UK Accounting Glossary
An underfunded pension plan has liabilities exceeding assets. A plan that is less than 80% funded for a period of two or more years is categorized as an underfunded pension plan. An underfunded pension plan lacks sufficient resources to pay benefits for all its retirees and workers. Although an underfunded pension plan can happen in any industry, the auto, airline and retail industries are most frequently singled out for having substantial underfunded pension plan issues. These industries employ millions of Americans whose retirement security is threatened by underfunded pension plan concerns. An underfunded pension plan can occur if stock market returns are poor or if interest rates are low. Low-interest rates make long-term obligations appear larger. Solutions proposed for the underfunded pension plan problem include raising corporate premiums, requesting a taxpayer bailout or reducing pension benefits.
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This glossary post was last updated: 5th February 2020.