Is Percent Funded Based on Current or Future Costs?

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?

Why do we Care about Percent Funded?

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).

Why Didn’t our Percent Funded Change?

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. After their initial reaction that the difference was rather small, they asked why their Percent Funded didn’t change. Good question!

Why be 100% Funded (instead of 70%)?

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?