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80 percent funded ratio of pension plans a myth?

When valuing a pension plan, one must look beyond the funded ratio of the plan to other meaningful factors, like the overall financial health of the plan sponsor.

By Paula Aven Gladych | Updated on July 24, 2012

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.

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