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Unfunded Liabilities

Your pension is designed to hold assets equal to the estimated value of the benefits it has promised to pay. Unlike Social Security, which uses money from today’s workers to pay today’s retirees and does not invest assets, pension funds should receive money today that can be invested to achieve the total needed to pay retirement benefits in the future.

When assets fall below the value of benefits promised, then a pension fund has “unfunded liabilities.” The liability is the promise to pay benefits. It’s a formal financial term that indicates both a moral and legal obligation to pay a promised retirement benefit.

For example, if a pension fund has promised $1 billion in benefits to current retirees and working teachers, it should have $1 billion in assets. If that pension fund only has $900 million in assets, it has $100 million shortfall. That shortfall is the unfunded liability.

Sometimes, people call unfunded liabilities “pension debt.” This can be a helpful way to think about the shortfall in assets — it is money owed to the pension fund to make sure there are enough dollars to pay out benefits to retirees.

(There can be many reasons why pension funds might have a shortfall in their assets, and we will discuss them in the next module.)

What is the unfunded liabilitiy for your pension plan?

Select or search your state or plan below.

Note: This is the unfunded liability in your retirement system’s most recent annual financial report. Some states report on a one or two year lag.
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