If we make a reserve expenditure “on schedule” (i.e., according to our Reserve Study), why does our Reserve Fund Strength (Percent Funded) drop? That’s a great question because it illustrates the difference between the calculation of Reserve Fund strength and paying for reserve expenses.
In the Reserve Study industry, the Percent Funded range of 70-130% is described as the “strong” range. So why shoot to be 100% Funded and not the lower (more attainable) target of 70% Funded?
I recently had a client have us investigate the contribution differences between our recommendation to Fully Fund their Reserves, and only Baseline Fund their Reserves.
According to National Reserve Study Standards (see complete standards here), an evaluation of Reserve Fund Strength is one of the three primary results from a Reserve Study (the current component list, the current strength of the Reserve Fund, and the current recommendation for Reserve contributions).
A client recently asked a good question: if Reserves are all about becoming prepared for future expenses, why would you use current cost in computing the Percent Funded (Reserve Fund strength) value for the association?
