Percent Funded Benchmarks
As mentioned the article “What is Percent Funded?” we learn that we can use the percent funded as a way to measure the strength of the Reserve Fund. The strength can be described as weak, fair, strong and ideal. Below are a few general benchmarks that may be used.
- 0-30% Funded is a “weak” status. This means that there is a significant amount of depreciation unreserved for. Whenever an Association has a weak status there is an increased possibility of requiring Special Assessments, loans or deferred maintenance.
- 31-69% Funded is a “fair” status. This is the strength of the majority of Association. There is a decreased chance of requiring Special Assessments or deferred maintenance, however, cash flow problems may still arise.
- 70-99% Funded is a “strong” status. Associations in this range generally have financial stability. There is generally no cash flow issues, special assessments or deferred maintenance.
- 100% Funded is known as “ideal” and “fully funded” This is where the Reserve Fund Balance equals the Fully Funded Balance. This is “ideal” because funds are reserved as components are used. It is the most fair for members because they pay as they go or they pay their share.
Putting all this together we can see why a Reserve Fund that is 20% funded is considered weak. They only have 20% of the accrued deterioration. Where as a Reserve Fund that is 80% funded is considered strong.