Fully funded

Fully funded
Primary topic
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Methods and techniques

Fully funded is a description of quality of pension plan. If the assets in the pension plan are enough to provide for all benefits accumulated by an employee, the plan is fully funded.

The plan depends on gathered capital as well as returns on investments. The annual benefits statement released by the company can help employees assess quality of their pension plan. If the plan is enough to cover benefits, it is fully funded.

Fully funded in education[edit]

The term fully funded can also refer to scholarship. Fully funded scholarship covers all the required costs as accommodation, insurance, food. The most known scholarships are:

  • Fulbright scholarship (USA)
  • CommonWealth scholarship (UK)
  • Amsterdam Excellence scholarship (Netherlands)
  • Public Service Commission (Singapore)

Fully funded in retirement plans[edit]

According to actuarial standards a lot of local and state institutions itends to strive for fully funding. Funding resources meansured by market values often change and are not sufficient. Rates of return on pension assets are lower than the costs of borrowing taken by taxpayers in a model where most taxpayers maintain debt and bear brokerage costs. That is why, optimal is zero pension funding. In addition, unpaided pension benefits are discounted accordingly at a rate strictly exceeding the government's loaning rate. Sometimes roblems with law enforcement mean that non-risked pensions are risky for employees. In this case, financing may still be in the interest of taxpayers. Except in special cases, the optimal financing ratio does not reach 100% [1].

Europe[edit]

The model of retirement benefit that falls between the first and second pension pillar is capital plans. Depending on the country, it belongs to the first or second pillar. The reason for the differences is that most premiums are for social insurance.

Obligatory funded pensions about a certain type of contributions was introduced after the fall of the Iron Curtain. Hungary was the first, in 1998, followed by Poland 1 year later. Eight out of eleven CEE countries have introduced such a mandatory pillar.

Recently, this pension project introduced by Slovakia (in 2005) and Romania (in 2007). Only the Czech Republic, Slovenia and Lithuania remain the exceptions.

An important difference between financial systems in Europe is the choice of investment. Pension funds with different risk profiles can or must offer in Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia. In other CEE countries, only one can be offered [2].

References[edit]

Footnotes[edit]

  1. Henning B. 2011, 195-219
  2. Börsch A. 2009, 172-180

Author: Anna Zuwała