09.02.26
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Still Think That They Are Performance Drivers?

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

Bonds enjoyed a nearly 4-decade bull market as U.S. interest rates plummeted from historic highs to an environment of negative real rates. It was unprecedented. As a result, bonds were perceived to be performance drivers. But are they?

We are often told by plan sponsors or their advisors that they can’t invest in a cash flow matching (CFM) strategy because de-risking the portfolio will negatively impact the fund’s ability to achieve the annual return on asset (ROA) assumption. Is that reality?

Facts:

  • The Aggregate bond index has produced a -0.29% annualized return for the 5-years ending August 31, 2026!
  • A CFM portfolio would have generated a return commensurate with its YTW (or YTM) during that 5-years. Shorter maturity (1-5-year defeasement) CFM portfolios were yielding about 1.6% at that time. That equates to a nearly 2% per year return advantage. Still think that CFM is a drag on performance?
  • U.S. inflation remains elevated. A CFM portfolio is the perfect pension inflation hedge since it is fully funding liabilities that have inflation in the projected benefits to be funded.
  • The direction of U.S. rates is uncertain, although rates have been trending higher, putting more strain on core fixed income strategies that tend to underperform when rates rise.
  • For the 28-years prior to the bond bull market (1953-1981), U.S. rates rose. Are we in a secular long-term rising rate environment?
  • Bonds should only be used for their cash flows of interest and principal upon maturity, which can be modeled to match and FUND a pension plan’s liabilities (benefits and expenses), with certainty barring any defaults.

Plan sponsors have not had this level of U.S. interest rates in roughly 20-years, providing them with a wonderful opportunity to protect the improved funded status, while securing the liquidity necessary to meet those pesky monthly obligations. Will this opportunity go unheeded just as the one presented in 2000 did? We know that failing to protect and preserve DB plans in 2000 was followed by two major equity market corrections that crushed pension funding and caused contributions to skyrocket. Do you think that sponsors of DB plans have the financial wherewithal to see contributions escalate once more? I don’t!

We recommend converting your current core fixed income allocation, with all of its interest rate risk, to a cash flow matching bond portfolio, that will carefully match and fund all of the monthly obligations as they come due. A CFM portfolio matches interest and principal against future obligations, and in doing so, eliminates interest rate risk as future values are not interest rate sensitive. If you owe a plan participant $2,000 in benefits next month, it is $2k whether interest rates are at 2% or 10%. The higher rates reduce the future value cost of the promised benefits in present value $s. We are seeing roughly 6% YTMs in our recent 30-year assignments and a >50% reduction in the cost of those future benefit payments.

You could continue to use a core fixed income allocation with all of its uncertainty or you could create certainty within a portion of your plan that doesn’t exist today. I suspect that your participants would appreciate knowing that the promised benefits are secure no matter what transpires in global markets.

08.31.26
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ARPA Update as of August 28, 2026

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

Good morning! I hope that you enjoyed the last weekend in August. If you live around NJ, you likely had a top-10 weather day for 2026. It was spectacular.

Regarding ARPA and the PBGC’s implementation of this critical pension legislation, the proverbial floodgates have opened, as a plethora of new applications are being reviewed. For much of 2026, the PBGC had between 8-10 applications under review at any point in time. There are currently 32 funds, including many new applications that fall within the Second Circuit related to plans that suffered a mass withdrawal prior to 2020, that are seeking Special Financial Assistance. If those applications are approved, another $1.4+ billion will go to support 63.4k plan participants.

However, there is one wrinkle for which I need to get more info. California Winery Workers’ Pension Plan, Fresno, CA, which is NOT located in NY, CT, or VT, submitted an application on 8/21/26. This is the first non-Second Circuit mass withdrawal plan to submit an application for SFA. We were led to believe that only plans from the three states within the Second Circuit would be permitted to file for SFA. Will this development prove to be a one-off?

In other ARPA news, Retail Bakers’ Pension Trust Fund of St. Louis, a non-priority plan, had its revised application approved. They will receive $6.5 million for the 566 members.

Pleased to report that no applications were denied or withdrawn during the previous week, and one fund, Defined Benefit Plan for the Operative Plasterers’ and Cement Masons’ International Association Local Union 394 Pension Trust Fund, was added to the waitlist, as another mass withdrawal casualty prior to 2020.

Clearly, we have some homework to do to understand the circumstances surrounding the application submitted by the Winery Workers. In the meantime, it is great to see that fourteen Second Circuit plans are now in the queue to potentially receive SFA.

08.28.26
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About Time!

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

FINALLY!!!

Yesterday, there appeared a P&I article with the headline: “Ohio State Teachers says beating peers isn’t the point — paying benefits is”

YESSSSS! The only reason that a defined benefit pension plan exists is to fund a promise given to the participant. Managing a pension plan isn’t about achieving an ROA or beating a hybrid total fund index or eclipsing the performance of a peer group (silly concept). It is truly only about SECURING the liquidity necessary to match and fund benefits (and expenses) when they come due!

