Funded status
Pension plan assets minus the pension obligation. A deficit is shown as a net liability and a surplus as a net asset, though the asset recognised may be capped.
Where you will meet it
Funded status appears in 11 learning outcomes on the CFA syllabus. A few of them:
- Explain defined benefit pension obligations and how they flow through the statements
“The balance sheet reports the funded status — the fair value of plan assets less the present value of the obligation — as an asset or liability, while service and interest costs run through profit or loss and actuarial gains and losses largely through other comprehensive income.”
- Explain how defined benefit and defined contribution pension plans work
“The plan's funded status compares its assets with the present value of its obligations, and a shortfall is the sponsor's problem.”
- Explain the effect of post-employment benefits on the financial statements
“For a defined benefit plan the balance sheet shows the funded status: plan assets minus the defined benefit obligation, a deficit being a net liability.”
- Assess liability-driven strategies across a range of interest rate scenarios and choose the one that best meets the portfolio's goals
“Choose the strategy that best protects funded status within the sponsor's budget and tolerance.”
Practise it
Practise funded status until it is automatic: questions that explain every wrong option.
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