A pension fund collects contributions from workers and employers and invests them to pay retirement benefits. It is a pooled, long-term investment vehicle. The contributions go in during working years, the fund invests them, and the benefits come out during retirement. The goal is to replace a portion of pre-retirement income, often 40 to 80 percent.

There are two main types. A defined benefit plan promises a specific monthly payment based on salary and years of service. The employer bears the investment risk. If the fund underperforms, the employer must contribute more. A defined contribution plan, like a 401(k), specifies what goes in but not what comes out. The employee bears the investment risk. Most private-sector employers have shifted from defined benefit to defined contribution plans over the past 40 years.

Pension funds are among the largest institutional investors. CalPERS, the California Public Employees' Retirement System, manages over $400 billion. The Government Pension Fund of Norway, often called the oil fund, manages over $1.6 trillion. They invest in stocks, bonds, real estate, and private equity. Their size gives them influence over corporate governance and market trends.

Many public pension funds are underfunded. Promised benefits exceed assets, sometimes by trillions of dollars. The gap is a political problem. Closing it requires higher contributions, lower benefits, or better returns. None of those options is popular.