This incentive may make pensions more expensive because sponsors would be less likely to take on assets with higher expected returns. Put another way, plan sponsors could be given the incentive to become overly risk-averse, meaning an increase in the cost of providing for future liabilities. A fourth concern relates to the group-longevity risk I spoke about earlier.
It may seem odd to consider the notion of people living longer to be a huge problem. Nonetheless, increased longevity poses a tremendous risk for sponsors. This risk can be mitigated in a number of ways. For example, contribution rates can be adjusted to reflect changes in average life expectancy.