Should You Wait to Terminate Your Frozen Pension Plan? Key Factors to Consider

A frozen plan continues to carry risks and costs until its obligations are settled and the plan is terminated. While there may be legitimate reasons to delay termination, sponsors should view waiting as a strategic decision rather than a default response.  

For plan sponsors whose goal is plan termination, It’s critical to understand where you are today and what obstacles, if any, you face on the road to the finish line. 

In this article, we cover the factors that influence whether a plan sponsor delays or moves forward with plan termination to help you determine the next best step for your plan.  

The 4 Factors that Influence Termination Timing 

There is no single way to tell when it's the right time to terminate your plan. If plan termination is your end goal, consider a combination of the following factors to determine whether your plan is ready to terminate, or if delaying offers a strategic advantage to a future termination. 

1. Funding Status 

A plan needs to be funded to satisfy its obligations before it can be terminated. As a plan's funded status improves, sponsors should reassess the opportunity to terminate. 

• When termination may make sense: If your plan is sufficiently funded to satisfy its obligations and termination is your goal, then you are prepared to evaluate whether that funding position can be used to move forward and eliminate the ongoing risks and costs of the plan. 

• When waiting may make sense: If the plan is not yet adequately funded, waiting may be appropriate if it gives your organization an opportunity to improve its funding position. In that case, sponsors should use the time to address the funding gap and prepare for termination. 

2. Plan Size and Org Readiness 

The larger or more complex a plan is, the more resources it may require to maintain and terminate it. Whether your organization is prepared to take on that process will depend on the plan's complexity, as well as your organization’s internal capacity. 

• When termination may make sense: If your organization is ready to move forward and can bring together the internal stakeholders and external partners needed to manage the process, termination can eliminate the ongoing costs and risks of maintaining the plan. 

• When waiting may make sense: If your organization is not yet aligned or lacks the internal capacity to coordinate with external vendors to manage the termination, a delay may be appropriate to allow additional time to resolve specific readiness issues. The goal should be to use that time to prepare for termination rather than simply defer the decision. 

3. Market Conditions 

Market conditions can affect the cost and timing of settling pension obligations. Interest rates, for example, can influence the value of pension liabilities and the economics of purchasing annuities. Conditions in the pension risk transfer market, including insurer capacity and competition, can also affect the pricing and availability of annuity contracts. Together, these factors can influence how much it costs to settle a plan's obligations and how attractive termination may be at a given point in time. 

• When termination may make sense: If market conditions create favorable economics for settling pension obligations, sponsors may have an opportunity to reduce the cost of termination. This could include a combination of interest rates that support favorable liability values and a competitive pension risk transfer market, with multiple insurers actively pursuing transactions.  

• When waiting may make sense: If current interest rates, annuity pricing, insurer capacity, or other market conditions make settlement less attractive, waiting may be reasonable if the sponsor has a specific expectation or objective for using that time. Sponsors should continue preparing for termination so they can act when market conditions become more favorable, rather than waiting without a defined strategy. 

4. Strategic Timing 

While the financial impact of termination occurs when the plan is terminated, sponsors may have flexibility in deciding when that impact makes the most sense for the organization. 

• When termination may make sense: If the organization is prepared to absorb the financial impact of termination, completing the process may allow the sponsor to eliminate an ongoing pension obligation and redirect attention and resources toward other priorities. Sponsors should consider whether they want that financial impact to occur in the current fiscal year, a future year, or potentially be managed across two fiscal years. 

• When waiting may make sense: If the financial impact of termination is better aligned with a future fiscal year, or if the organization needs more time to plan for that impact, waiting may be appropriate. Sponsors should also consider whether the pension currently supports an important workforce or reputational objective and whether that consideration affects the desired timing of termination. 

The Potential Cost of Delaying 

Delaying may feel like a safer route, especially for long-standing plans. However, a frozen plans still have multiple expenses and remain exposed to risk, including: 

• Administrative expenses: Ongoing actuarial, recordkeeping, compliance, legal, audit, and participant support required to keep the plan operating.  

• Plan expenses: Investment management, PBGC premiums, trustee and custodial fees, and other costs associated with maintaining the plan and its assets. 

• Ongoing pension risk: Continued exposure to investment performance, interest-rate changes, longevity, funding requirements, and other factors that can affect the plan’s cost and financial position. 

What Does the Research Tell Us about Termination Timing? 

Today, many sponsors are benefiting from a favorable PRT market. Our 2026 Pension Risk Transfer Report attributes this environment in part to higher interest rates, which have reduced pension liabilities, along with strong stock market performance. At the same time, continued competition among insurers has created additional downward pressure on annuity purchase prices. As a result, many plan sponsors continue to find themselves in a favorable position to de-risk.  

None of this means sponsors should assume that market conditions will become less or more favorable in the future. Instead, if a frozen plan has reached a strong funding position and the economics are attractive, sponsors can consider acting on those conditions.  

In other words, the objective isn't to time the market. Delaying a termination should not be the default due to the ongoing costs and risk of maintaining a frozen plan. Rather, it can offer a strategic opportunity to prepare your organization to act when opportunity arises.  

Ready to Move Forward? Choosing the Right Provider

Once you're ready to terminate, the next question is how to get there. The right provider can help answer any ongoing questions, reduce workload for your team, and coordinate the process to keep it moving.  

In our next article, we’ll look at what you should expect from a pension plan termination provider and the questions you can ask before choosing one. 

Alternatively, if you're ready to jump in now and curious how October Three can help you streamline the termination process, then let's connect. Click below to schedule some time with our team.  

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Article Written By Mark Unhoch

Pension Risk Transfer Practice Leader

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