Seven priorities for DB sponsors to consider in 2026

Recent years have generally brought positive shifts for many defined benefit (DB) plans. Strong equity markets and rising discount rates have typically contributed to improved funding levels—creating opportunities to reassess priorities for the year ahead.

Below are seven priorities for DB sponsors to consider in 2026.

As it relates to protecting funded status, think of a mountain climber who is 90% of the way to the summit. At that point the goal isn’t just about climbing higher, it’s also about making sure not to lose traction, or worst case, fall backward. Many DB plans are in a similar position today. Strong markets and higher discount rates have typically improved funded status, but that progress comes with asymmetric risk: additional gains add little value, while a downturn can undo hard-won improvement. That’s why derisking strategies like liability driven investing (LDI) are often used to help preserve recent funded status gains.

The aggregate funded ratio for U.S. corporate pension plans is estimated to be 103.7% as of November 30, 2025.

Two reminders:

• Know which interest rates matter. Headlines about the Federal Funds Rate can be misleading; pension liabilities are tied to long-duration corporate yields. A simpler barometer is the 10-year Treasury, which often moves more in line with liability discounting.
• Today’s LDI is commonly dynamic. Glide paths with automated real-time triggers are increasingly being used to help manage LDI allocations (e.g., “if funded status hits 90%, shift X% from return seeking assets to hedging assets”). This enables the sponsor to take timely action when necessary.

Using the annual actuarial valuation—delivered months after the start of the plan year— as the primary check on funded status won’t keep pace in today’s environment. Monthly monitoring is increasingly common, while some sponsors are exploring daily tracking for added flexibility, especially plans that have stopped or “froze” accruals for participants and are aiming for termination.

Integrated service models can make this easier. When the administrator, actuary, and custodian are integrated with one service provider, it normally is easier to maintain current data on assets, cash flows, and participant changes. It can also mean funded status estimates are refreshed quickly to be acted on promptly. Think of getting updated data as another opportunity to lock in funded status gains and remove risk.

Ask providers for:

• Near real-time funded status analytics and daily dashboards.
• Automated alerts when glidepath thresholds are met.
• Clear playbooks for when an alert is triggered (who does what, how quickly, and with what governance).

For well-funded plans (defined as 95% or higher), carrying costs can add up—whether through headcount-based PBGC premiums or ongoing provider fees. Even if the risk-based allocation portion has fallen as funded status improves, the fixed per participant cost still impacts the budget every year. At the same time, service models using multiple providers to administer and service the plan can lead to inefficiency and overlapping fees.

Two possible approaches to help reduce expenses:

• Reduce participant counts to lower PBGC premiums. Common approaches to reducing the number of participants in the plan include annuity carveouts for smaller retiree payments or lump sum windows for terminated vested participants.
• Consolidate providers. Combining actuarial, recordkeeping, custodial, and investment services under one provider can help reduce fees, improve data flow, and streamline operations.

Rising rates have plans evaluating whether to continue to use stabilized (smoothed) segment rates or adopt a market-based approach for minimum funding. In a rising-rate environment, smoothing can potentially understate the true economic reality relative to market yields.

If evaluating a switch:

• Conduct plan-specific modeling. This is not a ‘one-size-fits-all’ decision. Work closely with the actuary to run projections under both stabilized and market-based rates.
• Factor in governance constraints. IRS rules generally allow only one automatic change to the funding method every five years. Consider the long-term implications before making a move.

Align with investment strategy. Confirm the chosen funding approach works in harmony with the plan’s investment objectives and risk management strategy, whether that involves LDI or a broader asset allocation framework.

The success of a DB strategy mostly boils down to data quality. Missing hire dates, termination dates, or pay histories can be “averaged” for valuation purposes, but not acceptable for final benefit calculations during payouts or plan termination. Inaccurate data can lead to overpayments, underpayments, and plan compliance issues.

Practical steps:

• Conduct regular verification of life audits for retirees. Monthly checks help ensure benefits stop when they are supposed to, and survivor options are applied correctly. Sponsors that implement rigorous audits often uncover and correct costly errors.
• Launch a data cleansing initiative ahead of any major transaction. Prioritize data points that directly impact benefit calculations and liabilities.
• Leverage integrated administration for real-time updates. Coordinating plan administration, actuarial work, and custody functions—whether through technology or provider collaboration—can help ensure participant data updates are reflected quickly and accurately.

With discount rates up and markets strong, surpluses are more common—and they require careful handling to avoid costly IRS tax penalties. In general, rules require that surplus funds must be used to benefit plan participants.

Options to explore:

• Establish a Qualified Replacement Plan (QRP) for participant benefits. This allows sponsors to redirect surplus funds into a defined contribution (DC) arrangement for the same participant group.
• Enhance benefits or adjust plan design. Increase certain benefits or offer supplemental features that use excess plan assets in a way that aligns with overall workforce strategies and complies with IRS rules.
• Allow accruals to continue temporarily to absorb surplus. Instead of freezing the plan, keep benefit accruals active for a short period. This lets employees earn additional pension benefits, gradually using surplus assets.

In today’s environment, pension risk transfer (PRT) activity is accelerating. Successful execution often depends on preparation and governance.

When planning for a PRT:

• Start with data and investment alignment. Accurate participant records and liability-matched investments can help reduce surprises during pricing and improve confidence in outcomes.
• Consider phased approaches. Begin with smaller annuity carveouts to lower PBGC headcount and administrative costs before moving to larger transactions.
• Stay informed without being reactive. Market conditions matter, but operational readiness and clear governance often have a greater impact on timing and success.

Recent litigation around annuity provider selection has added complexity to the process. Documented decision-making and strong fiduciary practices may help mitigate risk and support a smooth transition.

When it comes to managing a DB plan, clarity about the ultimate strategy for the plan is critical. Whether your goal is full plan termination, phased de-risking, or simply maintaining stability, defining that end state first allows you to build a roadmap that aligns every decision along the way. Once that vision is clear, sponsors can prioritize actions that support it—such as improving data accuracy, integrating service models, and establishing governance frameworks. These essentials make it easier to act quickly and confidently when opportunities arise, to help ensure steps taken move you closer to your long-term objectives.