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Benefits October 1, 2025
Bucking the Trend: Employers Committed to Their DB Benefits
Recruitment and retention benefits are often cited as the reason a company or government continues to provide a pension.
Reported by Beth Braverman
Art by Davide Comai
Despite long-term trends moving many workplace retirement programs toward defined contribution plans, some plan sponsors—including both private employers and government entities—remain committed to their defined benefit plans.
Many factors contribute to such commitments, including demand from employees or unions and a paternalistic approach to workplace benefits. For some employers, however, there’s also a recognition of the material advantages of such a plan.
When chief financial officers whose organizations had a DB pension plan were surveyed by Mercer this year, fully half said they had no plans to terminate their plan in the next decade, up from 37% in 2023 and just 28% in 2021.
“Offering a DB pension plan provides tangible benefits in several key areas,” says Amy Morgan, an information officer in public affairs at the California Public Employees’ Retirement System. “For recruitment, it allows employers to remain competitive by attracting highly qualified candidates who value the security of a lifetime pension. For retention, the promise of a stable retirement benefit gives public sector employers a significant edge in retaining employees over the long term by reducing turnover.”
A reliable pension can also enhance employee satisfaction by providing peace of mind, contributing to a more engaged workforce, Morgan says, and others echo the same train of thought.
“[A DB plan] is a differentiator, and it’s a reward for long-term employees and an incentive to stay with the company long term,” says Ned McGuire, managing director at Wilshire.
Among plan sponsors with a DB plan, the most common reasons for providing a pension benefit were to attract and retain talent (cited by 57% of those surveyed by MetLife), followed by promoting long-term employment (47%) and providing financial security for employees (43%).
Addressing challenges
Even plan sponsors committed to maintaining their pension plans, however, face challenges in minimizing volatility and managing longevity risk and administrative complexity. They also must account for changes in interest rates and investment returns, and public plans must factor in fluctuations in state or municipal funding levels.
Morgan says CalPERS approaches such challenges by focusing on its decades-long horizon, recognizing that sustainable returns require thoughtful risk management. To address funding volatility, CalPERS has implemented strategies such as lowering its assumed rate of return, adjusting its investment portfolio to balance risk and return, and shortening the amortization period for employers to pay contributions toward any unfunded liability.
“These steps help stabilize the fund and reduce exposure to market fluctuations,” she says.
CalPERS also used an asset-liability management process to manage longevity risk. ALM is a strategic planning process that shapes the fund’s investment strategies and actuarial assumptions every four years.
“The ALM process is a cornerstone of CalPERS’ long-term planning, guiding decisions on investment governance and total fund risk,” Morgan says. “It enables us to adapt to changing shifts in interest rates and investment returns.”
In its last fiscal year, which ended June 30, CalPERS enjoyed an 11.6% return, which positively impacted the plan’s outlook by boosting its 71.4% funded status in 2024 to 79% in 2025.
That puts CalPERS right around an average funding level for public plans. The Center for Retirement Research estimated that public DB pension plans also increased their funded ratio in 2025, with an aggregate 77.77% funded ratio, the highest level in more than 15 years.
A More Efficient Retirement Benefit
At private plans, funding levels, on average, are now at or near surplus. That means corporate plan managers are having very different discussions than their public peers about how (and whether) to move forward with their plans.
Given that they have more options available, the companies that choose to stick with a DB plan often do so because they believe they provide a better benefit than DC plans, says Bill Emmett, a senior vice president and co-lead of the corporate defined benefit focus group at Callan.
“They are mathematically far better suited to producing the benefit of lifetime income at a reasonable cost than any other plan type currently devised,” Emmett says. “In today’s environment, the concerns around self-funding retirement through DC savings plans are a hotter topic than they were pre-COVID, and many younger employees are seeing the benefits of a DB plan.”
At both government and corporate plans, leaders continue to look for ways to lower the expenses. Often, that includes outsourcing everything from investment decisions to payments.
“There are providers up and down the value chain that you can partner with that can probably do that at scale and more efficiently than most companies can run in-house,” says Sri Reddy, senior vice president of retirement and income solutions at Principal Financial Group.
According to research from Mercer, 39% of DB plans now use an outsourced chief investment officer framework, up from 31% in 2023. Another 22% use partial outsourcing for the investments or operational oversight of their plan.
Communicating Value
Another challenge for plan sponsors committed to their DB plans is communicating the value of those plans to participants, especially younger employees who are more familiar with a defined contribution plan.
“It’s what a lot of companies have grappled with for decades now, because an account balance that fluctuates with the markets is a much easier concept for people to understand, compared to an annuity benefit payable to them in the future, and that’s payable in lifetime income,” says Michael Clark, senior vice president for actuarial at Gallagher. “It’s hard for an individual to put a value to that in today’s dollars.”
Clark says he has seen DB pension plans try to help, with regular updates that show the current value of benefits, as well as projected growth for participants who remain with the company, using assumptions for years of service and salary growth.
“That’s been very successful in helping employees understand the value of the benefits that are being offered,” he says. “Companies that don’t do anything, I think, are more at risk of an employee not [valuing] that benefit. Those that have embraced the communication challenge have definitely found it worth their while, especially as they look to attract and retain high-skilled and long-term employees.”
