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 Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  4. Pension Shortfall

    A situation in which a company offering employees a defined benefit ...
  5. Retirement Planning

    The process of determining retirement income goals and the actions ...
  6. Pension Adjustment - PA

    The amount of contributions that can be made to a Registered ...
RELATED FAQS
  1. How do Pay As You Go pension plans work?

    All pension plans are designed to provide a level of retirement benefits to participants and may be created by employers, ... Read Full Answer >>
  2. How does a pension income drawdown work?

    While there are similar drawdown plans in the United States, a pension income drawdown plan most commonly refers to a specific ... Read Full Answer >>
  3. What option strategies can I use to earn additional income when investing in the ...

    A risk-averse investor should build his retirement portfolio by putting together a well-diversified portfolio and then regularly ... Read Full Answer >>
  4. What is fiduciary liability insurance, and what are its benefits?

    Under the Employee Retirement Income Security Act (ERISA), any individual who manages a employee benefit or pension plan ... Read Full Answer >>
  5. Why are insurance companies and pension funds considered financial instruments?

    Insurance policies are widely considered to be financial instruments. Pension funds may contain many different types of financial ... Read Full Answer >>
  6. Should I purchase a master limited partnership (MLP) in my retirement account?

    Most investors should not purchase units in a master limited partnership, or MLP, in their retirement accounts. MLPs offer ... Read Full Answer >>
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

    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.
  3. Budgeting

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  4. Investing

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  5. Retirement

    Understanding Defined Benefit Pension Plans

    An employer-sponsored retirement plan where employee benefits are based on a formula using factors such as salary history and duration of employment.
  6. Professionals

    Help Parents Avoid This Retirement Savings Blunder

    Parents should make saving for their own retirement a priority over helping with their children’s college costs.
  7. Investing

    Financial Gifts For Grads: Kindergarten To College

    If you really want to help your grad preparing for the future, consider a present that supports their long-term goals—an early start to financial planning.
  8. Retirement

    Find The Top Retirement Cities In South Korea

    South Korea's busy, modern capital, Seoul, has traffic signs in Korean writing only and English is not widely spoken. Check retirees' visa rules closely.
  9. Professionals

    5 Signs That You Have a Lousy 401(k) Plan

    Knowing whether a 401(k) plan is good or not so good is important. This will help participants decide how much to invest and when to demand improvements.
  10. Retirement

    Are We Looking At A Retirement Age Of 70 Soon?

    Other countries have been hiking their retirement age. What would make the U.S. government go in that direction?

You May Also Like

Hot Definitions
  1. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  2. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  5. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  6. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
Trading Center