Colyar Pridgen
Corporate pension plans with surplus assets are not just in surplus; they are in a state of financial independence that allows them to terminate at will. For these pension plans, there are numerous choices, according to Colyar Pridgen, the Capital Group’s lead pension solutions strategist.
Plan sponsors have a series of decisions to make about whether to terminate the plan, reopen the plan or add risk to the portfolio.
Pension Re-Risking
As pension funds reach and exceed full funding, many plans may have outgrown their investment glide paths, Pridgen says. In response, plan sponsors can consider diversifying portfolios with alternative investments, equities and by adopting a reserve surplus approach.
“Maintaining a solid hedge is paramount,” Pridgen says. “[I’m] not suggesting to entirely re-risk, but if you invest a dollar amount equal to your liabilities in hedging assets, there can be the ability to peruse incremental returns with the remainder of the assets.”
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Among the 100 largest plans, bond allocations declined by 1.4% in 2024, according to JPMorganChase’s 2025 pension peer analysis report. The report also found some plan sponsors significantly re-risking their portfolios. IBM, for example, reopened its defined benefit plan in 2023 and increased its allocation to growth assets, including equites, by 13%.
“So from a place of low equity levels, global equities can make a lot of sense and offer simplicity, breadth and diversification to U.S. fixed-income-centric portfolios that have grown out of a hibernation,” Pridgen says.
But to protect funding levels, “an appropriately crafted fixed-income portfolio [can] largely hedge much of the funding risk, and maintaining full funding should absolutely be priority No. 1 for any fully funded or over-funded plan,” Pridgen says.
Will More Plans Reopen?
The reopening of the IBM pension plan sent shockwaves through the industry, although it was not the first to do so, and not even the first plan of at least $1 billion to do so in recent years, Pridgen says. He sees more partial reopenings than full reopenings likely to happen.
“I think we may see more partial instead of full shifts from [DC plans to DB plans] because the DB and DC retirement systems are really quite complementary for both the employee and the employer,” Pridgen says.
Pridgen says the reopening of a defined benefit plan is the most efficient means of extracting that utility on behalf of the sponsor, and he identifies six considerations for plan sponsors when reopening a DB plan.
“The first three are all interrelated, so it might need to be considered [in iterations],” Pridgen says. “Those are sponsor objectives, plan design and DB investment strategy.”
The other three considerations, Pridgen says, are the impact on the defined contribution investment lineup; thinking through participant communications; and regulatory compliance issues such as nondiscrimination testing.
Tags: Capital Group, Colyar Pridgen, IBM, liability hedging, Pensions, surplus
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