08.21.26
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When is $2T Really Not $2T?

By: Russ Kamp, CEO, Ryan ALM, Inc.

In 2021, the U.S. ran a deficit of $2.772 trillion. We know that much of the stimulus created by that deficit spending was in reaction to the economic disruption created by Covid-19. Fast forward 5-years, and the 2026 fiscal year (10/1/25-9/30/26) federal deficit is projected to be around $1.9 trillion. That is potentially a lot of stimulus provided to the private sector through the U.S.’s deficit spending. But is this nearly $2 trillion in “stimulus” really creating $2 trillion in demand for goods and services and will it create similar consequences to what we witnessed in 2022 when inflation spiked? I don’t think so.

First, 2021’s stimulus was also accompanied by supply factors, as the economy was effectively “shut down” compounding inflationary pressures. In addition, the 2021 deficit included “only” $352 billion in interest expense associated with financing our national debt (now >$40 trillion).

The primary differences between 2021’s deficit and 2026’s are the facts that supply factors are not present as the economy is able to meet current demand with far fewer impediments and >50% of the deficit now pays for the interest expense on that $40 trillion national debt. Instead of going to individuals in the private sector that might use that $1 trillion in interest expense to demand goods and services, most of that interest expense is going to pension funds, insurance companies, banks, the Fed, foreigners, wealthy people. etc. According to my former INVESCO colleague, Charles DuBois, “only about 10-20% of the interest received is spent into the current domestic economy.”   

Consequently, today’s roughly $2 trillion deficit is much less stimulative than the $2 trillion deficits from 5-years ago. Chuck estimates that it is “perhaps about $0.6 trillion less stimulative”.  Inflation remains an issue, and may worsen should oil shocks materialize during the next several months, but it is not as bad as it could be if we were truly running a $2 trillion annual deficit with most of those $s flowing into the bank accounts of individuals, who like to spend!

08.21.26
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It’s Yield AND Principal

By: Russ Kamp, CEO, Ryan ALM, Inc.

I hope that you’ve had a great week. I very much enjoyed my three days at the NCPERS Funding Forum in Chicago, where I spoke about bringing certainty to pension plans through cash flow matching (CFM) in an investment landscape providing abundant uncertainty.

As I mentioned during my talk, the only certainty in most pension plans today are the benefit payments that are due each month. How are plans managing that responsibility? Unfortunately, not well, as most cobble together liquidity through a cash sweep of bond interest, dividends, capital distributions, and sales of securities. The only contributor to that liquidity pot that makes sense is bond interest, as dividends and capital distributions should be reinvested in their potentially higher earning strategies, while sales of securities don’t always occur at advantageous times.

But can a pension plan generate enough interest income from their bonds to cover the necessary liquidity? NO! Following my talk on Wednesday morning, an experienced trustee questioned my promotion of CFM based on his math that would have the entire pension plan’s corpus needing to be in bonds for the YTM to produce enough interest (liquidity) to meet his fund’s monthly obligations. He did not realize that a properly constructed CFM portfolio would use both interest and principal from maturing bonds (no sales). The combination of interest and principal will be used to meet those pesky obligations each month (chronologically) when due without any collective deficits.

We often recommend that a pension plan convert their current active core bond portfolio from a benchmark focused strategy to a CFM portfolio now focused on meeting the monthly promises. But the allocation to CFM should really be a function of the plan’s funded status. Better funded plans don’t need to take as much risk as weaker funded plans. Negative cash flow plans, of which most public funds are today, especially need reliable cash flow to meet liquidity challenges. Again, the last thing any pension plan should be doing is forcing sales of securities to meet on-going cash needs.

As U.S. interest rates continue to rise, the YTM on CFM portfolios continues to rise. Longer-term CFM assignments, such as a 30-year period, are seeing YTMs in the 6%+ range. Given the average public fund ROA is roughly 6.6%-6.75%, pension plans can cover a significant percentage of their return target through a strategy providing certainty, barring any defaults (a rare IG event). Please don’t let this opportunity to secure the pension promises pass you by. We’ve seen this happen before and the outcome isn’t pretty.

