- Key insight: Learn why benefit advisers are steering employers toward hybrid pension plans.
- What's at stake: Hypercompetitive employers fighting for talent and workers demanding guaranteed lifetime retirement income.
- Expert quote: "There are certainly more companies considering starting or reopening pensions than at any time in recent memory." — John Lowell, October Three
Amid growing concern about retirement readiness and an intensifying talent war in hypercompetitive industries, benefit advisers increasingly are recommending hybrid pension plans to shore up a shaky three-legged savings stool.
These savings vehicles, which combine features from defined benefit (DB) plans and defined contribution (DC) plans, have supplanted traditional final-average plans, a benefits dinosaur whose near-extinction dates back 40 years.
The most efficient way to generate income in retirement is through a pension, whether it's a hybrid or traditional plan, noted Jonathan Price, Segal's vice president and national retirement practice leader. These plans have weathered incredibly volatile periods over the past five to six years with relatively predictable costs.
"The DC plan model as a stand-alone source of retirement has proven itself to be a challenge to ensure that people can afford to retire," he said. In industries with tight labor markets that are moving toward the hybrid plan design, he said there's an acknowledgement that this approach is broken.
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Many pension plans are better funded today than they've been in a long time, and in many instances, they're overfunded, Price explained.
"Another trend that we're seeing is that so much of the defined contribution world is starting to add features that look like defined benefit plans," he said, citing as examples automatic enrollments and escalations.
Driving forces for DB plans
Some of the forces driving a closer look at hybrid DB plans include companies looking to make use of a newly found pension surplus as was the case with IBM in 1999; or employees wanting lifetime-income solutions and discouraging the formation of unions, which happened when Northwell Health on July 1, 2025 offered a pension option to many eligible nonunion employees.
The economic environment also has helped turn the tide in favor of DB plans. A spike in interest rates in 2022 changed the status quo of liability measurement to which the industry had become very accustomed over the prior two decades, observed Zorast Wadia, a principal and consulting actuary with Milliman.
"On the other side of the balance sheet, you have asset returns that have generally been strong," he said, citing Milliman research showing asset or investment returns above expectations among the top 100 DB plans in at least seven out of the past 10 years.
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The stars are aligning for corporate DB plans on a number of other fronts, according to John Lowell, a partner with October Three, which brought to market in 2023 the benefits of an employee-funded 401(k) and employer-funded, cash-balance pension branded O3 Prime.
"There are certainly more companies considering starting or reopening pensions than at any time in recent memory," he reported.
For starters, he said countless surveys indicate that employees want guaranteed employer-provided lifetime income, which the DB model offers. Another reason he cited is the re-embracing of a paternalistic corporate culture to stem turnover and boost profits, with Costco serving as an example.
Regulatory and legislative developments also factor into the mix. A newly proposed accounting standards update by Financial Accounting Standards Board allows market-based, cash-balance plans to receive a defined contribution-like accounting treatment, while he said well-designed plans will not have any meaningful funding volatility. In addition, Lowell noted that several congressional proposals would allow 401(k) plan matching contributions in some cases to be made in cash-balance plans.
In the end, there's no denying that hybrid DB plans can be as beneficial to plan sponsors as participants. To the extent that pension income shows up, Wadia said it helps boost company earnings, adding: "We've had pension income for the last two calendar years, and it's looking like that for the 2026 fiscal year as well."
This is part one of a two-part series on hybrid pension sponsorships.
