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
The 80 percent mark long has been considered the minimum threshold for a pension fund. However, that’s actually still too low. An Issue Brief by the American Academy of Actuaries called it, “The 80% Pension Funding Standard Myth” (pdf).
It said, “An 80 percent funded ratio often has been cited in recent years as a basis for whether a pension plan is financially or ‘actuarially’ sound. Left unchallenged, this misinformation can gain undue credibility with the observer, who may accept and in turn rely on it as fact, thereby establishing a mythic standard. … Pension plans should have a strategy in place to attain or maintain a funded status of 100 percent or greater over a reasonable period of time.”
Author(s): John Seiler
Publication Date: 19 Sept 2021
Publication Site: The Epoch Times