“The very nature of creativity is coming up with things that have never been tried before.”
Saw this quote on the Forbes website, and thought that I’d share it this morning. Thanks, Shelly!
Ryan ALM and KCS have been speaking about a different path for defined benefit plans for years, and in Ron Ryan’s case, decades. We often get odd looks when discussing our approach, which is usually followed by the question, “who else is doing this?” Well, very few public pension sponsors and multi-employer plans focus on their plan’s liabilities. But, that doesn’t make our approach wrong – just different.
Are we creative? Perhaps. Are we doing it just to be different? No! We have been sharing our approach with anyone willing to listen because we think that focusing on the return on asset (ROA) has proven inadequate. Returns have been volatile, and that has lead to poor Funded Ratios and escalating contribution expense. Plans need to de-risk, even for those plans that are not well-funded. Traditional asset allocation approaches are increasing risk in this low return environment, but not the reward.
I once read that being a contrarian is as painful as biting off your arm. We get it! However, we also know how important defined benefit plans are for plan participants and the U.S. economy. We are one market crash away from seeing a good number of the remaining 23,000+ plans from being frozen and / or terminated. Given where valuations are for both equities and bonds, I wouldn’t want to take that chance.