What is Pre-funding pensions?
Pre-funding of pensions is typically a concept associated with a defined benefit (“DB”) pension. In a DB pension, the benefits are specifically expressed (as opposed to in the 401(k) world where the contributions are specifically expressed). DB plans then use actuarial mathematics within the context of tax law to establish amounts to be set aside each period (e.g. year) such that the amounts will accumulate to the predefined benefit. These amounts that are accumulating are described as the “pre-funding” amounts. In the US, amounts set aside under the pre-funding of pensions legally belong to the participants for which these amounts are being set aside (assuming such participants have become vested in such benefits). In the US, ERISA and PPA (private sector pensions), State law (public sector pensions) and Federal Law (e.g. Military pensions, other Federal pensions) describe the legally required amounts to be pre-funded in aggregate for a given population covered by a pension plan. It i
