Percent funded

The formula behind the number

Every reserve study produces two numbers for the same date: what the reserve fund actually has, and what it should have based on how much the association's roofs, paving, siding, and other shared components have already deteriorated. Divide the first by the second and you get percent funded.

"Percent Funded is a reserve study measurement that shows how the current Reserve Fund Balance compares to the association's Fully Funded Balance."

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

The denominator, the fully funded balance, is not the total replacement cost of everything the association owns. It is the computed value of how much those components have already deteriorated, calculated by multiplying each component's fractional age by its current replacement cost and adding up the results. A brand new roof contributes almost nothing to that number; a roof three years from replacement contributes most of its cost.

Reading the risk bands

One practitioner firm's convention, widely used across the industry, treats associations under 30 percent funded as carrying a high risk of special assessments and deferred maintenance, associations between 30 and 70 percent as a fair, in-between range, and associations at 70 percent or above as a range where special assessments and deferred maintenance are rare. An association whose reserves exactly match its fully funded balance, 100 percent, is what the field calls fully funded.

These bands are useful shorthand, not a legal test. No statute in this evidence base sets a required percent funded figure for general reserves. A board that hears "we need to be at 100 percent or we're breaking the law" is hearing a myth; what the law generally requires is a study, a disclosure, and a documented review, not a specific percentage.

A low number is a starting point, not a verdict

Finding your association in the 30 to 70 percent range does not mean panic or an immediate special assessment. The standard response is a catch-up funding plan: raising contributions over time so the reserve fund closes the gap before a major project forces the issue. The alternative, waiting until a component fails, tends to narrow the board's options to a special assessment, a loan, or deferring the work, and deferred work usually gets more expensive the longer it waits.

Percent funded also has limits worth knowing. It only tells you where the fund stands relative to the study's own numbers; it says nothing about whether the study's interest and inflation assumptions were reasonable, or whether the component inventory it started from was complete. Read the fully funded balance lesson and the reserve study lesson before treating one percentage as the whole picture.