Key takeaways

• Corporate pension plan sponsors have more opportunities than ever to de-risk, thanks to strong funded positions, high interest rates, and a competitive insurer market.
• Before embarking on a pension risk transfer or plan termination, plan sponsors should think about their goals, which may range from reducing administrative costs and insurance premiums to managing risk and internal workforce changes.
• If plan sponsors opt to offer participants a lump-sum window or annuity purchase, they should consider the pros and cons of each choice.
• The plan termination process can take 18 months or more. Taking key strategic steps—including adjusting the investing strategy and cleaning up participant data—can help smooth the process.

The current corporate pension landscape

For decades, defined benefit (DB) plans were a cornerstone of retirement security, promising employees a guaranteed income stream after their working years. Over time, however, these pension plans have become increasingly challenging for employers to manage amid changing workforce demographics, investment volatility, and regulatory pressures. Many companies began terminating their DB plans and moving to defined contribution (DC) plans, which offered more predictable costs and balance sheet liabilities. This shift was compounded by the impact of global events, including the 2008 financial crisis and the COVID-19 pandemic. Today, only 15% of American private industry workers have access to a DB plan, according to the U.S. Bureau of Labor Statistics.¹

Despite these trends, many corporations have legacy DB plans—whether hard frozen or closed to new entrants—that remain on their books as liabilities. In the past five years, due to robust market performance and rising interest rates, many companies have seen a reduction in the unfunded present value of their pension obligations. According to Milliman’s 2025 Corporate Pension Funding Study, the aggregate funded status of the nation’s 100 largest corporate pension plans exceeded 100%.²

Amid these conditions, many plan sponsors have seen an opportunity to transfer risk to insurers through pension risk transfers (PRTs). In 2022, U.S. PRT volume exceeded $51 billion, and 2024 set a record for the number of transactions, at nearly 800.³ This growth has spurred more insurers to enter the market, and 23 providers now offer group annuity contracts. This competition often leads to favorable rates for plan sponsors negotiating a PRT. According to the Milliman Pension Buyout Index for November 2025, the estimated competitive retiree buyout cost, as a percentage of accounting liability, decreased by 40 basis points from 100.5% to 100.1% during October.⁴

Many companies may still want to retain their pension plans to help them attract and retain talented staff. But as PRTs and plan terminations continue to gain traction, it is critical to understand the complex factors involved that will affect employees, internal benefits teams, corporate strategy, and the bottom line. In this article, we explore some key considerations for organizations thinking about DB plan termination and lay out some practical de-risking steps they can take to optimize pension management today while preparing for the future.

Important factors to consider before terminating a corporate pension plan

Before embarking on a pension de-risking project or plan termination, plan sponsors should first take a step back and think about their goals. These might include:

• Reducing costs or volatility and managing risk: In addition to administration costs, corporations also bear a plan’s investment risk and must manage contribution volatility. Such considerations have led many plan sponsors to think about plan termination.
• Reducing Pension Benefit Guaranty Corporation (PBGC) premiums: Premiums paid to the PBGC, both flat-rate and variable rate, have steadily increased in the last 15 to 20 years, leading many plan sponsors to consider shifting some of their retirement strategy to a DC plan or other solution.
• Managing workforce changes: Administering a DB plan is resource intensive, and expertise is dwindling as experienced pension professionals retire. Continuing to offer a pension plan may no longer be feasible with internal resources.

Strategic steps toward pension plan termination

When approaching a pension plan termination, it is essential for plan sponsors to fully understand their options, desired outcomes, process steps, timing, and other key factors. The following are some strategic steps to take to move forward:

