Defined benefit (DB) plans have lost some appetite for risk. While an ageing population provides a good reason to de-risk these days, other reasons for doing so might be worrisome. To avoid repeating past mistakes, DB plans need a better framework and process for making risk decisions.
De-risking can take many forms – from changing plan designs that reduce risks arising from liabilities, to buy-outs which transfer risks to others. This paper takes liabilities as given, and outlines a framework and related processes for determining 'risk appetites' that help DB plans make informed choices about the types and amounts of risk to consume. In doing so, we challenge whether de-risking makes sense today and consider how else DB plans can get into better shape financially, with an emphasis on defining and managing risk appetites.