One of the mock exams has a question about calculating the liquidity requirement of a defined benefit plan.
The employer will contribute $927M and expects to pay out $1,030M in benefit payments. The plan is currently underfunded (pension assets is 70% of PBO).
The liquidity requirement is thus $103M.
My question is the $103M will be coming from the current pension assets, correct?
Any shortfall between contributions and payouts will be coming out of the piggy bank that is the pension assets, thereby depleting the already underfunded assets even more and making it harder for the portfolio to grow and catch up to the PBO.