By: Russ Kamp, CEO, Ryan ALM, Inc.

The title of this post could be used to discuss any number of uncertainties that we are currently facing including geopolitical risk, economic risks associated with potentially disruptive policies, to the economic burdens faced by many Americans. I’ve chosen to apply this title to the prospect that America’s sponsors of defined benefit plans may not be offloading those pension liabilities with the rapidity that they’ve shown in the last decade or so.

There recently appeared an article in PlanSponsor titled, “Fewer Plan Sponsors Terminating DB Plans Amid Risk Management Shifts”. Again, one can only hope that this trend continues. “Half of plan sponsors do not intend to terminate their DB plans, up from 36.7% in 2023 and 28.3% in 2021, according to Mercer’s 2025 CFO Survey,” The survey was based on response from 173 senior finance officers. Unfortunately, it doesn’t undo the harm wrought by all the previous DB terminations, but it is still wonderful news for the American workforce!

As I’ve reported previously, Milliman’s monthly index of the Top 100 corporate plans currently shows a 104.1% funded ratio. Managing surplus assets is now the focus for many of these pension plans. Generating pension earnings, as opposed to living with the burden of pension expense will change one’s perspective. In Ron Ryan’s excellent book, titled, “The U.S. Pension Crisis”, he attributes a lot of the crisis to the accounting rules. For many corporations, pension expenses became a drag on earnings. Sure, they might have said that the company’s primary focus was manufacturing XYZ product and not managing a pension, but the costs associated with managing a DB plan certainly weighed heavily on the decision to freeze, terminate, and eventually transfer the plan.

Now that companies are sitting with a surplus leading to pension earnings, they are reluctant to shift those assets to an insurance company. According to the Mercer survey “70.1% reporting they have implemented dynamic de-risking strategies, an increase of nearly 10 percentage points from 2023. Additionally, 44% have boosted allocations to fixed-income assets to stabilize their funded status.” Let’s hope that they just haven’t engaged a duration strategy to mitigate some of the interest rate sensitivity. As we’ve stated, cash flow matching is a superior strategy to duration matching as every month of the coverage period is duration matched and you get the liquidity as a bonus to meet monthly distributions. Moreover, the Ryan ALM model will outyield ASC 715 discount rates which should enhance pension income or reduce pension expense.

Clearly, this is a positive trend, but we are far from out of the woods in preserving DB pensions. Unfortunately, plan sponsors are still considering risk transfers which continue to “dominate strategic discussions”, as more than 70% of organizations plan to offer lump-sum payments to some portion of their plan beneficiaries in the next two years.” The American workforce is far more interested these days in securing their golden years and a DB plan is the best way to accomplish that objective.