Funding Plan

A funding plan is an association's plan for providing income to its reserve fund to cover the expected reserve expenses, normally projected over at least 30 years.

It is the financial half of a reserve study. Year by year it shows the opening balance, contributions, interest earned, expenses and the closing balance. Most plans also show percent funded for each year.

A funding plan is built around a funding goal. The three common goals are full funding, threshold funding and baseline funding. The goal sets how much cushion the fund keeps, and that decides the contribution.

A sound plan follows a few principles: there is enough cash when each project comes due, contributions stay reasonably steady from year to year, owners pay in step with the wear that happens while they own, and the plan is fiscally responsible.

The plan is a recommendation. The board adopts a budget, and the two can differ. When they do, the gap should be a decision the board made on purpose and can explain to owners.

Source: this definition follows the National Reserve Study Standards, published by Community Associations Institute (CAI), explained in our own words. State law can define the term differently for its own purposes.