Knowing how pension funds work is the only way to truly understand the problems with the pension system in the U.S. and our small part of it. This knowledge is also crucial to proper labor negotiations and decisions about the future of our Fund. Fortunately, pension funds are easy to understand. You will ﬁnd that a pension fund works in much the same way as a mortgage on a house or a long-term savings account. We encourage you to use your experience with these common investments from your everyday life to understand pension plans.
We will use a single “average person” in the examples that follow. Actuaries call this “the individual method”. We think this will be simpler and more intuitive for most people. To get the costs for ﬁve hundred or ﬁve million “average persons” in a pension plan, just multiply the individual cost by the number of “average persons”. We deliberately omit important details, such as the eﬀects on pensions of employees dying early or changing careers midstream. While these “decrements” are important for pension plans (plans would not be aﬀordable without them), they don’t have anything to do with the basics of how plans function or the crisis we face today. Including them would increase complexity without adding anything to understanding.