What are "unfunded liabilities"?

Unfunded liabilities refer to obligations that an entity has incurred but does not currently have the resources or assets set aside to fully cover or pay for those obligations in the future. This is particularly relevant in the context of long-term commitments, such as pensions or healthcare benefits for employees, where the expenses may be significant but the necessary funds have not yet been accumulated.

When an organization has unfunded liabilities, it indicates a potential future financial burden because it will require revenue or funding sources to address these obligations as they come due. Understanding unfunded liabilities is crucial for sound financial planning and budgeting, as they can impact an organization’s financial health and necessitate strategic planning to ensure that future obligations can be met effectively.

Other options such as assets generating revenue or funds allocated for new projects describe different aspects of financial management, but they do not pertain to obligations that lack funding. Similarly, financial reserves set aside for emergencies refer to funds specifically earmarked for unexpected expenses, rather than obligations that have not been financed.