Unfunded Liabilities
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What Are Unfunded Liabilities?


Unfunded liabilities are debt obligations that do not have sufficient funds set aside to pay the debt. These liabilities generally refer to debts of the U.S. government  or of pension plans and their impact on savings, investing, and general economic health of a nation or corporation can be negative and significant.


Although the impact to investors may be indirect, unfunded liabilities point to problems in the future if nothing is done to address the liabilities.


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Examples of Unfunded Liabilities:
U.S. Government and Pensions

In reference to the U.S. government a prime example of an unfunded liability is Social Security. When Social Security was first implemented by Franklin D. Roosevelt in 1935, there were more than enough payees (working taxpayers) to support the number of Social Security beneficiaries (retirees). In 1940, the ratio of payees to beneficiaries was 159 to one. Today the ratio of workers to beneficiaries is less than three to one. Medicare has a similar problem with unfunded liabilities.

Another example of unfunded liabilities is with pension plans. For example, state pension plans reportedly have more than $6 trillion in unfunded liabilities. The worst states include California, New York, Illinois, Ohio and Texas. 
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