The best single indicator of a plan’s financial health is its Funding Percentage. Look at Form 5500, or your plan’s Annual Report, to find your plan’s funding percentage. A fully funded plan will have a funding percentage of 100%. A plan is underfunded when the percentage is below 100%. The lower the percentage, the greater the risk that benefits will not be available when they come due. Our system uses your plan’s Funding Percentage as the key indicator of whether your plan is in trouble.
It is important to keep two things in mind about the data from a Form 5500:
The data from these notices are often quite stale as a result of being issued 10 months after the end of a plan year.
Funding percentages can also be highly volatile, so be sure to monitor yours closely.
Your plan administrator must provide you with a document called a Summary Plan Description (see What Are My Rights?) that includes the essential terms of your plan. If the current value of the plan’s assets is less than 70% of the plan’s current liability, the Description is required to disclose the exact percentage.
Once you know your specific plan’s Funding Percentage, your plan can be classified as one of the following:
• SUNNY: Little Danger of loss of benefit
• OVERCAST: Some Risk
• THUNDERSTORMS: Considerable Risk
• HURRICANE: Imminent Risk
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