By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Happy Saturday. I am penning this post from roughly 28,000 feet as I travel to Houston, TX for the upcoming TexPERS conference, where I have the privilege of teaching an investment class tomorrow and speaking at the conference on Tuesday. Like America’s pension industry, the plane’s altitude (funded status) was greater, but the skies (like our markets/economy) are quite unsettled, and the pilots have settled at a lower altitude to deal with the turbulence.

I’ve recently produced a couple of posts addressing the psychological impact of uncertainty on human beings, as each of us naturally strive to reduce uncertainty to the greatest extent possible. As I previously stated, we all want solutions — answers to our questions and problems. When the answers aren’t apparent, we find it difficult to stop ourselves from obsessing over the uncertainty. That may be true generally, but as a pension industry we seem to embrace uncertainty by investing huge sums into markets that are uncertain every day, week, month, and year.

This practice has definitely contributed to the private sector’s rapid abandonment of the defined benefit plan, as uncertain outcomes had the potential to impact a company’s income statements. Something no CFO/CEO wants to have to explain to the investing community, let alone the folks within the company that have day-to-day responsibility for the pension plan.

We at Ryan ALM, Inc. continue to work tirelessly on implementing strategies that will rid Pension America of as much of the uncertainty as possible. We try to accomplish this lofty goal through a focus on NOT LOSING! I’ve often used the rollercoaster to represent the investing environment for pension sponsors, as we have a tendency to ride markets up and then down as these natural market cycles take form. When are we going to get into the habit of de-risking when the rollercoaster car is nearing it’s peak?

As I’ve stated before, insurance companies and lottery systems can’t afford to build their businesses embracing great uncertainty, and pension funds shouldn’t either. Collectively, we should be focused on not losing. We believe that a pension funds primary objective should be to SECURE the promised benefits at a reasonable cost and with prudent risk. It is not a return objective. Living on the investment rollercoaster is no way to secure benefits and expenses.

If the securing of benefits is truly the primary goal, then the management of pension assets must been done relative to a pension’s liabilities. Those liabilities much be measured, monitored, managed, and secured. The only way to accomplish this objective is to use cash flow matching (CFM) with bonds, as bonds are the only asset class with known cash flows of principal and income to accomplish the objective. You can find chapter and verse on cash flow matching (CFM) at ryanam.com or on this blog, which is accessible through the company’s website.

By focusing on not losing, we believe that you dramatically enhance the probability of success! We can’t afford the one-step forward and 3/4s of a step back that our industry has endured for decades. The fact that the current economic environment, which has produced decades high interest rates, is quite favorable for CFM makes the opportunity to get off the rollercoaster that much easier.

We need to protect and preserve defined benefit plans for the masses. We at Ryan ALM, Inc. have as our mission to do whatever we can to protect and preserve DB plans. We honestly believe that CFM is the best way to SECURE the promises that have been made to the plan participants. This is how insurance companies and lottery systems manage their liabilities and it is how Pension America should mange theirs. Let us help you to secure your defined benefit plan so that your participants can enjoy their golden years.