Defined Benefit Plan Termination Consulting

Frozen Defined Benefit Pension Plans are Risky, Expensive and Burdensome

An increasing number of companies have been attempting to reduce costs and mitigate risk by freezing their defined benefit (DB) plans. Ironically, the costs and risks associated with these frozen defined benefit plans continue to grow, draining valuable financial and human resources that might otherwise be directed to productive uses. Treading water is rarely an intelligent means to an end. And, in the case of frozen DB plans, such lack of action has been shown to significantly increase the exposure and costs resulting from:

  • Equity market volatility
  • Persistent low interest rates
  • Continually rising Pension Benefit Guaranty Corporation (PBGC) premiums
  • Longer life expectancies requiring the use of revised (higher cost) mortality tables,
  • Ongoing administrative and compliance burdens

While it is difficult to quantify the adverse impact of diverting time, energy and money to a frozen DB plan, most experts agree that eliminating the distractions and unnecessary expenses associated with them will have an outsized positive effect.

Defined Benefit Plan Termination Program (“DBPTP”), incorporating pension risk transfer and plan termination, eliminates all risk and ongoing expense for plan sponsors. For years, plan sponsors have been waiting for interest rates to go up, hoping that the cost of plan termination will then go down. Certainly, higher interest rates favorably impact the cost of benefits and therefore, the funded status of a plan. However, there are several other factors that impact the cost of benefits and the funded status of a plan, many that function in reverse correlation to interest rates, potentially wiping out the advantages of interest rate increases.

Will the total reduction in cost due to possible interest rate increases be more or less than the overall increase in cost due to:

  • Possible adverse impact (of interest rate increases) on investment performance, plus
  • Aging participant population, plus
  • Increasing longevity, plus
  • Ongoing administrative costs including increasing PBGC premiums/audit fees/actuarial fees/investment advisory services among others?

Many practitioners argue that the totality of the various factors and assumptions, including interest rate movement, is a net neutral or corresponding offset. While that may well be the case, we believe it is important for plan sponsors to ask and frame the questions based on their facts, circumstances (including tolerance for risk, business conditions, etc.) and suitable assumptions. Only then can a realistic and business-smart pension risk transfer and exit strategy be intelligently developed, implemented and completed.

The DBPTP is designed to relieve plan sponsors of the risk, expense and fiduciary responsibility associated with maintaining a DB plan, as quickly and efficiently as possible. There are numerous issues to consider when developing the optimum approach to DBPTP. Chernoff Diamond’s experienced team of client-centric pension and risk consultants work with you to identify and evaluate the facts, objectives, and considerations that need to be adequately addressed within the PRP pension de-risking process. We develop customized solutions to reduce and ultimately eliminate:

  • Administrative costs and burdens on HR and Finance
  • Headaches associated with managing a plan’s funded status
  • Adverse effects of continued low-interest rate environment
  • Requirements related to the ever-changing regulatory landscape
  • Adverse financial impact of increasing PBGC premiums
  • Volatility and unpredictability of future contribution requirements
  • The escalation of plan liabilities due to continued mortality improvements


  • How do you know when or how to begin the pension de-risking process? Are you better off waiting? What’s the most efficient and least disruptive path to DBPTP?
  • Frozen DB plans remain because plan sponsors assume the economic and collateral cost of ending it is higher than the cost of maintaining the status quo. Is that a correct assumption?
  • There are several (often competing) considerations that determine the answer to that question, as well as the path and timing of DBPTP. That said, it is important to know because either way, one path must be more efficient, effective and less disruptive than the other.
  • Have you examined the alternatives, costs, and benefits of a Defined Benefit Plan Termination Program (DBPTP) including risk transfer and plan termination?

Learn more about our Defined Benefit Plan Termination Program by visiting our DB Plan Termination FAQ page. You may also contact a Retirement Plan Advisor at 516-683-6100 or