Underfunded is the correct term used to describe a pension plan that doesn't have enough money invested. When a pension plan is underfunded, it means that the amount of money set aside to pay future pension benefits is insufficient to cover the projected liabilities.

Reasons for Underfunding:
- Inadequate Contributions: If the employer or plan sponsor does not contribute enough money to the pension plan, it can result in underfunding. Factors such as poor financial performance, economic downturns, or budget constraints may lead to insufficient contributions.
- Poor Investment Performance: A pension plan's funding is also dependent on the returns generated from its investments. If the investments perform poorly, the plan may not be able to generate enough income to cover its liabilities.
- Inaccurate Assumptions: Pension plans rely on certain assumptions, such as investment returns, salary growth, and life expectancy, to calculate future pension obligations. If these assumptions turn out to be inaccurate, it can lead to underfunding.

Impact of Underfunding:
- Reduced Benefits: Underfunding can result in reduced pension benefits for plan participants. If there isn't enough money in the plan to meet the promised benefits, adjustments may have to be made, such as lowering the monthly pension payments or reducing cost-of-living adjustments.
- Financial Stress: Underfunding puts financial strain on the pension plan and the employer or plan sponsor. They may need to allocate additional funds to the plan to meet the funding shortfall, which can impact their overall financial health.
- Legal and Regulatory Consequences: Underfunded pension plans may face legal and regulatory consequences. Pension regulators typically require plans to maintain a certain funding level, and failure to meet these requirements can result in penalties, fines, or regulatory intervention.

Addressing Underfunding:
- Increased Contributions: The employer or plan sponsor can increase their contributions to the pension plan to address the funding shortfall. This can help replenish the plan's assets and ensure it has enough funds to meet its obligations.
- Adjusting Investment Strategy: A review of the pension plan's investment strategy may be necessary to improve the investment performance and generate higher returns. This can involve diversifying the portfolio, adjusting the asset allocation, or working with professional investment managers.
- Plan Design Changes: In some cases, plan design changes may be necessary to address underfunding. This could involve adjusting the benefit formula, increasing the retirement age, or implementing cost-sharing mechanisms with plan participants.

In conclusion, underfunding occurs when a pension plan doesn't have enough money invested to cover its projected liabilities. This can have significant implications for plan participants, employers, and the overall financial health of the plan. Taking proactive measures, such as increasing contributions, adjusting investment strategies, and considering plan design changes, can help address underfunding and ensure the long-term sustainability of the pension plan.