Managing Frozen Pensions No Easy Task

November 6, 2013 ( - Frozen pension plans are substantially different from open plans and need to be managed accordingly to prevent litigation and ensure positive outcomes for plan participants.

Issues in frozen defined benefit (DB) plan management comprise the subject of “The Investment and Management of Frozen Pension Plans,” a handbook published by Russell Investments.

The handbook examines why more than 8,000—or about one-third of all corporate pension plans in the U.S.—have barred the addition of new beneficiaries, and how managers within those plans can better meet fiduciary duties. Bob Collie, chief research strategist at Russell Investments and one of the handbook’s three authors, said those responsible for the management of frozen plans should base their decisions “not just on what the plan is like today, but on what it will be like in two or five years or further in the future.”

“Funding needs to be built up; investment risk needs to be managed down; governance structures need to be simplified,” Collie said. “The early stages of the path are well trodden, but the later stages are not.”

Bruce Clarke, managing director of client services for Russell Investments, said the process of managing a frozen pension plan is different from an open plan because as plan demographics change—i.e. as average participant age climbs—there is less funding flexibility and greater risk of trapped capital. “We see more and more frozen plans considering investment outsourcing, and in some more advanced cases the complete transfer of risk through the payment of lump sums or the purchase of annuities,” Clarke said.

Handbook authors divided the guide into three sections exploring pension funding policy, investment policy and risk transfer. Specific subjects tackled in the handbook include:

•Impacts of demography of frozen pension plans

•The effects of freezing on funding policy flexibility

•The change in what it means for a frozen plan to be “fully funded”

•Issues of “trapped capital” and liability-responsive asset allocation

•The need to define a “final endgame” for the frozen plan.


Pension plan sponsors and advisers can request a copy of handbook here.