What Is Fully Funded?

Fully funded is a description of a pension plan that has sufficient assets to provide for all the accrued benefits it𒈔 owes and can thus meet its future obligations.

In order to be fully funded, the plan must be able to make all the anticipated payments to both current and prospective pensioners. A plan's 澳洲幸运5开奖号码历史查询:administrator is able to predict the amount of funds that will be needed on a yearly basis. The funding status is generally determined by the plan's outside actuaries. This can help determine the financial health of the pension plan. Fully funded can be contrasted with an 澳洲幸运5开奖号码历史查询:underfunded pension𝔉, which does not have enough current assets to fund its obligations.

Understanding Fully Funded

Companies distribute annual benefits statements specifying whether or not the pension plaꦡn is fully funded. Employees can use this ജto determine the financial strength of the plan.

A fully funded pension plan is one that has t🍷he financial stability to make current and future benefits payments to pensioners. The plan depends on capital contributions and returns on its investments to achieve stability.

A plan's 澳洲幸运5开奖号码历史查询:funded status refers to the amount of accumulated assets💟 (out of all assets needed for full funding) that have been set aside for the payment of retirement benefits. The equation to determine a plan’s funded status is:

Funded status = plan assets - projected benefit obligation (PBO)

For example, in July 2022, the CalPERS (California Public Employees’ Retirement System) fund reported a funded status of 72% at the end of the June 30 fiscal year. The size of the CalPERS fund was reported at $440 billion.

Underfunded pensions are a growing problem as they are unable to meet the pension cash flows promised to current and retired workers. An 澳洲幸运5开奖号码历史查询:overfunded plan, on the other hand, is a company retirement plan that has more assets than liabilities. In other words, there is a surplus in the amount of money needed to cover current and future retirements. Although this surplus can legally be recorded as company income, it cannot be paid out to corporate shareholders like other income as it is reserved for current and future retirees.

Fully Funded and the Pension Footnote in Financial Statem👍ents

The pension note in a company’s 澳洲幸运5开奖号码历史查询:financial statements details the corporate pension plan that management has set for its employees, generally after a particular vesting period. This usually follows after the section on 澳洲幸运5开奖号码历史查询:long-term liabilities, since the pension fund is a particular type of long-term liability that is not often captured on the balance sheet. For this reason, pensions are sometimes called 澳洲幸运5开奖号码历史查询:off-balance-sheet financing.

Pension fund accounting is complicated, and the footnotes are often tortuous. There are various sorts of pension plans, but the 澳洲幸运5开奖号码历史查询:defined benefit (DB) pension plan is one of the most popular. With a defined benefit plan, an employee knows the terms of the benefit that will be received upon retirement. The company is responsible for investing in a fund in order to meet its obligations to the employee, so the company bears the investment risk.

On the other hand, in a 澳洲幸运5开奖号码历史查询:defined contribution plan, such as a 401(k), the company may make contributions or 澳洲幸运5开奖号码历史查询:matching contributions but does not promise the future benefit to the employee. As such, the employee bears the investment risk.