Funded Status

Our social media profiles can contain lots of interesting info about us. Where did we grow up? What do we do for a living? What’s our relationship status? Maybe we’re single, maybe we’re in a relationship, or maybe it’s...complicated.

Well, company pension plans have their own version of relationship status, but it’s called “funded status” instead. (When we say “pension plan,” btw, we’re talking about traditional, old-school pension plans that pay retirees a certain amount, as well as employer-contribution plans like 401(k)s.)

A plan’s funded status is evaluated on a sliding scale ranging from fully funded to unfunded. When a plan is fully funded, the company has enough assets set aside to completely cover all of its pension payout obligations, even if it has to close its doors tomorrow. A status of “unfunded” doesn’t mean that the pension plan is broke; it just means that the company uses its income to pay employee pensions as they come up, instead of setting aside assets just for that purpose. And a status in-between…well, that just means it’s complicated.

But not too complicated. We can figure out a pension plan’s funded status by subtracting how much it will owe employees in payouts from the value of the assets it’s holding. The higher the remaining amount, the more funded the plan is.

Now if only figuring out our own status was that simple…