ELi5 how do pension funds generate a surplus?
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Pension funds have assets and liabilities. Money coming in vs money going out. When the money coming in is more than the money going out, you have a surplus.
As for examples of how these amounts change:
Pension funds derive much of their funding from workers. In many skilled trades unions, the contractor pays X dollars an hour into a pension fund. The amount per hour can vary due to wage negotiations. Perhaps you enter the union when contributions are 5/hr and by the time you retire, contributions are 15/hr.
Man hours can go up and down in busier and slower years. This impacts the contributions to the fund. More hours worked means more money into the fund.
The contributions are often leveraged in various investments. Stocks, bonds, etc. The rate of return for those investments can impact the value of the funds. If the market is up, funds may be up. If the market is down, the funds may be down.
On the flip side, your liabilities (payout) is also changing. This simplest example of this is that people die and they can die before they have realized their contributions.
You’ve also got things like vesting periods. Employees that don’t stick around long enough to become vested in the fund won’t have access to their contributions. So they provide assets without becoming a liability.
You’ve also got potential changes concerning the details of how money is paid out. Pensions are fixed benefit plans that promise X benefit due to X contributions across X years. If the “formula” changes, then liabilities can become larger or smaller. This can become even more complicated with early or late retirement “bonuses”.
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