Impact of Rising Interest Rates on Defined Benefit Plans

As interest rates increase, the financial requirements of defined benefit (DB) plans change significantly, allowing employers to allocate less money to guarantee benefits for their employees. Higher interest rates reduce the present value of future liabilities in DB plans, which can lead some employers to reconsider their retirement plan strategies. This shift in funding strategy is particularly relevant for employers who have historically favored defined contribution (DC) plans. The contrast between the two plans highlights a potential reevaluation of how retirement benefits are structured in response to economic changes.