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Benefits October 1, 2025
DB Plans: A Case Study
Consultants share what they see driving their clients’ defined benefit plan decisionmaking.
Reported by Emily Boyle
Art by Davide Comai
Favorable pension funding conditions, driven by strong equity performance, higher interest rates and competitive annuity pricing, have created a unique opportunity for defined benefit pension plans to strengthen their financial positions and explore cost-effective liability management strategies.
Still, not every approach to managing a DB plan—including whether to even keep it open—is the same.
“Within the DB world, you have a gamut,” says Shannon Maloney, the national practice leader for employee stock ownership plans and defined benefit plans at Strategic Retirement Partners. “You have all different goals, all different objectives, all different employee populations and all different kinds of understanding.”
Professional Plans
At SRS, Maloney—also the plan’s managing director for Michigan—works with three types of DB plan sponsors in the “small-to-midsize” market, what she defines as less than $500 million in plan assets: professional firms, manufacturing companies and unions.
Professional firms with DB plans typically have cash balance plans, which combine features of DB and defined contribution plans, and have long been viewed as less risky and easier to manage than traditional DB plans.
Those kinds of firms usually employ doctors, attorneys, certified public accountants, consulting firms and other high earners who “look to be able to be able to replace their six-figure salaries when they retire, and the 401(k) by itself won’t do it,” Maloney says.
She usually sees firms’ cash balances plans continue unless one of the company’s owners retires or the individual balances start to grow larger than $1 million. At that point, she has noticed, smaller professional firms, especially those with 25 people or fewer, have looked at terminating their plans. But for the most part, the plans remain active.
“Those are the types of plans we see opening today,” says Maloney. “I don’t see any traditional [DB] plans opening in today’s marketplace. Even though we just had IBM reopen [its] DB plan, I don’t see a lot of [companies] with frozen plans looking to reopen those.”
In the wake of IBM’s resurrection of its cash balance plan in November 2023, some analysts argued plan sponsors maintaining overfunded pensions might follow in IBM’s footsteps of reevaluating the benefits those plans can offer.
Manufacturers’ Plans
Maloney also advises manufacturing firms with legacy frozen DB plans that they are looking to terminate. She notices this trend especially in the Rust Belt of the Midwest and Northeast, which encompasses her service area. Those companies are looking to be able to use their defined contribution plan as their primary plan, Maloney explains.
“Defined benefit plans are great plans, and I wish that more would stay open,” Maloney says. “The problem is … the decreasing interest rates were increasing liabilities for those plans, [requiring] large, unexpected contributions sometimes, which is very difficult for the company to manage as far as cash flow and capital usage and investments.”
She says she thinks DB plans have gotten a “bad rap” because of management issues, but she has no doubt that Americans would rather have a retirement benefit funded by their employer, invested by their employer and guaranteed when they retire.
“But even when they were in their heyday, [DB plans] still only covered between 30 to 40% of the population,” Maloney explains. “So they weren’t ever this 100% coverage of the American worker.”
Union Plans
According to Maloney, many unions she works with have members who contribute to their pensions. The plans are active and considered “multiemployer plans” because union members can work for multiple companies. Typically, the plans are managed by a board of trustees that includes both management and union members, to keep the plans “healthy and sustainable.”
She says union “members understand [the plans] and care very much about them,” but managing the accounts can be difficult for some.
Union plans are challenging for advisers to manage because they are trustee-directed accounts, not individual participant-directed accounts, Maloney explains. She says it is therefore important for advisers to understand how to manage not only a DB plan’s assets, but its liabilities, as well.
Additionally, the Pension Benefit Guaranty Corporation multiemployer insurance program faced a “severe underfunding crisis” that projected insolvency by 2026, Maloney says, However, the American Rescue Plan Act of 2021 addressed the issue by establishing the Special Financial Assistance Program. Through November 2024, the program had funded 100 multiemployer plans with a combined 1.22 million participants and beneficiaries, according to the PBGC.