08.17.26
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ARPA Update as of August 14, 2026

By: Russ Kamp, CEO, Ryan ALM, Inc.

This post is being produced on my flight to Chicago, where I will be speaking at the NCPERS conference on Wednesday. Importantly, I will once again be talking about cash flow matching (CFM), but in the context of a successful implementation of the strategy for a defined benefit pension plan. As many recipients of the Special Financial Assistance (SFA) have found, CFM SECURES the promised benefits, while providing the necessary monthly liquidity to meet ongoing benefits (and expenses) chronologically. I hope that you have a great week.

This past week saw revised applications submitted by Building Trades Pension Fund of Western Pennsylvania and Iron Workers’ Pension Trust Fund for Colorado. They are seeking a combined $55.7 million in SFA for their 5,573 participants.

Non-priority group member, Building Trades Pension Fund of Western Pennsylvania, withdrew its revised application. They’d been seeking $39.7 million in SFA for the 3,907 members of their plan.

Happy to report that there were no pension funds denied the opportunity to file an SFA application and none required to refund a portion of the SFA due to census errors. I think that it is safe to assume that we’ve seen the last of the census problems that plagued initial application filers.

You may recall that I mentioned Retirement Plan of Local 1102 Retirement Fund as being the first of the “Mass Withdrawal” plans to be allowed to submit an application. I now have a better understanding of the likely direction that the PBGC will be taking thanks to Rich Hudson, First Actuarial. According to Rich, the PBGC will only allow multiemployer plans located in the Second Circuit (VT, CT, and NY) to submit applications since it was the Second Circuit that ruled that the Plans Terminated by Mass Withdrawal before 2020 Plan Year were eligible to seek SFA provided that met the other requirements. It appears that plans located in the other Circuits – there are 13 U.S. federal Courts of Appeal, including the D.C. Circuit and the Federal Circuit – will not get the opportunity to file before the ARPA legislation concludes at the end of 2026. I’m sure that there will be more on this issue to discuss.

08.17.26
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Question of the Day # 1769

By: Russ Kamp, CEO, Ryan ALM, Inc.

Question from a pension plan sponsor: I often hear you espousing the use of Cash Flow Matching to replace the pension fund’s core fixed income mangers. Is it prudent to only have one manager in that space?

As always, thank you for that question. We are often asked to respond to this question. Simply put, YES! it is quite prudent and recommended to have one cash flow matching manager to represent the liquidity assets.  This is because there is one single liability cash flow schedule. If you had multiple CFM managers, their cash flows could potentially conflict with each other and not know what liabilities they are funding. Please remember that the primary objective in managing a pension plan is to secure the promises (benefits) at a reasonable cost and with prudent risk. It is NOT a performance objective.

If it were a performance objective than you might be right to want multiple fixed income managers, each representing an uncorrelated skill that when combined might be able to add alpha relative to a generic asset-focused index, but the only index that truly matters is your plan’s specific liabilities and the payment of those benefits when due.

In a CFM implementation, asset cash flows (principal and interest) from investment-grade bonds are carefully matched against the present value (PV) of those future liability cash flows of benefits and expenses. Our proprietary optimization process constructs a portfolio that matches your monthly liquidity needs at the lowest cost chronologically as far out as the mandate is funded. CFM is an exercise in bond math, which states that the longer the maturity and the higher the yield, the greater the cost reduction. We are not looking to produce an alpha relative to your liabilities, but we will because of the bias in our portfolio to A and BBB rated bonds that come with greater yields than the discount rate.

Investment-grade bonds are perhaps the safest investment one can make given that the frequency of defaults, which is <0.2% annually (2/1,000 bonds) as determined by S&P for the last 40+-years. It is only the possibility of a default that keeps this process from being absolutely certain.

Once a CFM portfolio is constructed, the cash flow relationship between assets and liabilities is locked in. It doesn’t matter if interest rates rise or fall because cash flows are future values and not interest rate sensitive. The YTW on day one of the portfolio is the likely return over the duration of the assignment – today we are constructing 30-year assignments with YTWs in excess of 6%. Can you expect that from your “active” fixed income managers, especially given the uncertain interest rate environment? For context, core fixed income managers benchmarked to the Aggregate index have likely delivered little to no return during the last five years, as the index was up 0.1% for the 5-years ending June 30, 2026. Using those managers to fulfill your liquidity needs opens up the possibility that you are locking in losses when bonds are traded to meet monthly benefit payments. There is no forced liquidity in a properly constructed CFM portfolio.

