What’s the Current State of Defined Benefit Pension Plans?

The question on every executive's mind:

“We’ve still got a legacy pension plan. What’s happening with defined benefit plans right now, and what should we be doing about our liabilities?”

If you’re a CFO or CHRO asking that, you’re in good company. The landscape around defined benefit (DB) plans is changing rapidly, and staying ahead demands clarity and action.

According to MetLife’s 2025 Pension Risk Transfer Poll, which surveyed 231 defined benefit plan sponsors, the picture is clear: a record 94% of plan sponsors with de-risking goals intend to fully divest their pension liabilities, and 80% plan to do so within the next five years.

If pension funds have been around for decades, why are a majority of companies with DB plans deciding to fully divest their liabilities within the next 5 years?

1. First, leadership teams have become more knowledgeable when it comes to pension risk transfer solutions and are looking to reduce the amount of risk on their balance sheets. Pension funds are heavily invested in market assets, like equities and bonds, so their value is directly correlated with how the market is performing. When a market downturn occurs, there becomes a demand for higher contributions from the plan sponsor to help cover the shortfall and restore the funds. This can create significant financial pressure on the organization. According to MetLife’s Poll, 45% of plan sponsors say that market volatility is the top catalyst for risk-transfer, followed by interest rate changes at 41%.
2. Second, many plans are currently well-funded or even in surplus due to strong market performance and higher interest rates in recent years. Higher interest rates generally decrease liability valuations, making this an opportune time to offload obligations without requiring large additional cash injections. Waiting may cost more in the form of increased premium, fewer insurer options, delayed removal of risk and ongoing volatility.
3. Third, over the years, there’s been a general shift to move away from DB plans toward Defined Contribution (DC) plans like 401k’s and divesting is a final step in fully exiting the DB space.

While divesting pension liabilities removes financial risk, strengthens balance sheets and simplifies administrative work, what are potential hurdles to this process that plan sponsors should be aware of?

• Loss of Control: Once the liabilities are transferred over to the insurer, the Plan Sponsor will no longer direct the investment allocation of the transferred assets. This is why it’s crucial that you have the right partner in place ahead of the transfer to help ensure you have chosen an insurer that meets your organization's needs.
• Impacts to Plan Funded Status, Accounting & Costs: Transferring pension assets & liabilities can impact the Plan’s funded status, settlement accounting, minimum contribution requirements, and PBGC premiums. Working with a consultant that analyzes these factors with the Plan’s actuary is paramount to planning for the desired outcome.
• Impact to Employees: This process may cause anxiety or confusion amongst your plan participants who are concerned about a third-party vendor managing their benefits. Proactive communication throughout the entire process is key to ensuring that everyone is on the same page and understands what’s happening.

If your organization is considering divesting your pension plan liabilities, these steps will help guide you through the process:

1. Conduct a “Pension Liability Health Check” – assess the pension plan’s financial health and consider the potential benefits and risks of transfer. It is important to define the goals and objectives and to gain internal commitment during this phase. Important within this step is also to ensure data readiness meaning that you have a list of clean, validated participant records.
2. Explore & Compare Strategic Options – select the advisor who will help you receive indicative pricing and capital commitments from various insurers and refine your goals/objectives. Choose between a lump sum offer, buyout or plan termination, based on the company’s objectives and risk tolerance.
3. Structure + Select Insurer – finalize structure and terms and determine the insurer you’ll be moving forward with. Obtain regulatory approval, as needed, and take part in a fiduciary review. Lastly, set an internal deadline for when you’d like this process to be completed by and have back-up plans if market conditions become unfavorable in the process.
4. Execution - execute the chosen strategy, which may involve transferring assets and data to the insurer. It is important to communicate with participants and investors during this phase.
5. Monitor – continuously assessing the performance and financial impact of the pension risk transfer to ensure it aligns with the company’s goals.

In Summary

The landscape of pension risk management is rapidly evolving. As mentioned in MetLife’s Poll, more and more plan sponsors are intending to completely divest their pension liabilities within the next five years.

Plan sponsors are no longer just dealing with retirement benefits — they are managing corporate legacy risk, balance-sheet volatility, stakeholder expectations, and the promise you made to your employees and retirees.

By taking control of your pension liabilities now, you have the potential to:

• Strengthen your balance sheet and free capital for strategic growth.
• Reduce CFO/CHRO anxiety around “what-if” scenarios with the volatility of the market and interest rates.
• Signal to employees and retirees that you care not just about today’s benefits, but tomorrow’s promise.
• Align your people strategy with your financial strategy — which is what your leadership needs.

If you’d like to explore how to evaluate your DB pension plan, model the cost of risk removal, or compare strategic transfer options – our team at OneDigital can help.

This material has been prepared for informational and educational purposes only. It is not intended to provide and should not be relied on for tax, legal or accounting advice and are not applicable to any person or organization’s individual circumstances. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Additionally, any statements made reflect our views and/or best estimates, are not intended to guarantee any particular result.