Funded Ratio
The percentage of a pension plan's projected liabilities that are covered by current assets. A plan with $80 in assets for every $100 in liabilities has an 80% funded ratio.
How It Works
The funded ratio is the most-watched metric for pension plan health. A ratio of 100% means the plan is fully funded — it has enough assets to pay all promised benefits. Financial experts generally consider plans below 80% to be at risk, and below 60% to be severely underfunded. However, the funded ratio depends heavily on actuarial assumptions (discount rate, investment return, life expectancy), so two identical plans can report different ratios depending on the assumptions used.
Related Terms
- Unfunded Liability — The difference between a pension plan's projected liabilities (what it owes to current and future retirees) and its current assets. Also called the unfunded actuarial accrued liability (UAAL).
- Defined Benefit Pension — A retirement plan where the employer guarantees a specific monthly payment for life based on years of service and final salary — the traditional government pension.
- Actuarial Assumption — The financial and demographic projections used to calculate pension costs and liabilities — including expected investment returns, employee life expectancy, and salary growth.
- Discount Rate (Pension) — The interest rate used to calculate the present value of future pension liabilities. A lower discount rate produces higher liabilities; a higher rate produces lower liabilities.
About This Definition
This definition is part of the CitySpend Municipal Finance Glossary — 59 terms explaining how city governments fund and manage public services. All definitions are written in plain language for taxpayers, journalists, students, and municipal bond investors.