A fully-funded system
A)has current retirees being paid out of the taxes of current workers.
B)has a sufficient amount of money on hand currently to pay out all future obligations.
C)has current retirees being paid out of the taxes of current workers and has a sufficient amount of money on hand currently to pay out all future obligations.
D)never needs to run a surplus.

Question

Quizplus · Accepted Answer

A fully-funded system means that there is enough money set aside currently to pay out all future obligations, without relying on taxes from current workers. Therefore, option B is the best choice. Option A describes a pay-as-you-go system, where current retirees are paid out of the taxes of current workers. Option C is a combination of both pay-as-you-go and fully-funded, which is not a clear definition of a fully-funded system. Option D is not true, as even a fully-funded system may need to run a surplus to ensure that it has enough funds to cover unexpected expenses or changes in the demographic or economic situation.

A Fully-Funded System