Using an 80% funded ratio as a benchmark for whether pension plans are healthy is inappropriate.
No single level of funding defines a line between a “healthy” and an “unhealthy” pension plan.
Pension plans are generally better evaluated on the strategy in place to attain a funded ratio of 100% within a reasonable period of time.
The financial health of a pension plan depends on many factors in addition to funded status— including the size of any shortfall compared with the resources of the plan sponsor.
Projections under a range of scenarios can be particularly useful in evaluating the plan’s expected funding trajectory and assessing plan health.
Author(s): Pension Practice Council
Publication Date: October 2021
Publication Site: American Academy of Actuaries