A recent issue brief by the American Academy of Actuaries calls the 80 percent funded ratio of pension plans a myth that keeps getting perpetuated by companies, governments and the news media.
According to the organization's research there are many unchallenged references to 80 percent funding as a healthy level for pension plans. The Pension Committee of the American Academy of Actuaries found 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 percent or greater over a reasonable period of time, the report stated.
The funded ratio of a pension plan equals a value of assets in the plan divided by a measure of the pension obligation. But how is the pension obligation measured? According to the brief, actuaries use different methods to measure a pension obligation for different purposes.
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