Fully funded balance

What the number represents

Every reserve study calculates a fully funded balance for your association's components together. It is not the money in your bank account. It is the number your reserve fund would hold if it had kept pace, dollar for dollar, with the wear on your roof, your pool deck, your painted siding, everything on your component inventory.

For each component, the study takes its fractional age (how far it has traveled through its useful life) and multiplies that by its replacement cost at today's prices. Add every component's result together, and that total is the fully funded balance. Two associations with identical bank balances can have very different fully funded balances, because the number depends on how old and how expensive their components are, not on how much cash sits in the account.

"The computed value of the deterioration of the association's common area assets."

Source: What Exactly is Percent Funded?, Association Reserves, Inc.

It's the denominator in percent funded

Fully funded balance only matters because of what you compare it to. Divide your actual reserve fund balance by the fully funded balance, and you get percent funded, the single figure most boards use to track reserve health year over year.

A fully funded balance of $500,000 against a $300,000 reserve fund means you're 60 percent funded. The 30 percent and 70 percent bands some practitioners use to describe risk are industry convention, not a legal line; no statute in this research sets a required percentage. Watching that percentage move over time, not just its value in any one year, tells a board whether its funding plan is keeping pace with deterioration or falling behind.

"Reserve Fund Balance (actual)/Fully Funded Balance (computed)."

Source: What Exactly is Percent Funded?, Association Reserves, Inc.

Reaching it is a choice, not a rule

A board that sets full funding as its objective is aiming to keep the reserve balance at or near the fully funded balance every year, effectively 100 percent funded. That is one of three named objectives boards choose between: baseline funding aims only to stay above zero, threshold funding picks a middle floor, and full funding aims to match the fully funded balance itself.

A reserve fund that never approaches its fully funded balance is the pattern behind many underfunded reserve decisions covered elsewhere in this course. Whether any law requires your association to reach a certain percent funded, and which components even count toward the calculation, depend on your state's statute and your governing documents. See statutory reserve requirements for what to check.