underfunded pension plan investment & finance definition

A pension plan whose projected payouts are larger than the value of the plan’s assets. Underfunded pension plans must have funds transferred into them by the corporation; the transfer payment shows up as an expense on the company’s income statement. In periods of declining stock or fixed-income markets, a company’s pension plan often may be underfunded due to stock market losses. Analysts typically predict that when a plan’s assets fall below 85 percent of the projected benefit obligations, the Pension Benefit Guarantee Corp. will ask the affected company to fund the pension plan with cash.