1. Assess the current situation: Plans should work with actuaries and investment consultants to understand their funded status and liabilities.
2. Determine funding guidelines: Collaborate with in-house finance and accounting teams to evaluate contribution requirements, administrative costs, and the financial impact of a pension plan termination.
3. Evaluate options: The first two steps will help plan sponsors understand what their options are relative to the market environment and enable them to align investment strategy with termination goals.
4. Model outcomes: Plans should test different scenarios to project the probability of meeting funding and timing goals and to project a long-term picture from the current date to the proposed termination date.
5. Assess and prepare administration: Ensure data accuracy for all participants—whether active, deferred, or retired. Plans may need to outsource administration in order to produce timely calculations and election packets and to work through historical data challenges that can slow down the termination process, especially if they are working on a condensed timeline.
6. Select an insurance partner: Any annuities that are paid out will eventually need to be moved to an insurance company that will assume the liability. Plans may choose to enlist outside assistance in obtaining bids for insurance annuity purchases and choosing a reliable partner.
7. Plan communications and distribution: Once the IRS has approved a plan termination, plan sponsors will need to shift their focus to participants. A well-orchestrated communication campaign can ensure notice requirements are met and participants understand all their options.

Pension plan termination timeline and compliance

The work to terminate a pension plan typically takes 18 months or more. Effective communication with participants is a key part of this process. Plan sponsors have likely devoted time and effort to helping plan participants understand the value of the pension plan; now they will have to educate their participants about this shift, show them what their options are, and help them to not view the termination as a negative event.

Two other key components in a termination timeline include the following:

1. Data and administration: Plan sponsors will need to ensure that historical data—such as employment status, service history, compensation data, beneficiaries, and the like—is reviewed so that when the time is right to move into the termination process, they will know where the weaknesses in the data are and can identify some of the remedies to fill in those data gaps in order to accurately produce pension calculations and pension payments.
2. Legal and compliance: The plan termination process includes a number of government filings, including with the IRS and PBGC. Plans must conduct sufficient due diligence throughout the process to ensure timeliness and accuracy ahead of the final audit.

3 keys to managing a successful pension plan termination

1. Minimize financial cost and risk

• Investment strategy: If a plan is expected to terminate on an 18-month time horizon, reviewing and understanding the risk profile is critical. Plans must ensure their investment strategies align with this schedule and that they understand insurer pricing dynamics.
• Insurer pricing: Annuity costs vary with market conditions and insurer appetite. Plans should understand the dynamics of the competitive market and when they can get the most favorable pricing for a PRT.
• Lump-sum cost and take-up rate: Initial de-risking can include paying out as many lump sums as possible, as they are typically more cost-effective for the plan than annuities. Participant take-up rates and current interest rates will determine these lump-sum costs.

2. Limit regulatory and compliance risk

• New fiduciary duties: Fiduciary responsibilities intensify during termination, particularly in selecting insurers.
• Benefit data and calculation quality: Insurer scrutiny and the approaching PBGC audit emphasize the need for accurate participant data and benefit calculations.
• Required filings and documents: Thorough project management and integrated processes across the insurer selection process, participant communications, plan document drafting, and government filings can minimize the plan sponsor’s time investment and risk.

3. Optimize participant experience

• Employee engagement: Employee perception of the plan termination and engagement in the process will factor into their payment election behavior.
• Balanced communication: Building awareness, providing education, and supporting employee decision-making can be accomplished while simultaneously meeting regulatory requirements.
• Educating and guiding employees: Effective communication helps employees make prudent decisions, such as undertaking 401(k) plan rollovers, through a simplified and seamless election process.

Practical de-risking steps plan sponsors can implement today to optimize a future termination

When considering or actively moving toward a plan termination, pension plan sponsors can take meaningful steps to reduce risk and position themselves for future action.

• Plan design adjustments: If a plan is currently open, closing it to new entrants or halting future benefit accruals can help stabilize liabilities and manage service costs. Meanwhile, regularly cleaning up plan data by auditing participant records can ensure that employment history, beneficiary designations, and benefit calculations are accurate.
• PBGC strategies: To lower their PBGC premium payments, plans can focus on reclassifying contributions or paying out participants with small accrued benefits. Outside of plan termination, PBGC strategies are important for plan sponsors looking to maximize funded status and to ensure their contribution goes toward the right goals.
• Investment adjustments: Plan sponsors should work with their investment manager to conduct an asset-liability study with termination in mind. As the termination date approaches, they may wish to reduce their equity exposure and shift to a liability-driven investing strategy to better match the plan’s obligations.

