What does ‘fully funded’ versus ‘fully supported by cash’ mean for the status of the reserve funds?

A portion of the Association’s equity is earmarked for replacement reserves. This is done through the annual budget and the amount allocated is based on the annual contribution to reserves. Replacement reserve expenditures are coded against the replacement reserve equity account and reduce the amount of equity earmarked for reserves. If replacement reserves are fully supported by cash, this means the Association has enough cash to support the earmarked equity. In order to determine if the Association’s replacement reserves are fully funded, the Association needs to look at the replacement reserve study. The study should indicate the amount of reserves the Association should have on-hand to be fully funded. Our firm compares both the annual contribution to reserves and the replacement reserve balance to the recommendations in the replacement reserve study. If there is a significant shortfall in either the contribution or balance, we will make a management letter comment to communicate this to the Association.