Proud to Contribute

KCS was pleased to contribute an article to the Association of Benefit Administrators, Inc. (ABA) Insights newsletter for the spring / summer 2016 edition. The article titled, “Rethinking the Use of Traditional Fixed Income in a DB Plan”, highlights KCS’s approach to asset allocation that is driven by a greater understanding and transparency of the plan’s specific liabilities.

We believe that all DB plans should be preserved!  Given different PBGC rules / support we are particularly concerned abut the long-term viability of multi-employer plans and the potential impact on the beneficiaries should any of those plans fail.

We would be pleased to send or email you a copy of the article. Please don’t hesitate to reach out to us at or

The Focus On The ROA Has Lead Us Astray

Regular readers of the KCS blog know that we believe that the pension accounting rules (GASB  and to a lesser extent, FASB) have created many of the issues facing Pension America today, especially for public pension plans given their focus on the ROA as the discount rate for plan liabilities.

Instead of having to listen to us once more on this subject, I am sharing with you today the thoughts expressed by Ron Ryan, Ryan ALM, who is one of the most thought provoking investment professionals and pension experts in our industry.  The following link is to a presentation that he will be delivering to the Florida Public Pension Trustees Association (FPPTA).

I encourage you to review this material, as it will give you great insight into why the focus on returns (ROA) has lead to a massive mismatch between a plan’s assets and their liabilities, and why in this low return environment, it is leading to huge increases in contribution rates.

Please don’t hesitate to reach out to either KCS or Ryan ALM with any questions and / or comments.

Talk About Being Bass Ackwards!

New Jersey slashes hedge fund portfolio in asset class overhaul
The New Jersey State Investment Council on Wednesday unanimously approved an overhaul of its hedge fund portfolio for the New Jersey Pension Fund including cutting the target allocation in half, reducing the number of hedge funds and cutting fees significantly. (P&I Daily)

I don’t know who first had the “brilliant” idea to allocate so much of NJ’s DB pension portfolio to alternatives following the GFC when cheap beta was so severely discounted, but to now slash the allocation when equity and fixed income valuations are stretching their limits is ridiculous!

First, DB plans have a relative objective (plan liabilities) and not an absolute objective, despite the fact that plans think they need to achieve the ROA.  These aren’t endowments or foundations with positive spending policies. Liabilities are missing in action when it comes to investment structure and asset allocation decisions, and it is leading to the injection of too much risk into their funds.

We are huge proponents of DB plans being the retirement vehicle of choice, but they need to be managed responsibly.  First, identify the primary objective (liabilities) and manage to that objective.  Second, STOP buying high and selling low. Furthermore, I think that the fees associated with hedge funds are outrageous and in most cases, unwarranted, but the NJ plan already has the exposure. Don’t sell it now, as you just might need some uncorrelated assets in the coming months.


That Isn’t Your Plan’s Benchmark!

Florida Retirement System tops benchmark with 0.61% for fiscal year
Florida Retirement System returned a preliminary net 0.61% in the fiscal year ended June 30, 71 basis points above its benchmark.

The above information was reported in a P&I Daily news release. Interesting information in that it continues to highlight the difficulty Pension America, particularly public pension plans, have had generating returns.  More importantly, it once again reveals the inappropriateness of most asset allocation approaches.

The total fund benchmark (-0.1%) is NOT the appropriate benchmark.  DB plans need to use their plan’s liabilities as the primary benchmark, but if they want to compare assets to something other than liabilities than the return on asset assumption (ROA) should be the proxy. The average public fund ROA is 7.61%.

To suggest that the Florida Retirement System had a decent year (ending June 30, 2016) because they beat some artificial hybrid index when they fell incredibly short of their ROA target or liability growth is misleading and wrong!

Asset allocation and investment structure decisions should be driven by a plan’s funded status and not some hybrid index. DB plans need to begin to remove risk from this effort and not inject more risk that could lead to greater contribution volatility.


KCS Fireside Chat August 2016 – Why KCS?

We are pleased to share with you the latest edition in the KCS Fireside Chat series. In this article we share with you WHY KCS exists, while mentioning that today (8/1/11) marks our fifth anniversary. We at KCS still very much believe in our primary mission to defend and preserve DB plans as THE retirement vehicle in the U.S. Preserving these plans will not be easy, and it will certainly not be done implementing the same game plan that has been in place for the last 50 years!

On a personal note, it is hard to believe that KCS has been in operation for five years! It hasn’t been easy, and we still have a long way to go in our development. However, I believe that through our efforts, both through the written word and our speaking engagements, we have begun to impact the conversation related to pensions. However, if not for the support of my wife, Laurie, our five children and their significant others, and my four partners, Dave Murray, Ivory Day, Larry Zielinski, and Lillian Jones, KCS would certainly not have gotten to this point. THANK YOU! We also want to thank our clients for their support and encouragement. I hope that we have proven to be worthy of your confidence.