Question

A fully funded pension system hurts all consumers and savers”. Determine whether this sentence is true, false, or uncertain (maximum 2 double spaced pages).

Answer 1

A fully funded pension system hurts all consumers and savers” is a false statement because fully funded pension is one with a 100 percent funding status, which means there's enough dough to cover retirement liabilities. So, it will never hurt the savers or consumers.

A fully funded retirement plan is one in which the participants -- either the plan member or plan sponsor -- are maximizing the available resources to adequately prepare for your retirement. Once you or your employer has done your part to get the plan well-funded, it's up to the investments in which the money is directed to keep the funding status strong.

The beauty of a fully funded defined benefit pension plan is that it's the responsibility of the plan sponsor, which is usually the employer, to provide the cash deposits. The contributions from workers to accumulate assets, these assets are used in part or in full to pay benefits in the future.

It is better able to deal with aging of the population, better rates of return on pension contribution, limited fiscal liabilities; it removes some labor market distortion, Increases capital market development and even possibly savings, and also reduces the politicization of the pension system.

There are no fiscal liabilities for new entrants in pure funded system – Individual’s benefits are based on what he/she has saved – However, most countries include a minimum pension guarantee, particularly if this is the only pension system.

In short, fully funded is a pension plan that has sufficient assets needed to provide for all accrued benefits. In order to be fully funded, the plan must be able to make all the anticipated payments to pensioners. A plan's administrator is able to predict the amount of funds that will be needed on a yearly basis; a determination can be made regarding the financial health of the pension plan.