Wednesday, July 25, 2012

American Academy of Actuaries Issue Brief: The 80% Pension Funding Standard Myth

The Pension Committee of the American Academy of Actuaries finds that while the funded ratio may be a useful measure, understanding a pension plan's funding progress should not be reduced to a single measure or benchmark at a single point in time. Pension plans should have a strategy in place to attain or maintain a funded status of 100% or greater over a reasonable period of time. 

A funded ratio of 80% should not be used as a criterion for identifying a plan as being either in good financial health or poor financial health. No single level of funding should be identified as a defining line between a “healthy” and an “unhealthy” pension plan. All plans should have the objective of accumulating assets equal to 100% of a relevant pension obligation, unless reasons for a different target have been clearly identified and the consequences of that target are well understood.

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