As always, we are happy to conduct a free analysis of what your cash flow needs look like and how CFM can help you secure those promises.

08.13.26
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A Possible Dallas P&F POB – What to do, what to do?

By: Russ Kamp, CEO, Ryan ALM, Inc.

Dallas, TX voters may be asked to approve nearly $1 billion in debt this fall to help the city deliver a long-promised new police academy, while also providing financial flexibility ($500 million) for ongoing contributions into the city’s police and fire pension fund. Jack Ireland, the city’s chief financial officer, told the council that voter approval of pension obligation bonds (POB) wouldn’t trigger the issuance of new debt, but would “give the City Council the financial flexibility to approve its usage if interest rates improved in the future.”

However, not everyone is in agreement regarding the potential POB issuance. Councilman Adam Bazaldua said “asking voters to support another bond package, including the conditional approval of pension obligation bonds, sends the wrong message”. “It’s hard enough for us to decipher and educate our voters with the language that is required by state law, that will tell them their tax rates will go up with these bonds, but now we have to explain to them we’re asking you to approve half a billion dollars that we may not ever even touch or use,” Bazaldua said. “I’m adamantly opposed to this.”

A City Council vote is set for Aug. 12. If approved, any bond proposals would appear on the general election ballot on Nov. 3.

What would you do? Unfortunately, conventional thinking would have the City issue the bonds and contribute the proceeds into the P&F fund, where trustees and their advisors would apply those funds to the current asset allocation. The conventional POB strategy essentially says:

Borrow at X% → put the proceeds into the pension → invest in the existing portfolio expecting Y% → hope Y > X%.

That process is exactly the arbitrage framework that makes POBs controversial. The Government Finance Officers Association (GFOA) explicitly identifies the possibility that invested proceeds fail to earn more than the bond interest rate as a principal POB risk—and recommends against POB issuance largely because of risks such as this. I ran around the country in 2020-2021 arguing that historically low interest rates made the issuance of POBs sound but only if the proceeds were used to defease the plan’s liabilities – not invest them in traditional markets. What followed was 2023’s -18% return for the S&P 500 and a -12% return for the Aggregate index. Just what I and the GFOA warned against.

We believe that using cash flow matching (CFM) for the proceeds makes ultimate sense. At only 36% funded, this fund is facing insolvency due to significant negative annual cash flow and annual contributions that fall short of the ADC. This fund needs an economic boost and putting $500 million to work immediately and securing the next couple of years of benefits will buy some time for the growth assets to perform. Actually, they need significantly more than $500 million to get back on the right footing, but anything is better than nothing. As a reminder, a pension plan that is roughly only 1/3 funded and striving for a 6.5% return, actually needs to generate a nearly 20% annual return just to maintain the funding deficit.

I would describe our process as creating two portfolios: A liquidity bucket consisting of the CFM strategy and a growth buck that contains all non-core bonds. Furthermore, I would add any existing core bonds from the legacy assets into the liquidity bucket to be used to further build out the CFM portfolio. Here are the roles for the two portfolios/buckets:

Cash Flow MatchingLegacy / Growth Portfolio
Secure pension benefitsGenerate long-term growth
Provides needed liquidityMarket-dependent relative returns
Uses bond principal + interestContains equities/alternatives/etc.
This portfolio is Liability-focusedTotal return-focused
Creates cash flow roadmapCreates uncertain cash flows
Eliminates a cash sweepCan withstand market risk
Buys timeUses that time

With a pension as poorly funded, it is impossible for traditional pension management to perform two conflicting jobs simultaneously: generate high returns and provide liquidity to pay benefits.

I know that our recommendation goes against the traditional approach, but CFM brings an element of certainty to the management of pension assets that is desperately in need of some certainty. Dallas needs a dramatic improvement in the plan’s funding. Why should they continue to ride the rollercoaster of returns, which only guarantees volatility and may lead to further funding erosion? Use the POB proceeds, but only if near-term liabilities can be secured.

