At least one likely effect of the PPA is to encourage more companies to move to hybrids and most often cash balance plans, rather than freeze their old DB plans. In cash balance plans, employers contribute 3% of an employee's salary into an account every year and grow that money using a conservative interest rate, generally tied to the one-year Treasury. The other choice is pension equity, which is based on a calculation of final average pay, not a career average. About 10% of all plans now are cash balance, according to Judy Schub, managing director of pension and investment policy for the Association of Financial Professionals, a Bethesda, Md.-based trade association. While experts expect a sizable increase, no one has put a number on that growth that they're willing to publish. "The PPA has laid to rest concerns about cash balance plans," says Robert McAree, senior vice president with The Segal Co., a benefits consulting firm in New York. Coupled with a favorable court decision last year in the high-profile IBM Corp. case and another more recently against Boeing Co., McAree predicts cash balance plans will boom. "It's a very rare company that's not looking at the possibility," says Martha Priddy Patterson, a director with the human capital practice for Deloitte Consulting.

Of course, the appeal of these hybrids stems in part from the way employees receive their payment–in a lump sum, as opposed to monthly checks over their lifetime. What's more, "funding is less volatile," says Patterson. "You can more easily calculate the amount you need to put in from year to year."

The PPA and FAS 158 have made such transparency and the ability to address asset and liability problems quickly a pension manager's top priorities. This has prompted an array of new investment models and techniques around less volatile instruments, as well as a need to address any inefficiencies in plan management or outsourcing arrangements. Barclays Global Investors, for instance, recently launched a one-stop-shopping approach, combining asset management, asset allocation and trust services, attempting to streamline what is sometimes a decentralized process. "Pensions are very long-lived entities, but recent changes brought about by the PPA and FAS 158 mean that plan management has a much shorter-term focus than ever before," says Stephen Bozeman, a principal with BGI. "As a result, employers are looking for more help in managing their plans." They're targeting companies with less than $1 billion in assets, especially those that don't have a staff dedicated to overseeing their plans. About two-thirds of BGI's small to midsize corporate clients have expressed an interest in the service, according to Bozeman.

BGI, with $1.8 trillion of assets under management and over 2,900 institutional clients globally, has a lot of expertise to offer. But, it's not the only player. According to Bozeman, there are "several" other providers, including banks and consulting firms, that are also offering a similar all-in-one approach.

Whether outsourced or kept in-house, the overwhelming goal will be to reduce volatility and err on the side of predictability, given the spotlight FAS 158 has generated. Specifically, FAS 158 eliminated the practice of "smoothing" the impact of pension liabilities on the corporate balance sheet over a period of as long as 20 years or more. As a result, companies can't defer gains and losses as they used to, but instead must reflect the full amount of plan funding status on the balance sheet. Adding to the uncertainty are remaining questions about whether FASB will next compel similar disclosure on income statements. PPA, on the other hand, requires that pension plans value liabilities at market for determining minimum contributions, rather than a combination of market and smoothed liabilities, increasing the year-to-year volatility of reported funding levels. "The PPA increases the amount of money corporations will need to set aside to cover assets and liabilities," says Robert Collie, director of strategic advice for Russell Investment Group, an asset management and advisory firm in Tacoma, Wash.

The extent of that volatility will vary from one corporation to another, according to Collie. Especially vulnerable will be those companies where the pension plan is large in relation to corporate assets, such as airlines, steel makers and car manufacturers. In addition, "At-risk plans and cash-sensitive corporations won't respond the same way as well-funded plans and earning-sensitive companies," says Collie. The result, say many observers, is that more companies will follow the FedEx example and opt for a hybrid alternative.

Those companies that keep their DB plans will probably have to take steps, if they haven't already, to re-orient their investing strategies. Indeed, according to a survey by Hewitt Associates, 73% of respondents said they were "somewhat likely" or "very likely" to review their funding strategies over the next year, and 46% were inclined to adjust their equity exposure and/or overall asset allocation.

Central to these efforts is "liability-driven investing" (LDI). While the practice has been around for decades, it has received a shot in the arm by the new legislative and regulatory changes. "The role of liabilities in the management of pension plans has grown much bigger," says Collie. "You can't look at the pension plan in isolation anymore." Specifically, these strategies aim at finding techniques for ensuring that assets and liabilities move together, and that means looking for ways to reduce corporations' exposure to interest rate fluctuations, since the time companies have to react to the ups and downs in rates has been drastically shortened. The solution generally involves using interest rate swaps or futures, so that "assets move in the same direction as liabilities when interest rates change and the net funded status of the plan stays the same," says Clint Cary, investment strategist at Northern Trust. Northern, in fact, sees such an increasing interest in the area that it recently formed a new 10-person team, headed by Cary, devoted to these strategies.

Another key investment strategy focuses on a different area: reducing risk by decreasing the overall allocation of equities and buying more fixed income. According to Cary, General Motors Corp., for example, recently increased its allocation to fixed income by 20%. Of course, reducing risk can also decimate reward. To address that problem, Russell Investment suggests a diversified approach. Generally, that includes 45% equity and 25% fixed income, compared to the 60/30 split that's the norm. But it also calls for 20% in such alternative investments as real estate and private equity and 10% in "opportunistic" alternatives, such as hedge funds.

At least one thing is certain: The look of DB plans, from design to funding strategies and even outsourcing, is likely to keep changing, as companies digest what new regulations mean to them and address additional updates as they come down the pike.