Funded Status

DEFINITION of 'Funded Status'

The status of pension plan that has accumulated assets that have been set aside for the payment of retirement benefits to employees. Unfunded plans, also called pay-as-you-go arrangements, do not have assets set aside and retirement benefits are usually paid directly from employer contributions.

BREAKING DOWN 'Funded Status'

According to an article entitled "Pension Reporting Sparks Debate", which appeared in The Wall Street Journal on July 5, 2006, for nearly 20 years companies have had to include the amount owed to employees based on the projected obligation in the footnotes to the financial statements.

However, at the time of writing, FASB has proposed that companies move their pension deficits or surpluses onto the balance sheet, rather than just show them in the footnotes. Moving the "funded" status of pension plans - as well as other retirement benefit obligations like health-care plans - onto the balance sheet could force many companies to recognize a big liability, which could cut their net worths and possibly hinder dividend payments or jeopardize lending agreements.