Underfunded Pension Plan

DEFINITION of 'Underfunded Pension Plan'

A company retirement plan that has more liabilities than assets. In other words, the money needed to cover current and future retirements is not readily available. Hence, there is no assurance that future retirees will receive the pensions they were promised or that current retirees will continue to get their previously established distribution amount.

BREAKING DOWN 'Underfunded Pension Plan'

Pension plans can become underfunded in a variety of ways. Interest rate changes, a weak stock market, mergers and bankruptcies can all greatly affect company pensioners. During times of an economic slowdown pension plans are most susceptible to becoming underfunded.

RELATED TERMS
  1. Overfunded Pension Plan

    A company retirement plan that has more assets than liabilities. ...
  2. Unfunded Pension Plan

    An employer managed retirement plan that uses the employer's ...
  3. Pension Protection Act Of 2006 ...

    An act of legislation that makes a large number of reforms to ...
  4. Pensionable Service

    The period of service, expressed in a yearly figure, for which ...
  5. Pension Fund

    A fund established by an employer to facilitate and organize ...
  6. Pension Adjustment Reversal - PAR

    A numerical calculation in certain Canadian pension plans that ...
Related Articles
  1. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  2. Retirement

    Pension Plans: Pain Or Pleasure?

    Employees have a love/hate relationship with this retirement option.
  3. Retirement

    Can Your Pension’s Cost-of-Living Clause Be Frozen?

    Recent events in New Jersey prove that relying on a pension alone to fund your retirement is risky. Make sure you have multiple retirement income sources.
  4. Retirement

    7 Signs Your Pension Fund Is In Trouble

    Even if you're lucky enough to have a pension plan, you can't assume it'll pay out.
  5. Retirement

    How Pensions, Social Security Differ

    Both pensions and Social Security provide an income stream to retirees, but they differ widely on how they're structured and funded. Here's the lowdown.
  6. Retirement

    New 401(k) Pension Rollover Rule: Pros and Cons

    Is the new rule allowing participants to roll their 401(k) balances into pensions a good idea?
  7. Retirement

    America's Frozen Pension Dilemma

    Unfortunately, there are several factors that have eroded the presence of pension plans in America, and workers need to be prepared to replace that expected income for their retirement years. ...
  8. Retirement

    The Pros And Cons Of Pension Maximization

    Pension maximization can be an effective solution to the single versus joint life payout dilemma that many retirees face. But, there are several factors, such as tax and investment matters, that ...
  9. Retirement

    How Safe Is Your Pension?

    A 2014 law permits some private pension plans to reduce benefits. How to figure out if your retirement income is endangered.
  10. Financial Advisor

    Pension Advances: What You Should Be Wary Of

    The terms some pension advance firms require can be costly. Here's how to be sure your clients aren't making bad decisions.
RELATED FAQS
  1. The company I am receiving my pension plan from has just filed bankruptcy. Could ...

  2. What can you do with your pension if you leave the employer and can you borrow money ...

    I am planning to leave my job that I have worked at for 8 plus years and I just received a notice about a pension that I ... Read Answer >>
  3. Who bears the investment risk in 401(k) plans?

    Who actually bears the investment risk in a pension plan depends on the type of pension plan that is employed. In a broad ... Read Answer >>
  4. How does a pension income drawdown work?

    Understand what a pension income drawdown plan is, and learn the current rules governing pension income drawdown plans in ... Read Answer >>
  5. Can I draw out or sell my straight life annuity?

    I have a pension plan through PBGC. I have my benefits form that shows how much I can draw. I am retired and disabled. What ... Read Answer >>
  6. How do pay-as-you-go pension plans work?

    Learn what a pay-as-you-go pension plan is and how it is different from fully funded pension plans. Understand how public ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center