What is an unfunded liability?
An unfunded liability exists when a governmental or corporate entity has an obligation to provide payments or benefits to groups of individuals, but has set aside no money to fund that obligation. Unfunded liabilities for retirement systems are estimated by actuaries. Actuaries make assumptions about a pension system’s investment returns, the life expectancy of public employees, and future public employee salary increases to estimate the future costs of benefits that have been earned by current and past public employees. Simply, the unfunded liability is the amount of extra money that would need to be set aside today and invested by the pension system to cover the future costs of all promised benefits earned to date by members of that pension system.Under GASB 45, for the first time, governments will calculate unfunded retiree health liabilities. Because most governments have never set aside any funds to address future retiree health obligations, the unfunded liabilities could potentia
