05.07.26
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Unique Liabilities Require A Unique Solution

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

Most pension plans have exposure to fixed income. Perhaps not as much as they did prior to 2000, but today’s common thinking is that the current exposure is enough to act as a buffer should equity markets not continue along this momentum fueled path, and finally, to support the monthly liquidity needs of the fund. But are those the right reasons to use bonds and what type of fixed income should be used to accomplish those objectives?

We observe that most funds use a variety of investment grade bonds (Treasuries, Agencies, Corporates, etc.) and they have that collection benchmarked to a generic index such as the Bloomberg U.S. Aggregate Index (a.k.a. the Agg). As a reminder, the Agg was created by Ron Ryan when he was Head of Research at Lehman Brothers a few years ago. But, again, is this the right approach? We at Ryan ALM, Inc. believe that bonds should only be used for their cash flows (principal and interest) and not as a performance driver. Bonds are perhaps the only asset class with a known cash flow equal to the value at maturity (PAR) and contractual interest payments. Those known cash flows can be modeled to meet the plan’s ongoing liability cash flows (benefits + expenses). 

Which brings me to the point that every pension plan’s liabilities are unique, and as such, no generic index such as the Agg could possibly match a plan’s liabilities. If the asset cash flows don’t match and fund the liability cash flows (benefits and expenses), the plan is subject to unnecessary interest rate risk. Again, given that every pension plan has a unique set of liabilities this would suggest that each pension plan needs to have an investment strategy created specifically for their cash flow needs. Cash Flow Matching (CFM) is an investment strategy with a very long and successful history. An appropriately crafted CFM portfolio will meet and fully fund chronologically the liability cash flows as far into the future as the allocation to the CFM strategy lasts.

We take great pride in our proprietary CFM optimization modeling, which we began using at Ryan ALM’s founding in 2004. Having the ability to tailor unique solutions to client specific issues/requests is a hallmark of our firm, and this capability is being recognized throughout the industry. In fact, we recently received this feedback from an ALM expert at a large asset/liability consulting firm, who stated that I’m “impressed with the team’s ability to build portfolios for such non-standard cashflow streams.” Thank you!

We’d be happy to demonstrate our capability and we’re always willing to provide a free analysis highlighting how your fund could benefit through CFM and Ryan ALM’s expertise. Just call us.

05.04.26
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Why Wouldn’t You Prefer a SD of +/-0%?

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

I continue to be surprised that more pension plans don’t embrace greater certainty in the management of their funds. The Iran War is leading to great uncertainty related to inflation, interest rates, and economic growth. Yes, U.S. equities have enjoyed a healthy recovery following the initial outbreak in the Middle East, but is that sustainable?

Callan does a good job of providing a regular review of what asset allocation would be necessary to achieve a 7% return and the risk (measured as standard deviation) to achieve that return objective. Callan indicated that it was very easy to achieve a 7% return all the way back in 1994 when U.S. interest rates were higher than they are today. In fact, an allocation of 85% to fixed income and small allocations to L.C. equity, SC equity, and int’l stocks would have produced a 7% return with only a 5.6% annual standard deviation.

However, in the most recent update from 2024, Callan suggests the following asset allocation is necessary to achieve a 7% return:

This means that 68% of the time, a plan sponsor should expect an annual return of 7% +/- 8.6%. At two standard deviations (95% of the observations or 19/20 years), the annual return will fall between +/- 17.2% of the 7% target. Would you be comfortable knowing that your fund could generate an annual return of -10.2%? Think about the impact a return like that would have on contributions?

What if I said that cash flow matching (CFM) a portion of your pension fund would result in those assets having an annual SD of 0% barring a default which occurs at a rate of 0.18% annually among investment grade corporate bonds for the last 40-years. How’s that possible? When CFM is implemented, the plan’s asset cash flows and matched agains the plan’s liability cash flows (benefits and expenses). They mover in lockstep with each other no matter where rates go. Today’s U.S. interest environment is attractive and getting more attractive as I write this post, as the 30-year Treasury bond yield has topped 5% (5.02% at 11:47 am DST). Higher rates are great for CFM, as they lower the present value of those future promises.

