Because a lender’s entire principal is at risk, he cannot safely confine himself to looking at current flows. Rather he must ask how the value of his claim compares with what the underlying security could be sold for in foreclosure. This is true even when his loan is secured by the general credit of the borrower, in which case he must look to the value of the borrowing corporation itself for protection.

For purposes of comparison with the underlying security, the appropriate value of pension beneficiaries’ claims is the present value of future benefits, discounted at the riskless interest rate. If the assets available exceed the present value of the claims only when the latter are discounted at a higher rate, the proceeds from the underlying security will prove inadequate — unless the underlying assets are invested aggressively, with the attendant possibility of losses leading to a still greater inadequacy.

The beneficiary of a pension plan that is “underfunded” in this special sense must look beyond the pension assets to the sponsoring corporation for the security underlying his claim. Whether pension claims are “fully secured” — as opposed to “fully funded” — depends on whether the corporation is solvent in terms of an augmented corporate balance sheet that includes pension claims, discounted at the riskless rate, as a corporate liability and pension assets, valued at market, as a corporate asset.