If the funding gap of a defined benefit pensionplan increases, what happens to the funding ratio?

What will be an ideal response?

The funding ratio is a way of looking at the health of a DB pension plan and is defined as plan's assets as a proportion of its projected liabilities. Thefunding gap is defined as the projected value of the liabilities minus the market value of fund assets. In comparing the definitions for funding ratio and funding gap, we see that there is a negative correlation. For example, an increase in liabilities will increase the funding gap but decrease the funding ratio. Thus, if the funding gap increases, then the funding ratio will fall.