Percent Funded status is commonly measured as Poor (below 30%), Fair (between 30% and 70%), or Strong (above 70%).
However, there is a quirk in this gauge, making these statuses questionable.
A Poor status can be superior to a Strong status at different points in time.
As an example, let’s consider a million-dollar roof with a 30-year useful life and assume a Strong Percent Funded status a year before roof replacement and a Poor Percent Funded status a year after roof replacement.
Strong Versus Poor Percent Funded Status Comparison
The Fully Funded Balances (FFBs) a year before and a year after replacing the $1,000,000 roof are $966,667 and $33,333, respectively. With a Strong 70% status a year before replacement and a Poor 30% status a year after replacement, the reserve fund balances are $676,667 and $10,000, respectively, a year before and after replacement.
These reserve fund balances equate to pre- and post-replacement deficits of $290,000 and $23,333, respectively.
What is immediately shocking here is that there is only 1 year to make up the huge $290,000 deficit, while there are 29 years to make up the much smaller $23,333 deficit.
In this example, the Poor status is clearly superior to the Strong status because there are 29 years to recover the smaller deficit, rather than only 1 year to recover the larger deficit.
| Percent Funded | Status | CRC | UL | RL | FFB | Reserve Fund Balance | Deficit | Years to Make Up Deficit |
|---|---|---|---|---|---|---|---|---|
| 70% | Strong | $1,000,000 | 30 | 1 | $966,667 | $676,667 | $290,000 | 1 |
| 30% | Poor | $1,000,000 | 30 | 29 | $33,333 | $10,000 | $23,333 | 29 |
CRC = Current Replacement Cost,
UL = Useful Life,
RL = Remaining Life,
FFB = Fully Funded Balance
Even if the Percent Funded level is 90% the year before replacement, the deficit is still a substantial $96,667, equivalent to approximately 3 years of normal contributions towards this roof replacement.