To what is the unfunded actuarial liability compared in the schedule of funding progress for pension plans?

The unfunded actuarial liability (UAL) in the context of pension plans represents the shortfall between the actuarial value of plan assets and the actuarial accrued liability for benefits not yet funded. When evaluating the schedule of funding progress, it is compared to covered payroll because this provides a meaningful measure of how well the pension plan is funded relative to the employer's payroll obligations.

Covered payroll is the total salary or wages of employees that are eligible for pension benefits. By comparing the UAL to covered payroll, the schedule gives stakeholders a view of the pension plan's funding status in relation to the organization’s ability to support its pension obligations based on the current payroll. This ratio can help indicate whether pension liabilities are manageable relative to the organization's overall compensation structure.

This approach allows for a clearer understanding of the sustainability of the pension plan by determining how much of the payroll is required to address the unfunded liabilities. It also aids in assessing the long-term financial commitment of the organization to meet its pension obligations, making it crucial for evaluating both the health of the pension fund and the employer's fiscal responsibilities.