1. A Defined Benefit Pension Plan is an employer-sponsored retirement plan, in which it provides a set amount of pension to retirees according to a pre set formula. Variables that determine this amount include employment length, salary history and age. In this plan, the sponsor agrees to pay the plan members a specified annual pension for life at the beginning of each member’s retirement or an equivalent lump sum. Investment policy is decided by the plan fiduciaries. This type of pension plan removes the risk associated with investing-related pension plans for employees. A defined benefit pension plan is also age biased, and benefits increase drastically as an employee’s employment time increases. Both employees and employer can fund these…show more content… BP Amoco should also focus their core investment options around index funds beside mutual funds; because mutual funds have not shown consistent abnormal returns over the years, and actively managed mutual funds in the new plan would increase implementation costs. However, relying only on index funds and eliminating mutual funds would be an impractical idea because of implications of discarding the BP America plan for former BP America employees. Old BP America participants would have to liquidate their positions in their funds. Company would lose employees who had grown attached to well performing funds, and some employees may prefer the higher risk and the possibility of abnormal returns. We would recommend to look at mutual investments past performances to define valuable ones. Company should look at investments that have highest Alpha and lowest Beta possible (at various Alpha) because Alpha takes the volatility of a mutual fund and compares its risk-adjusted performance to a benchmark index while Beta is volatility ups and downs. Furthermore, different active funds have different cost structures therefore we should also look at the cost structure of the fund. Company should pick investments with least fees and costs, and the best measure to look at would be the expense ratio. The lower the expense ratio the better. The low fees of index will not cost the company too much while providing steady returns to