Furthermore, the use of a CFM portfolio secures the pension promises, dramatically improves plan liquidity, eliminates interest rate risk for the portion of the plan, extends the investing horizon for the residual plan assets, and reduces the cost of those future pension promises. Again, why wouldn’t you embrace an element of certainty?

I’m not sure what the Callan team would identify as the proper allocation to achieve a 7% return today, but I suspect that the annual standard deviation is greater than the 8.6% from 2024. Every time a pension plan falls short of the annual ROA, contributions must increase to make up for the shortfall. Greater investment certainty, like that associated with using CFM, reduces the likelihood that the pension plan sponsor with suffer from a negative surprise associate from increased contributions.

05.04.26
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ARPA Update as of May 1, 2026

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

Welcome to May. Yes, it is only the beginning of May, but I’m already looking forward to football season, as my “beloved” Mets can’t find a win! It just goes to show that money alone can’t buy a winner.

But, money, especially Special Financial Assistance (SFA) can buy and SECURE lots of promised benefits. In fact, $77.9 billion in SFA grants have gone to supporting the pensions for 2,017,527 American workers/retirees. Just incredible!

As the program winds down, there is less to highlight in the weekly updates. In fact, this week’s review includes just one action item. PMPS-ILA Pension Plan and Trust, a transportation union from Moss Point, MS, has withdrawn its initial application. They were hoping to secure $666k for the 90 plan participants. They will now go back to the drawing board with a revised application.

Teamsters Local 277 Pension Fund, a Hempstead, NY, fund is waiting on payment of their approved SFA. They will receive $20.6 million in SFA grants and interest.

For those pension plans still hoping to secure an SFA grant, U.S. interest rates continue to rise, with the 30-year U.S. Treasury bond yield hitting 5% this morning (5.01% at 10 am). Higher rates mean greater cost reduction to secure those pension promises. Any plan that received SFA that hasn’t engaged in cash flow matching should seriously consider doing so at this time.

05.01.26
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Is Now Really the Time to Buy Stocks?

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

U.S. equity markets enjoyed a robust April despite myriad economic and geopolitical inputs that might have given investors pause. Should equity investors remain bullish at this time? The graph below caught my attention primarily because of the recent disconnect between the two lines related to the Shiller Excess Cape Yield (ECY) and subsequent 10-year Real Return for equities. There are many, many valuation tools that claim to provide clues about the future direction of stocks, and this is such an example. Those tools can be short-, medium-, and long-term in nature. The ECY happens to be one valuation metric that provides “guidance” for longer time frames. The current reading of 1.60% certainly looks rich relative to its long history.

In case you don’t know, the Shiller excess CAPE yield is a valuation measure that compares the stock market’s earnings yield with the “real” yield on the 10-year Treasury note. In simple terms, it asks how much extra return stocks may offer over inflation-adjusted government bonds.

How it is calculated

  • Take the inverse of the CAPE ratio, which is the market’s “earnings yield.”
  • Subtract the real 10-year Treasury yield.

So, ECY=(1/CAPE)−10-year real Treasury yield

A higher excess CAPE yield suggests stocks might look more attractive relative to bonds. A lower reading suggests the equity risk premium is thinner, meaning stocks offer less return versus bonds. As mentioned above, current readings show the S&P 500 Shiller Excess CAPE Yield around 1.60% for April 2026, which is well below its long-term average of 4.60%. Another data source put it at 1.41 as of April 30, 2026.

Investors have historically used the ECY as a long-term asset allocation tool, especially when comparing stocks with Treasury bonds. It is not a short-term trading signal, but rather a rough guide to whether equities look cheap or expensive relative to real bond yields. A CAPE yield below 2% has generally signaled subdued future equity returns over the next 5 to 10 years, providing a valuation warning sign, and not an exact measure.

As a reminder, there are many valuation techniques used to identify opportunities and risk when investing in U.S. equities. Depending on a pension plan’s liquidity needs, funded ratio, willingness to take risk, etc. today’s current environment may be providing an opportunity to reduce risk by trimming equities and using the proceeds along with core fixed income assets to establish a cash flow matching mandate. In the process, the plan’s liquidity is improved, promised benefits secured, and the investing horizon extended for the residual assets. Give us a call. We are always willing to provide a free analysis showcasing how CFM can help your fund.