08.11.26
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Will Rising Rates Rattle Equity Markets?

By: Russ Kamp, CEO, Ryan ALM, Inc.

Uncertainty abounds! That uncertainty continues to drive expectations for oil, inflation, and interest rates up and down like a Yoyo. However, recent inflationary trends suggest that U.S. interest rates could continue higher. The U.S. 30-year Treasury bond’s yield is only 4 basis points off it’s cyclical peak since rates began rising aggressively in March 2022.

At Ryan ALM, we recently completed a cash flow matching (CFM) analysis for a public fund in which we were able to defease the pension plan’s liabilities out to 2100. The portfolio that we created to accomplish that objective had a YTM of 6.03%. Barring any defaults (occur at <0.2% in IG space), that is what the plan sponsor should expect to receive over the life of the program. Unlike a broadly diversified pension asset allocation striving to hit an ROA target and all of its standard deviation, there is NO volatility associated with that long-term return and cash flows. There is no potential for a major drawdown impacting future contributions and the plan’s funded status.

Just how has the bond market changed? This morning, our head trader, Steve Devito, shared with us the characteristics for a couple of bonds that had been shown to him. Here is an incredible example of where rates have gone: $2mm par value of ORCL 6.70 maturing in 2056 @ +245 above the comparable Treasury offered at a 7.70% YTM (quality:Baa2 / BBB-). WOW! Here you have an investment-grade corporate bond trading at a yield of 7.7%. The average ROA for a public pension plan is roughly 6.75%. In another example, Steve shared: $2mm GOOGL 6.50 maturing in 2066 @ +124 above the comparable Treasury at a YTM of 6.50% AA (40-year maturity). Google is offering a AA credit 40-year bond at a YTM of 6.5%!

I suspect that there are many other examples of high quality corporate bonds trading at yields greater than 6%. So, I ask: At what level of rates do U.S. corporate bonds become too much competition for U.S. equities and all their uncertainty? As a pension plan sponsor, wouldn’t you prefer to have the certainty of a CFM portfolio securing your pension liabilities from next month chronologically as far into the future as your allocation goes? In the meantime, your residual alpha assets have just been granted a longer investing horizon allowing them to wade through today’s uncertainty without being encumbered with a cash sweep of dividends and capital distributions.

As we regularly write, we are always willing to showcase how CFM can positively impact your plan by providing a free analysis. You will get a better understanding of your plan’s cash flow requirements and an understanding of the potential cost reduction of the future benefit payments. You’ll also have a greater appreciation for the possible significant reduction in asset management fees that is achieved through the use of CFM. Now is the time to act before the markets negatively react to these rising U.S. interest rates.

08.10.26
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What About Those Mass Withdrawal Applicants?

By: Russ Kamp, CEO, Ryan ALM, Inc.

As regular readers of this blog know, I report weekly on the PBGC’s effort to implement the ARPA pension legislation. In those frequent updates I’ve reported that there are currently 81 pension funds that were placed on the waiting list and described as having been impacted by mass withdrawal prior to 2020. One of those pension funds, Retirement Plan of Local 1102 Retirement Fund is the first SFA candidate invited to submit an application. I’ve asked, is this a unique situation or are the others likely to follow?

After much reading on the subject, Local 1102 is unique as the first plan from the pre-2020 mass-withdrawal group to be invited to submit a full SFA application, but I believe that it won’t be the last. The critical development behind Local 1102’s advancement to being under review, is the litigation involving Bakery Drivers Local 550 and the Supreme Court’s May 18, 2026, decision not to review the Second Circuit ruling from April 2025.

The PBGC’s original position related to the “mass withdrawal” plans was clear: “a multiemployer plan that terminated by mass withdrawal before the 2020 plan year generally could not qualify for SFA because the funding-status rules used to establish “critical and declining” status no longer applied after termination.” The PBGC made its position quite clear in its 2022 final rules.

