Survey Finds Long DB Provider Tenure and Plans in Drawdown

Extended tenure with providers could mean missing out on system advances, while more assets leaving than coming in requires strategic investing.

The 2025 PLANSPONSOR DB Admin Survey shows more than half (55%) of defined benefit plan sponsors have been with their plan provider for at least 20 years. While this may be a good indication of client satisfaction, is it possible these sponsors are missing out on new provider tools or technology?

Shannon Maloney, managing director and national practice leader for DBs and ESOPs at Strategic Retirement Partners, says there is not a lot of innovation in the DB space because most new DB plans are cash balance plans, rather than traditional DBs. The survey shows 88% of plans represented are traditional DB plans, while 9% are cash balance plans. 

How often a DB plan sponsor should do a request for information or request for proposals from DB plan providers depends on the size of the plan and whether it is active or frozen, according to Maloney. If a plan is hard frozen or soft frozen, a request could be done every five to 10 years, she says. Twenty-nine percent of plans represented by providers in the survey are active, while 47% are frozen.

“Twenty years is a whole generation, much too long to maintain a relationship without seeing what else the market has to offer,” says Brian Donohue, a partner in October Three Consulting in Chicago. “We think it makes sense to test the market every five years or so, but not necessarily with an RFP, which itself is a time-consuming process.” To gauge the market without doing an RFP, Donohue suggests plan sponsors reach out to consultants to ask what’s new in the market and see if the price they are paying for services are in line with market prices.

“An RFP once every 10 years is probably a good practice, unless a sponsor is very comfortable with the services they are receiving and the price they are paying for such services,” he adds.

Where there have been updates and upgrades in DB plan administration is with call centers and online technology, according to Maloney.

“The newest technology is call center tech and the ability to do benefit calculations online,” she says. “It used to be that at retirement, a plan participant would walk into the HR office and ask for a benefit calculation and forms, but now providers are offering online technology and call centers for retirees.”

Donohue says companies are not investing massively in systems, but things do change. “Administrative systems are constantly being upgraded to take advantage of the latest technologies,” he says. “On the actuarial side, real-time valuation updates and plan forecast tools are increasingly common.”

The 2025 PLANSPONSOR DB Admin Survey shows that, in the last two years, 73% of providers have updated their DB plan participant website, 60% have updated their plan sponsor website, and 60% have updated their DB administration system, software or platform. Seventy-three percent of respondents reported they provide online planning and distribution advice, and 80% said they provide phone-based planning or distribution advice.

The Drawdown Era

According to the survey, in 2024, 42% of participants initiated a lump-sum payment, and 58% initiated installment or annuitized payments. The survey paints a picture of changing plan demographics and the wind-down of many DB plans.

Maloney notes that the biggest impact on DB plan administration and vesting has been the rise in interest rates since 2022. As interest rates rise, DB plan liabilities decrease, and many plans initiated lump-sum windows for terminated, vested participants, she says.

In addition, participants are lured by big checks and take lump sums, Maloney adds: “They only tend to take an annuity if it provides a large amount each month.” She says financial advisers also encourage participants to move their money so the adviser can help them manage and invest it. In addition, investing in DC plans may make participants feel more confident they can manage their money themselves.

There are important investing considerations for plans with more money going out than coming in, according to Donohue. He says any conversation about how to meet benefit obligations, offering a lump-sum window or doing a pension risk transfer should start with the question, “Are we trying to reduce risk or reduce cost?”

“If ‘return-seeking’ assets are liquidated to finance lump sum payments, this looks like a risk reduction strategy, similar to moving from ‘return-seeking’ to ‘hedging’ assets as part of a de-risking glide path,” he says. “If ‘hedging’ assets are liquidated to finance lump sum payments, this looks like a cost reduction strategy, and the plan’s risk profile is similar to what it was before the settlements.”

If the plan sponsor is trying to reduce risk, it will get rid of the risky investments, he says. If trying to reduce costs, it will get participants out of the plan to eliminate some Pension Benefit Guaranty Corporation premiums, but hang on to risky investments.

Donohue further explains by example, that if a plan is invested aggressively—say, with a 70/30 equity to fixed-income allocation or a 60/40 one—it is probably because the sponsor wants to reduce an investment shortfall and avoid writing a big contribution check. To finance payments or a lump-sum window, the plan sponsor could sell some bonds and still hold on to the return-seeking assets. “This may feel like a riskier position; however, nothing is more conservative than getting rid of liabilities via lump-sums,” he says.

With so many participants in the drawdown phase, DB plan sponsors might face several issues. Maloney says if the plan is soft frozen—with no new people coming into the plan—plan sponsors could have nondiscrimination testing issues. However, if a plan is hard frozen, the drawdown phase could be a benefit to the plan because liability is decreasing, and plan sponsors will not have to maintain the plan for long. “However, the delta is that the plan is not closing enough such that plan sponsors don’t still have to contribute millions to the plan,” she adds.

For union plans, Maloney says, if more assets are coming out of the plan than it takes in, that could mean no benefit increases for participants or a need to increase employee contributions to the plan.

Donohue says the drawdown phase for a DB plan involves a predictable set of expected benefit payments (the only variable is mortality) over a period of, generally, less than 30 years (where there are lots of bonds available to invest against plan liabilities). “For these reasons, this is a manageable risk for sponsors,” he says.

Still, he notes, sponsors must continue to pay out monthly checks, monitor their portfolio to make sure liabilities remain hedged and pay PBGC premiums annually.

“Insurers are very good at writing checks and credit underwriting, and they don’t have to pay PBGC premiums, so they are generally in a better position to manage these liabilities than plan sponsors,” Donohue says. “However, if average benefits are large—approximately $1,000 per month or greater—overhead costs become less significant, and sponsors with acumen at credit underwriting and writing checks may be able to run their plan more efficiently than an insurer.” —Rebecca Moore