Which approach is cheaper will depend on (among other things):
nThe termination premium. There is typically a “premium” over the corporation's stated liability value for transferring the responsibility of ongoing payments to an insurance company. This premium covers a more conservative (and perhaps more accurate) valuation of the plan liabilities and expenses and the profits of the insurance company, to name a few of these items.
nOne-time expenses of termination, including any expense paid to facilitate the termination process.
nAnnual expenses. These include investment management, actuarial, legal and staff fees; flat rate and variable Pension Benefit Guaranty Corp. premiums; and other administrative expenses.
nOngoing plan funding. The funding requirements of the plan during the hibernation period.
nSurplus or deficit. Any surplus of the pension plan generated during the hibernation process could be used as an offset to the above costs. Any deficit would either increase the cost of termination at the end of the hibernation period or extend the hibernation period. One implication of using a net present value approach is that if at any point in time the plan has a surplus that is at least equal to the termination premium, the analysis will show that the sponsor should terminate the plan at that point because there is no additional contribution needed to terminate the plan; the NPV of termination would be zero.