04.28.26
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Reality Is Settling In

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

In my post from last week, I questioned whether those believing that they were well-prepared for retirement truly were. PwC’s newly released Employee Financial Wellness Survey paints a bleak picture of just how bad things really are for a vast majority of America’s workforce. Roughly 60% of those surveyed highlighted their finances as their greatest source of stress and concern. Unfortunately, only 38% believe that they will retire at the age that they originally planned, as about 2/3rds indicated that they had less than $100k saved for retirement.

It gets worse, as more than 50% of those believed that they would have to tap into that savings before retirement to help with rising short-term costs. Again, asking financially strapped Americans to fund, manage, and disburse a “retirement” benefit through a 401(k) with little disposable income, no investment skill, and no crystal ball to help with longevity issues is just silly policy.

I’m Prepared! Really?
04.28.26
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Milliman: Public Pension Funding Deteriorates in March

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

Milliman has released the latest results of its monthly Public Pension Funding Index (PPFI). As a reminder, Milliman analyzes data from the nation’s 100 largest public defined benefit plans to create this index.

March proved challenging for public pension plans as the PPFI plans’ funded ratio fell from 87.0% as of February 28 to 83.7% as of March 31. The start of the conflict in the Middle East (2/28/26) and the potential spike in inflation as a result, drove equity markets down resulting in a roughly $208 billion loss in assets for the members of the PPFI index. Collectively, the 100 public plans recorded an estimated return of -3.5% for March, representing the first monthly decline since March 2025. At the end of March the PPFI plan assets stood at $5.7 trillion, while pension liabilities had increased to $6.8 trillion.  

Ryan Falls, co-author of the Milliman PPFI noted that “the March market downturn caused eight plans to slip below the 90% funded mark, leaving 38 of the 100 plans above this key benchmark.” He also said that “while this is a significant change from February, the number of plans less than 60% funded was stable at 11, underscoring the overall health of public pensions.”

Again, pension accounting under GASB allows for the use of the ROA as the discount rate. This stable rate, as opposed to the AA corporate rate used under FASB can mask interest rate trends and the impact of shifting rates on pension liabilities. Rates rose on average in March, which would have reduced the present value of those liabilities and supported the funded ratio. Please click on the link below to see the complete funding index report.

View the Milliman 100 Public Pension Funding Index.

04.27.26
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ARPA Update as of April 24, 2026

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

I hope that you’ve enjoyed a great first third of the year.

As the PBGC’s implementation of the critical ARPA pension legislation winds down, these updates will become less robust, including this one, as the only activity centered on the withdrawal of an application. Cincinnati-based, Plasterers Local #1 Pension Plan, withdrew its initial application originally filed on January 27, 2026. They were seeking $2.6 million for 217 plan members.

There are currently 9 applications being reviewed by the PBGC, including three initial applications that must be acted on during May prior to the exhaustion of the 120-day window. The remaining applications currently being reviewed have all been revised at least once. Those begin hitting their 120-day window starting June 25th and running through August.

U.S. interest rates remain at attractive levels for any fund receiving SFA to defease and secure the pension promises (and expenses). With uncertainty surrounding the impact of rising oil prices on near-term inflation, rates are likely to remain elevated.

04.21.26
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I’m Prepared! Really?

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

The Transamerica Center for Retirement Studies has published the findings for its 26th annual survey, “Life and Money: Retirement Security in the USA“. Only 66% of the 10,015 respondents believe that they are on the right path to enjoy a comfortable retirement, including 22% who are very confident and 44% who are somewhat confident, while 22% are not too confident, and 12% are not at all confident. I’m not sure that describing oneself as “somewhat” confident should be an indication of being on the right path, especially when taking into consideration that the median retirement savings for participants in the survey was only $56,000.