However, that interpretation was challenged by the Bakery Drivers Local 550 and Industry Pension Fund after initially being denied the opportunity to submit its application in January 2023. The Second Circuit ruled against PBGC in April 2025. The case involved a plan that terminated by mass withdrawal in 2016 but subsequently resumed activity and asserted that it was again in critical-and-declining status. The Second Circuit concluded that PBGC’s treatment of the prior termination was wrong.

Not surprisingly, the PBGC then asked the Supreme Court to hear the case. On May 18, 2026, the Supreme Court denied “certiorari*”, leaving the Second Circuit decision standing. That timing is significant when viewed alongside what happened next. As I mentioned in my July 24 ARPA update, the PBGC invited the Retirement Plan of Local 1102 Retirement Fund to submit an application, which I mentioned was the first of the 81 plans on the waiting list categorized as “Plan Terminated by Mass Withdrawal before 2020 Plan Year” to be invited to submit a grant application.

This may not be the opening of the flood gates, as I asked in that same blog post. The Local 550 decision does not necessarily mean that every plan terminated by mass withdrawal before 2020 is now eligible, as there can still be plan-specific questions about whether a multiemployer pension fund satisfies one of ARPA’s statutory eligibility tests. For instance, the Local 550 litigation involved the additional claim that the fund claimed it had effectively been “restored” after its 2016 termination.

Given that reality, the PBGC still has room to evaluate each applicant’s particular situation. That said, the PBGC’s says it will provide every eligible plan an opportunity to file, subject to its ability to process applications within the statutory 120-day review period. When capacity opens, the PBGC contacts plans at the top of the waiting list and permits them to file.

The pace of grant application submissions could still be slow because PBGC meters applications based upon its capacity to complete the 120-day review. As mentioned in my weekly update as of August 7, 2026, there are currently 14 pension funds under “review”. I would be very surprised if Local 1102 proved to be the only one of the 81 plans invited to apply.

I don’t know how much these additional plans may ultimately receive, but I do know that many American workers will now receive the benefits that they were initially promised. That is only fair.

* If a court denies Certiorari, it usually does not mean it agrees with the lower court’s ruling, it simply declines to review the case.

08.10.26
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ARPA Update as of August 7, 2026

By: Russ Kamp, CEO, Ryan ALM, Inc.

So, how was your weekend? Ours was a bit crazy, as we welcomed two new granddaughters into the family. Both girls – not twins – were born on Friday, August 7th, 3 1/2 hours and three rooms apart at the same hospital! My wife and I are now blessed with 13 grandkids! It was quite the weekend.

Regarding ARPA, I’m pleased to report that the PBGC continues to invite more plans to submit applications for the SFA grant, including Bakery Drivers Local 550 and Industry Pension Fund, that was denied the opportunity to submit an application due to ineligibility initially in January 2023 and then again September 2025. They have now been able to file again due to the Supreme Court declining to review the Second Circuit Courts ruling. Will the third time prove to be the charm?

There are currently 14 funds in the queue to have their applications reviewed by the PBGC. These 14 funds are seeking $569 million in SFA for >25k American workers and retirees.

There is little to report outside of the two additions to the waitlist, as no applications were approved, denied, or withdrawn. Furthermore, neither of the two additions under review came from the waitlist. There remains only one application under review from the roughly 80 mass withdrawal candidates. I’ll provide more on this subject in a separate blog post.

U.S. interest rates continue to rise as Middle East uncertainty roils oil markets fueling inflation concerns. We recently completed an analysis for a pension plan that asked us to defease 30-years of liabilities. The YTM on that portfolio was 6.03% – incredible! That’s 6% for the life of the program no matter what happens to oil, inflation, interest rates, equity markets, etc.

08.06.26
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Is Your Asset Allocation Responsive?

By: Russ Kamp, CEO, Ryan ALM, Inc.

We are happy to share with you Ron Ryan’s latest thoughts related to asset allocation and how it should be responsive and not strategic. We at Ryan ALM, Inc. have witnessed many investing cycles during our decades in the pension industry. We have seen well-funded defined benefit pension plans witness their funded status/ratio deteriorate quickly as markets retrenched. As Ron highlights in his latest thoughtful piece, public pension plans have made terrific strides to improve funding from roughly 71% to a recent high of 88.7% according to Milliman.

