Definition of Pension shortfall:
When a company that has a defined benefit pension plan does not have enough funds set aside to meet its pension obligations to retirees, it has a pension shortfall. A company with a defined benefit plan risks having a pension shortfall because stocks or other assets in their portfolio may not perform as well as expected and thus will not provide the capital that is needed.
A defined-benefit pension plan comes with a guarantee that the promised payments will be received during the employee's retirement years. The company invests its pension fund in various assets in order to generate enough income to service the liabilities posed by those guarantees for both current and future retirees.
A pension shortfall is a situation where a company offering employees a defined benefit (DB) plan does not have enough money to meet the obligations of the pension fund. A pension shortfall typically occurs because the investments selected by the pension manager did not live up to expectations. A pension with a shortfall is considered underfunded.
How to use Pension shortfall in a sentence?
- This can be risky for a company as pension guarantees to former and current employees are often legally binding.
- A pension shortfall is when defined-benefit pension plans do not have enough money on hand to cover its current and future obligations.
- Shortfalls may be caused by investment loss, poor planning, demographic change, or low-interest rate environments.
Meaning of Pension shortfall & Pension shortfall Definition