Over the past 20 years, a large part of corporate America has moved away from offering defined-benefit pension plans, and defined-contribution arrangements have become the norm. But the closure of a defined-benefit plan is not the end: The plan must keep operating for as long as there are participants still alive and benefits still to be paid. Thus, a new category of major institutional investor has come into being: the frozen pension plan.

A frozen plan is different from an open plan, and it needs to be managed differently. A frozen plan has a finite lifespan and, even though that lifespan may be decades long, the plan starts working toward the new endgame almost immediately. Freezing a plan brings with it a shortened investment time horizon, an increased focus on marked-to-market asset and liability values, and greater emphasis on risk management.

A frozen pension plan has a known life cycle. As shown in the life-cycle diagram on page 44, eventually all frozen plans