According to the findings, those who felt they were currently building or had built a large enough nest egg was at 59% – we seemed to have lost 7% from the right path. Despite the optimism that the proper sized nest egg was being constructed, participants believed that they needed $500,000 in retirement. The difference between $56k currently accumulated and the $500k goal seems like a significant gap that might have led to a much smaller # of responders being confident at this time.

Transamerica found that 69% of respondents saved for retirement through a workplace 401(k) or similar plan, including 81% of employed respondents and 64% of self-employed respondents. Fifteen percent of employed workers indicated that their employer did not offer any retirement benefits. I wonder how many folks without any retirement savings or access to an employer sponsored retirement fund refused to participate in the survey?

Here’s where it gets a little scary for the average American worker. Among those who are not yet retired, the percentage of Americans who plan to continue working after they retire stood at 48% including 13% who plan to work full time and 35% who plan to work part time, and another 19% are “not sure.” So, 67% of the American workforce will at least consider continuing to work after they retire. I guess that’s how you can be comfortable that you are on the right path despite sitting at >$440k below the level of assets needed to retire.

American households are facing unprecedented financial pressures from housing, healthcare, education, childcare, food, energy, transportation, etc. Asking individuals to fund, manage, and then disburse a “retirement benefit” through a defined contribution plan (most of the respondents) is incredibly poor policy. Why do we think that these folks with little disposable income, no investment acumen, and no crystal ball to help with longevity considerations will produce successful outcomes? Regrettably, most won’t.

04.20.26
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ARPA Update as of April 17, 2026

By: Russ Kamp, Ryan ALM, Inc.

Good morning, and welcome to another update related to the ARPA pension legislation. I hope that your favorite MLB team is doing better than mine. I’ve invested too many years into my teams to change now, but the NY professional sports scene is not great!

Fortunately, the PBGC has done a far better job implementing this critical legislation than any of my teams as they navigate their seasons. As we’ve reported previously, the PBGC is getting down to the knitty gritty, as about 80% of the non-mass termination plans have received SFA.

During the previous week, one pension fund received approval for their SFA application, while another resubmitted a revised application. Teamsters Local 277 Pension Fund, a Hempstead, NY, Teamsters fund will receive $20.6 million in SFA and interest for its 1,633 participants.

Ironworkers’ Local 340 Retirement Income Plan, an Oak Brook, IL, construction union is seeking $42 million in SFA for its 819 members.

Happy to report that there weren’t any applications denied or withdrawn, and there weren’t any previous SFA recipients asked to rebate a portion of the SFA grant due to census errors.

Still no official position on how the PBGC will treat the pre-2020 mass-withdrawal plans, but the post-2025 legal landscape now favors eligibility arguments for those plans. Much more to come!

04.16.26
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Pension Game: Find the Liabilities?

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

I can remember as a child playing the games hide-and-seek and manhunt among myriad activities with my friends in Palisades Park. We would play for hours. It was particularly exciting as daylight waned just before we were beckoned home when the streetlights flicked on.

Those games were innocent and most of the time no one got hurt. However, Ron Ryan, Ryan ALM’s Chairman, has written about another game. In this competition, he’s challenging pension professionals to “find the liabilities”. Why? Unfortunately, most of the effort put forth by pension professionals (outside of actuaries) is focused on assets: the allocation, manager selection, and performance. But is that the correct approach? Of course not.

The only reason that a pension plan exists is because of a promise that has been made to the plan participant. Pre-funding that promise through a pension system is a most effective approach to meeting those future obligations. As a result, that promise needs to be the focal point of pension management, but it rarely is. Unfortunately, most folks think that managing a pension is all about returns. How has the fund performed relative to the return on asset (ROA) assumption.

As Ron points out in this excellent piece, if all the investment managers/strategies outperform their generic asset specific benchmarks, but the total fund underperforms its liability growth rate, has the fund won? Of course not. That’s why we believe that the primary objective in managing a DB pension plan should be to SECURE the promises at a reasonable cost and with prudent risk.

As I mentioned earlier, the games that I engaged in as a child in New Jersey were innocent. Failure to understand what a plan’s liabilities look like could be much more harmful. We’ve seen that scenario play out many times and with significant consequences. Don’t let your fund become the victim of an assets-only approach.