IN BRIEF

• In the U.S., corporate sponsors of private defined benefit (DB) pension plans seem to have developed a collective blind spot about the potential value of maintaining a well-funded pension.

• Many DB plans are fully funded, in aggregate, and sponsors have developed the expertise to manage pension assets to out-earn liabilities while imposing minimal financial risk.

• The large mandatory contributions that characterized recoveries from previous pension funding drawdowns are no longer a significant threat because plan sponsors operate in a more benign regulatory environment.

• Commonly used measures of pension risk are flawed, leading sponsors to overstate the benefits of getting rid of their pension plans through pension risk transfer (PRT) transactions, and to understate the potential benefits of maintaining prudently invested plans.

• We would encourage sponsors to consider the numerous business reasons for keeping their plans open—or even reopening them, if closed. Closing, freezing and terminating plans may offer far less value than the conventional wisdom would suggest.