DB Trustee Checklist: Is "Wait and See" a Surplus Governance Strategy?

If you're a trustee of a DB scheme in surplus, you're probably being cautious about distribution. That's understandable - it's safer to wait, see what others do, avoid being first-movers.

But here's the question: Are you being appropriately cautious because you have a robust framework telling you to wait? Or are you defaulting to inaction because you lack a framework to make confident decisions?

There's a crucial difference. Use this checklist to assess which camp you're in.

1. Can You Distinguish "Safe Caution" from "Paralysis by Uncertainty"? (0-4 points)

The real question: When you discuss surplus, do you say "our framework indicates we should retain this as buffer" or "we're just not comfortable yet"?

Score your current position:

□ 0 points - We're retaining all surplus because we don't have clarity on what's genuinely needed vs. what could be distributed. We're waiting because we lack a framework, not because we have one telling us to wait.

□ 1 point - We have some general comfort levels but couldn't rigorously defend why we're retaining specific amounts

□ 2 points - We have reasonable justification for caution but it's not systematically quantified

□ 3 points - We have methodology that indicates specific retention is needed, though not fully accounting for all factors

□ 4 points - We can clearly articulate: "X amount is needed as a risk buffer given our covenant and risks, Y amount is Distributable (genuinely available if we choose to use it)"

Reality check: If your sponsor asked "why can't we access some surplus?" could you give a rigorous answer beyond "we think it's prudent to be cautious"? If not, you're not being cautious based on analysis - you're being cautious because you lack the tools to be anything else.

Safety first, but what degree of buffer is appropriate?

2. Does Your Framework Focus on Earned Surplus Rather Than Expected Returns? (0-4 points)

The question: Are distribution decisions based on surplus already earned, or do they incorporate expected future returns?

Score your current position:

□ 0 points - Our modelling places weight on anticipated future returns (e.g., "expecting 5% annually, surplus will emerge over time"). Distribution timing reflects these return expectations.

□ 1 point - Expected returns influence our distribution thinking to some degree

□ 2 points - We recognize the issue but our framework still gives future returns some decision weight

□ 3 points - Primarily focused on earned surplus though some reliance on return assumptions remains

□ 4 points - Distribution decisions based on earned surplus only, with no weight given to anticipated future returns

Reality check: Traditional journey plans often project surplus emerging as returns compound, which can influence current distribution timing. If returns underperform expectations, distributions may have been premature. Does your framework avoid this risk?

3. Do You Understand What You're Actually Retaining and Why? (0-4 points)

The uncomfortable question: When you retain surplus "for security," do you know how much security it's actually providing? Or are you just erring on the side of "more is safer"?

Score your current position:

□ 0 points - We retain surplus for general "prudence" but haven't quantified what risks it's protecting against or whether sponsor support already provides that protection

□ 1 point - We consider covenant in funding but haven't systematically assessed how it should affect surplus retention decisions

□ 2 points - We've discussed sponsor support value but haven't quantified it or linked it clearly to buffer sizing

□ 3 points - We value sponsor support but the methodology for setting buffers isn't fully systematic

□ 4 points - We explicitly quantify sponsor support value, assess its reliability, and use that to determine appropriate buffers. If sponsor covenant changes, we know how our buffers will adapt to the change.

Reality check: Is it possible you're being overly cautious - retaining surplus as buffer when adequate protection already exists through sponsor covenant and a lower buffer? Without a proper framework, you might be inadvertently disadvantaging both members (who miss out on potential benefit improvements or a lump sum) and the sponsor (who provides downside support but can't access upside returns).

4. Can You Explain Your Position if Challenged? (0-3 points)

The defensive question: If someone asked "why are you planning to sit on this surplus rather than using it?", what would you say?

Score your current position:

□ 0 points - Our honest answer would be: "We're being cautious" or "We want to see what other schemes do first" or "We don't feel comfortable yet."

□ 1 point - We have some rationale but it's primarily judgment-based and we'd struggle under rigorous questioning.

□ 2 points - We have reasonable justification but it's not grounded in robust, objective methodology.

□ 3 points - We can point to clear, objective framework that explains our position - whether that's "framework indicates distribution is appropriate" or "framework indicates retention is needed." Either way, we can defend it.

Reality check: "We're waiting to see what others do" is not fiduciary duty. You're responsible for making decisions appropriate to your scheme, not following the herd. If you're waiting for others because you lack confidence in your own framework, that's a governance gap.

5. Are You Actually Governing Surplus or Just Deferring Decisions? (0-3 points)

The governance question: Do you have a framework that tells you when and why circumstances might change enough to revisit surplus decisions?

Score your current position:

□ 0 points - We're not actively governing surplus - we're just "keeping an eye on it" and will revisit "at some point" or "when it feels right"

□ 1 point - We review periodically but without clear criteria for when our position might change

□ 2 points - We have some governance process but triggers and decision criteria aren't clearly defined

□ 3 points - We have clear governance framework: we know what we're monitoring, what would trigger reassessment, and what analysis we'd need to make different decisions

Reality check: If you don't plan to determine what changes in the scheme would mean for your future surplus management decisions, you're not governing.

Your Total Score: __ / 18 Points

What Your Score Really Means:

14-18 points: You're Appropriately Cautious (Good Governance) ✓

Your caution is grounded in robust analysis. Whether you choose to distribute or retain, you can defend it. You're not waiting for others - you have your own framework. This is sound fiduciary decision-making.

8-13 points: You're Cautious, But Is It Well-Founded? ⚠️

You have some foundation for your position but meaningful gaps remain. Be honest: are you retaining surplus because your analysis tells you to, or because you're uncomfortable making decisions without better framework? The gaps you scored lowest on may be preventing you from making defensible decisions.

0-7 points: You're Not Being Cautious - You're Avoiding Decisions ⚠️⚠️ Your reluctance to act isn't grounded in robust governance - it's the absence of governance. "Wait and see" isn't a strategy when you don't know what you're waiting for or what would make you "see" differently. This creates risks: you might be overly retaining surplus that could benefit members, or worse, you might eventually act without a proper framework because pressure mounts.

If you scored below 14 points: Your caution might be appropriate, but you can't know that without a credible framework. And eventually, doing nothing becomes a decision in itself - one you may struggle to defend.

Feel free to share your experience: Are you confident your caution is well-founded? Or are you, like many schemes, waiting for better clarity before making any move? What would give you the confidence to know where on the scale from surplus retention to distribution is right for your scheme to sit?

Contact us to discuss further.