what is an overfunded pension plan 
an overfunded pension plan is a company retirement plan that has more assets than liabilities in other words there is a surplus amount of money needed to cover current and future monthly benefits to retirees although accounting standards allow the company to record the surplus as net income it cannot be paid out to corporation shareholders like other income as it is reserved for current and future retirees understanding an overfunded pension plana pension plan is a type of defined benefit plan in which employers contribute money on behalf of their employees based on a formula that considers the employee s salary and length of employment the funds in many pensions are invested in individual securities such as stocks and a basket of securities such as mutual funds many pension funds are also invested in bonds which are debt instruments that typically pay interest payments during the life of the bond the goal is to have the pension fund grow as a result of investment gains and any interest earned from the securities the growth in the fund s investment earnings is extremely important since the majority of the monthly benefits paid out to an employee are usually from these earnings while employer contributions make up a smaller portion of the monthly benefits over time pension plans can become overfunded as a result of long periods of stock market increases as a result of an overfunded pension there are more than enough funds to pay both current and future monthly benefits to employees however it s usually more common for a pension plan to be underfunded as investment shortfalls tend to be more common an underfunded pension is when there are not enough funds in the plan to cover current or future pension benefits 