The pursuit of a return objective has only guaranteed volatility and NOT success. That is volatility of returns, contributions, and funded status. It is time to get off the performance rollercoaster.

The higher U.S. interest rate environment is providing plan sponsors with a great opportunity to de-risk and enhance liquidity through cash flow matching (CFM), which is designed to secure the liability cash flows (benefits and expenses) through the careful matching of asset cash flows (principal and interest) from bonds. 

An opportunity such as this hasn’t existed since 2000, when the average pension plan was well-overfunded and contribution expenses well-contained. It has been 26-years since the first market crash of the aughts began and public pension funds have only clawed back to an average funded status of 88% (Milliman). They can’t afford another crash that will only lead to a deterioration in the funded status and an escalation in contributions.

No one knows when that next correction may be just around the corner. Given that reality, don’t leave your pension plan vulnerable to this uncertainty. Put in place today a CFM strategy that will SECURE the promised benefits with certainty (barring an IG default), while buying time for the return-seeking assets to wade through the next market crisis. The time to act is now and not after the next market correction.

08.27.26
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Deja Vu All Over Again? Just Saying!

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

Yogi Berra, the great Yankee catcher, but also a NY Mets player/coach in 1965, is credited with the saying it’s “Deja Vu all over again”, which he supposedly uttered back in 1961. Are we potentially witnessing in 2026, with AI investments soaring and equity valuations that may be stretched, a replay to what transpired in March 2000? Now, I’ve heard many arguments that today’s technology companies aren’t your fathers’ or even your grandfathers’ but anytime I hear the phrase “this time is different”, I want to run and hide.

Let’s explore. At the peak of the dot-com bubble in March 2000, Information Technology represented approximately 35% of the capitalization-weighted S&P 500. That level of concentration within the S&P 500 was deemed extraordinary at that time. Remember when Cisco Systems was the largest stock in the S&P 500 index? What transpired from March 2000 to October 2002, proved incredibly painful to those investors that believed that “this time was different”. Unfortunately, it wasn’t! The result was a significant reduction in the weight of the technology sector within the S&P 500 from 2000-2002 by an incredible 21.7%. The technology bubble burst took down Tech’s exposure from roughly one-third of the index to about 13% by the 2002 bear-market bottom.

PeriodTechnology weight in S&P 500
1995~10%
March 2000~34.5%
Oct. 2002~12.8%

That leads to today’s discussion comparing March 2000’s Technology exposure versus August 2026’s broader “technology-related” weight when you include Meta, both classes of Alphabet, Amazon, and Tesla. As you can see by the information displayed below, roughly 50% of the S&P 500’s weight is now in technology-related entities.

ComponentS&P 500 weight
Official Information Technology37.15%
Amazon3.84%
Alphabet Class A3.06%
Alphabet Class C2.45%
Meta Platforms1.83%
Tesla1.55%
Broader technology exposure49.88%

In other words, today’s exposure is about 15.4 percentage points higher in technology than at the peak of the dot-com bubble.

However, the exposure to Technology and AI is not limited to the S&P 500 (equities), as massive investment in data centers (real estate) done through significant debt financing (fixed income) might be subjecting a pension plan’s entire asset allocation to significant risks.

Is your portfolio prepared for the next significant market correction?

08.24.26
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ARPA Update as of August 21, 2026

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

Welcome to the last full week of August. How is that possible? What does the final third of 2026 have in store for us? Equity investors will hope that the good times roll, while active fixed income managers/investors hope that something changes to stabilize U.S. rates and their near-term prospects. Let’s not forget the mid-terms. The next four months should be quite interesting.

Regarding the PBGC’s implementation of the ARPA pension legislation, last week proved to be busy, as 6 pension funds submitted applications seeking special financial assistance (SFA). One of the five, Bindery Industry Employers GCC/IBT Pension Plan, a Priority Group 1 plan, submitted a revised application. Bindery first submitted an application back in February 2023. They are seeking $18.8 million for 686 members of its plan. The other five applicants are all listed as having been impacted by mass withdrawal prior to 2020. Collectively they are requesting $128.4 million for 3,272 participants. As reported previously, the PBGC is accepting applications from those plans located in the Second Circuit (NY, CT, and VT), and each of these five plans are domiciled in NY.

In other news, there were no plans receiving approval, but there were also no plans being denied based on ineligibility. Furthermore, there were no plans withdrawing an application in the prior week, too.

There remains plenty of work for the PBGC as they currently sit with 19 applications in front of them. The good news for those potential SFA recipients: U.S. interest rates remain inflated providing those plans with the potential to significantly reduce the cost of those future benefits that they will be covering. I implore those plans to secure the promises through a cash flow matching (CFM) implementation. There is so much more downside risk to potential reward by choosing to go active with allocations to both core fixed income and equities.

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.