The advocates for the consolidation of defined benefit plans argue that bigger plans are usually better run with stronger governance structures and access to wider skill sets. Consequently consolidation would lead to better outcomes for members.
The evidence to support this is (in fact) quite limited. There have been a number of very high profile larger plans which have run into significant problems, despite robust governance and the best advice available. So size itself is no guarantee of better outcomes for members.
In fact, there is an equally viable argument that most smaller plans are well run by knowledgeable trustees, supported by highly engaged Sponsors. When problems do emerge they are often smaller and therefore easier to resolve. In some ways they manage risk more efficiently and have better access to the skills that they actually need.
In these cases, it is probably better to continue with the current practice rather than look to consolidate benefits. This may save a small amount of cost but might, at the same time, significantly increase risk for members.
One of the key difficulties is assessing the strength of the Sponsor Covenant over an extended period. In the short term this is quite simple and there are plenty of experts available, but this is of little use for pension plans looking at 20+ year time horizons.
Bigger companies have much more complex structures which can change quickly and significantly. Furthermore the management team is more likely to change and the focus is more likely to be on short term performance. This means that the Covenant is more volatile and hence Trustees should be monitoring this more frequently and also place less reliance on the Covenant in setting “risk budgets”.