De-risking a corporate DB plan through lump-sum windows or annuity purchases

If a plan termination involves a lump-sum window or annuity purchase, plan sponsors should consider the pros and cons of each choice.

• Cost: For an annuity purchase, a plan sponsor is essentially asking an insurer to administer the plan until the participant is eligible for retirement, and this administration comes at a cost. Alternatively, offering participants a lump-sum payment will lower plan expenses, enabling plans to settle that liability at a discount, assuming interest rates are level throughout the year. This can reduce some volatility and balance-sheet liability and can help the plan avoid future PBGC annual premiums.
• Predictability: Employers may choose to pursue an annuity purchase for a select group of employees; this may include all plan participants who work in a certain line of business or location, everyone hired before a certain date, or participants with the smallest accrual rates, benefit amounts, or liabilities. In contrast, offering a lump-sum window may offer less predictability, as plan sponsors cannot control who elects to take advantage of this offer, creating uncertainty about the size of the lump sum take-up rate and pension liability.
• Risk of settlement: If settlement accounting is a concern for an organization’s finance team, the plan sponsor should design either the lump-sum window or annuity purchase to ensure they do not trigger a settlement and any accompanying charges.

Conclusion: Looking toward terminating a corporate pension plan

Plan participant surveys show that employees still prefer DB plans, especially as they near retirement. According to a 2024 survey by the National Institute on Retirement Security,⁵ 78% of Americans have a favorable view of pensions and 77% say they believe workers with pensions will have a more secure retirement. Similarly, 77% of workers are more likely to choose a job with an employer that offers a pension, while an even higher percentage—87%—of workers say they would likely stay longer at their company if a pension was provided.

Plan sponsors considering making changes to their retirement benefit offerings should keep these survey results in mind. When pivoting away from a DB plan, they may also want to consider implementing more flexible solutions, including:

• A cash balance plan, or a cash balance plan paired with a 401(k) plan
• A sustainable income plan (SIP), which allocates a benefit each year based on certain metrics and investment returns

Alternatively, if a pension plan’s funded status has increased, plan sponsors may consider unfreezing the plan and using that surplus to provide benefits to participants through an existing plan.

Taking all of this into consideration, plan sponsors today have more opportunities than ever to reduce pension risk, thanks to stronger funded positions, higher interest rates, and a competitive insurer market. But successful plan termination or de-risking is a complex process, requiring careful planning, financial analysis, a strong participant communication strategy, and solid plan administration.

¹ U.S. Bureau of Labor Statistics. (April 19, 2024.) 15 percent of private industry workers had access to a defined benefit retirement plan. TED: The Economics Daily. Retrieved September 11, 2025, from https://www.bls.gov/opub/ted/2024/15-percent-of-private-industry-workers-had-access-to-a-defined-benefit-retirement-plan.htm.

² Wadia, Z., Perry, A., & Cook, R. (April 30, 2025). 2025 Corporate Pension Funding Study [White paper]. Milliman. Retrieved September 11, 2025, from https://www.milliman.com/en/insight/2025-corporate-pension-funding-study.

³ LIMRA. (March 17, 2025). LIMRA: U.S. single-premium pension risk transfer sales leap 14% to $51.8 billion in 2024. Retrieved September 11, 2025, from https://www.limra.com/en/newsroom/news-releases/2025/limra-u.s.-single-premium-pension-risk-transfer-sales-leap-14-to-%2451.8-billion-in-2024/.

⁴ Pringle, J., & Cook, R. (November 18, 2025). Milliman Pension Buyout Index November 2025. Milliman. Retrieved December 16, 2025, from https://www.milliman.com/en/insight/milliman-pension-buyout-index-november-2025.

⁵ Doonan, D., & Kenneally, K.. (2024). Retirement Insecurity 2024: Americans’ Views of Retirement. National Institute on Retirement Security. Retrieved September 11, 2025, from https://www.nirsonline.org/reports/retirementinsecurity2024/.