Underfunded Pension Plan

Pension plans have to look well into the future. They collect contributions from workers and employers. Then they have to invest the money, building up a big enough nest egg so that, when people retire decades down the road, the fund has enough cash to pay for everyone's golden years.

Sometimes, it doesn't work out. Sometimes, contributions don't match expectations. Sometimes, the market doesn't cooperate, or the investments go south. Whatever the reason, the pension plan has not saved up enough to pay for its members' retirement. To put it in accounting terms, the pension plan's liabilities outstrip its assets. The plan doesn't have enough funds; it's underfunded.

An underfunded pension plan puts its retirees in significant financial danger. Unless it gets bailed out by some outside source, the pension plan will eventually run out of money, and won't be able to pay the benefits it promised to workers before they retired.