Underfunded Pension Plan

AAA

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.

INVESTOPEDIA EXPLAINS '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. Retirement Contribution

    A monetary contribution to a retirement plan. Retirement contributions ...
  3. Pension Shortfall

    A situation in which a company offering employees a defined benefit ...
  4. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  5. Pension Adjustment - PA

    The amount of contributions that can be made to a Registered ...
  6. Retirement Planning

    The process of determining retirement income goals and the actions ...
Related Articles
  1. How do Pay As You Go pension plans work?
    Retirement

    How do Pay As You Go pension plans work?

  2. The Investing Risk Of Underfunded Pension ...
    Retirement

    The Investing Risk Of Underfunded Pension ...

  3. 7 Signs Your Pension Fund Is In Trouble
    Retirement

    7 Signs Your Pension Fund Is In Trouble

  4. How To Evaluate Pension Risk By Analyzing ...
    Investing

    How To Evaluate Pension Risk By Analyzing ...

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center