not have DB plans. Depending on the Company's retirement income strategy, a DB plan can be the superior vehicle to use. DB plans vary immensely in their funded status. Some would need to see DOW 4000 to get into trouble; some will need to see Dow 15000 to get their heads above water. This issue will definitely be a factor impacting earnings for many sponsors and cashflow for a smaller number. This situation could get very ugly if the economy declines quite significantly. Mike