Hi guys, I came across this statement in SS 5 reading 21 “The ability of the firm to make contributions is high when the plan is fully or even overfunded.” I fail to see the connection between the ability of firm to make contributions with the funded status. Can anybody clarify it ? Thanks
My guess is that when the plan is fully or over funded that the need to make contributions is low and if they have to, the AMOUNT would be low. Therefore, if they do have to make some it doesn’t put much financial strain on the company. On the flip side, if you are way underfunded the company would have to make huge contributions, which could put even a heathly company in a bind.
You are correct. Question is the ABILITY to make contributions not the need.