Given the improved funding, are U.S.-based pension plans de-risking? Unfortunately, no. They continue to operate with an objective to maximize the return on the assets and not with the more appropriate objective to SECURE the promises made to their members. The former objective continues these plans on a rollercoaster of returns. Regrettably, a return focus only guarantees volatility: volatility of returns leading to volatility of contributions and ultimately the funded status of the plan. It makes little sense.

Adopting an objective that is focused on securing the pension promises creates an element of certainty within the management of pensions not often found, if at all. By securing the promises, one dramatically improves the liquidity needed to meet those monthly obligations. It also creates a longer investing horizon for the assets not used to meet the plan’s liquidity.

We believe that Cash Flow Matching (CFM) is the only strategy that creates the necessary liquidity with certainty, as the asset cash flows of principal and interest are matched to the liability cash flows of benefits and expenses. There is no sweeping of the dividends and capital distributions, which should be reinvested in the products with higher potential returns and NOT used for distributions to beneficiaries.

As your plan’s funded status improves, respond by allocating more of the plan’s assets to CFM. Don’t let your winnings ride. Take risk form the plan’s asset allocation in a responsive way to positive changes in the plan’s funded status. Markets have been producing outsized positive returns, but standard deviations measure both upside and downside possibilities. Is your plan’s sponsor able to withstand a major market correction similar to what we’ve seen previously (2000-’02 and 2007-’09)? Will the likely increase in contributions be crushing?

Who knows what is going to happen with interest rates, inflation, the price of oil, equity markets, etc. Bringing some certainty to pension management should be everyone’s objective. If done correctly, everyone will be able to sleep well at night knowing that your future promises have been secured no matter what transpires in markets that remain out of our control.

08.04.26
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Really, WSJ?

By: Russ Kamp, CEO, Ryan ALM, Inc.

The WSJ’s editorial board recently published an article based on a new report from Equable Institute highlighting AI’s positive contribution to public pension plans (public workers) and the taxpayers that fund the pensions. This assessment is based on the fact that the AI “market boom” specifically and NASDAQ’s performance generally have continued to generate outsized returns despite so much global uncertainty.

The market’s strong performance has boosted the funded ratios of government pension funds, which Equable estimates hit 85% nationwide this year—the highest level since 2007. Equable estimates that roughly 8% to 10% of government pension funds are benefiting from their investments in about 50 publicly traded AI-related companies. Their analysis doesn’t include investments in privately managed funds that own stakes in private AI companies like OpenAI and Anthropic. 

Equable highlighted the fact that while AI is yielding positive returns for pension funds, the magnitude of the outperformance also bears a warning. They claim that nearly 32% of every $ going into a pension plan is paid by the employers (aka taxpayer), and that should the AI bubble burst, it could lead to significantly higher taxpayer contributions. The WSJ stated that some AI company valuations may be stretched in the current boom and could be in for a correction. They also mentioned that government policies that seek to slow AI including robot taxes and data-center moratoriums—could stifle the boom. 

If that correction becomes reality, taxpayers would be stuck paying much bigger pension bills, which could force worker layoffs as happened after the 2008-09 Great Financial Crisis. They claim that it would be better for governments to move workers to 401(k)-style plans that reduce the risk for taxpayers and give public workers a direct stake in the success of AI and other companies. 

So let me get this straight: the WSJ editorial board is concerned that a potential AI correction might just happen because of stretched valuations leading to greater taxpayer funded contributions, so to minimize that potential risk, it would be better to shutter public pension plans and force public sector workers into DC-like programs. If they are concerned that valuations are stretched perhaps leading to a correction, why would they want public workers to have a direct stake in the “success” of AI and other companies?

I’m sorry, have the folks at the Journal not seen the median account balances for those in DC-styled plans? Do they understand that asking workers – public or private – to fund, manage, and then disburse a “retirement” benefit with little disposable income, no investment acumen, and no crystal ball to help with longevity issues is just silly? Do they not also realize that the public sector workers (roughly 20 million) pay taxes, too. They also buy things which leads to economic activity and job growth. Do we really want our Senior population sitting on the economic sidelines because they can no longer afford to participate? We’ve already messed up retirement for a good portion of the private sector. Enough is enough!