This situation represents one of those good problems. Like...the waiter accidentally brings you two deserts. Or you don't have room in your driveway for your new Maserati.
Pension plans collect contributions from employees and the companies they work for. Then they invest the money so they'll have enough cash to pay for the benefits promised in the pension program. The plan has to pay for all the workers' retirements.
An underfunded plan is one that doesn't have enough money. Adding up all the retirement promises and looking at the current bottom line, the pension plan will need a miracle to pay everyone. A looming financial mess.
An overfunded plan represents the opposite. Not only does the pension plan have adequate funds, it has too much. It's like you eating that second desert, or parking your Maserati on the street.
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Finance: What is a Pension?31 Views
finance a la shmoop. what is a pension? well it rhymes with tension, and likely
for good reason. if you're a teachers pension or a fireman's pension or [person wearing dark glasses writes something down]
another state employees pension that's backed up by a state that's going
bankrupt. Hi, California, Hi Illinois. well we're looking at you. all right people
well a pension is another term for a retirement fund. but what's special about
a pension is that the employer essentially forces you to put away money
for your retirement and then they invested for you.
how nice. or at least be sure you invest it well on a salary of 75 grand a state [gambling table shown]
employed ditch-digger might get a contribution of say 10 grand a year into
her pension, and that's each year 10 grand of forced savings for as long as
she you know digs ditches for the state. and in some states where the unions are
strong in the governing financial knowledge is weak the government
guarantees a minimum financial return on the pension investment made on behalf of
the employees. that is in California for example the state guarantees a 10% per
year return on their invested pension savings. if the invested return like [equation]
investing it in Wall Street and stocks and bonds and private equity funds and
all that stuff well if that invested return is less than that number less
than that 10%, then the state rights to the pinch and a check to cover the
incremental difference. yeah it's a huge Delta and it's well pretty much why you
a Californian Illinois you're going bankrupt remember. Jesus Saves
but Moses invests. [ Moses, holding stone tablets glares and demands interest]
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