The PBGC also approved a total of $69.5 billion in assistance through the program and placed restrictions on how that grant money can be invested. The SFA rules require pension funds that receive money from the program to allocate at least-two thirds of provided money into “high-quality fixed income investments.” The other third can be invested in “return-seeking investments,” such as stocks.
“This intervention has restored the PBGC multiemployer program to a positive financial position and ensures the solvency of hundreds of struggling plans through at least 2051,” Maloney says.
Plan Changes
While a plan termination puts Maloney out of a job, it is her priority to do what is best for both plan sponsors and participants, she says.
“I think one of the myths out there is that if you terminate the plan, the participants lose their benefit,” she says. “They don’t—[the benefit] is just transferred to an insurance company, or to [the participant], as a lump sum.”
When asked about changes her clients have made to their plans recently, Maloney said she has one cash balance plan terminating right now, one manufacturing plan terminating, and a large DB plan that is both active and frozen and is looking to reopen some union benefits.
Some of her clients have provided lump sum windows, in which they offer their participants a one-time lump sum payment in lieu of monthly pension payments. But none of her clients has participated in buy-ins or buyouts. They have only gone with wholesale plan terminations, rather than selling part of their plan assets to an insurance company.
Tom Clark, a partner in and managing director of retirement services at Creative Planning LLC, a wealth management firm, says he does not have any clients with frozen plans that plan to reopen them. But he said he does have clients that have opened plans and do not plan to close them, typically for two reasons.
First, “they are using pretty sophisticated plan design, where they’re combining their DB plan with their 401(k) to max out the benefit for their key employees,” Clark says. He says the plan design is colloquially referred to as a “DB(k),” but that is a misnomer since they are two separate plans that can be used together.
Made possible by the Pension Protection Act of 2006, DB(k)s require the participant to adopt both a 401(k) plan and a defined benefit plan, with the assets for each plan accounted for separately. Like a 401(k) plan, such a DB plan requires an employee to contribute funds. Like a DB pension, however, the employer will pay the employee a small percentage of their salary upon retirement.
Next, he has plan sponsor clients that are subsidiaries of foreign companies that are more accustomed to having DB plans, as the plans are used more frequently abroad as a means to accumulate retirement assets.
“Big picture, in the mid-market—which I’ll define as plans that are [between] $30 million to $250 million or so in assets—[plan sponsors] are asking us to review fees and some of the ongoing frictional costs of maintaining a DB plan that really have nothing to do with an employee benefit, whether it’s administrative cost, investment fees, actuarial costs, trust custody costs,” Clark says. “A lot of our clients are more and more looking to bundled solutions, where—oftentimes—there’s significant savings relative to an unbundled solution.”
In a bundled solution, a single service provider will provide administrative, actuarial and trust/custody services, Clark explains.
“Beyond the savings opportunity, many clients find having a single vendor [providing] this suite of services [is] more efficient,” added Christian Thomas, a partner in and senior consultant at Creative Planning. “Unbundled solutions, which involve a variety of vendor partners, can still be viable, but in our view, [these] are typically reserved for clients with distinct and unique administrative or actuarial needs.”
Another trend Clark says he has noticed is that his clients that explore liability-driven investing allocations to de-risk their pension funds want an “open architecture approach.” By that, he means plan sponsors are evaluating the broader landscape of solutions available—not just relying on proprietary options presented by the bundled service provider alone, which are not always the most cost-efficient options, in his view.
“Accepting proprietary options as the default solution, without evaluating the broader landscape of investment solutions, is a bit like buying a suit off [the] rack,” added Thomas. “At the end of the day, it gets done quick, fits a little looser than you would like, but you do not feel great about how much you paid or, more importantly, how you look when you revisit the photos a year later. Whether in an unbundled or bundled environment, it is imperative that plan sponsors ensure they are evaluating the entire breadth of LDI investment solutions.”
