Keep the Tax Advantages: Smart Ways to De-Risk Defined Benefit Plans

For years, the narrative was that defined benefit (DB) pension plans were on their way out. Termination was seen as the default path. But according to Mercer’s 2025 CFO Survey, the tide is turning. Half of plan sponsors now intend to keep their DB plans, up significantly from just 28% in 2021. With plans reaching a stronger funded status, 104.1% for the 100 largest corporate DB plans as of March 31, new opportunities are emerging for business owners who want to maximize tax savings while building retirement wealth.

Surpluses Open the Door to New Strategies

An important shift is happening: many plans are now overfunded, creating pension surpluses that sponsors are strategically unlocking. Instead of shutting down plans, organizations are finding creative ways to use these surpluses, including:

  • Shifting defined contribution (DC) contributions into a DB plan
  • Funding retiree medical benefits with surplus assets
  • Implementing partial transactions to access surplus funds while keeping benefits intact

For high earners, this means there are more ways than ever to design a plan that goes beyond compliance, one that captures tax efficiencies and long-term wealth-building opportunities.

The Rise of Hybrid and Cash Balance Plans

Another trend highlighted in the Mercer survey is the growing use of hybrid pension plan designs, particularly cash balance plans. Nearly 38% of respondents have already moved to a hybrid design, up from 32% in 2023.

For business owners and professionals with high incomes, cash balance plans can be particularly powerful. They provide predictable benefits while offering far higher contribution limits than traditional retirement accounts like IRAs or 401(k)s. This structure allows owners to:

  • Reduce taxable income through substantial deductible contributions
  • Accumulate retirement savings faster than with defined contribution plans alone
  • Mitigate investment and interest rate risks traditionally associated with pensions

Managing Risk Without Termination

Investment risk and interest rate volatility remain the top reasons sponsors terminated plans in the past. But more than 70% of organizations are now pursuing de-risking strategies, including lump-sum payouts and annuity purchases. Many are also shifting assets into fixed income for greater stability.

For high-income business owners, the message is clear: you don’t need to abandon a DB plan to manage risk. Strategic design, combined with modern de-risking tools, allows you to keep the tax advantages while reducing exposure to market swings.

Why This Matters for High Earners

If you’re a business owner or professional with consistently high income, the defined benefit landscape has never been more favorable. With funded status at historic highs and sponsors embracing innovation, the opportunity to use DB and cash balance plans as tax-saving, wealth-building vehicles is stronger than ever.

Rather than defaulting to traditional 401(k) limits, a well-structured DB or hybrid plan can allow you to contribute multiple times more each year, significantly reducing taxable income while accelerating retirement savings.

The Mirador Perspective

At Mirador, we work with high earners who want more than cookie-cutter retirement plans. Our focus is on strategic plan design that delivers:

  • Higher owner contributions
  • Significant tax savings
  • Long-term flexibility to adapt as your business evolves

The new era of defined benefit planning is about choice and control. With the right structure, you can safeguard wealth today and secure retirement for tomorrow.

Ready to explore what a modern DB or cash balance plan can do for you?

Reach out to Mike, Alison, and Rachel to learn more about how we can design a retirement strategy that helps you keep more of what you earn.