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

Welcome to the first ARPA update of 2024. I hope that your year has gotten off to a great start.

With regard to the PBGC’s recent activity, there isn’t much to report at this time, as there were no new applications received or approved. Fortunately, there were no applications under review that were denied. There was one application that was withdrawn on 1/5/24. The United Food and Commercial Workers Unions and Employers Midwest Pension Plan, a Priority Group 6 member, withdrew its previously revised application seeking nearly $1.2 billion for its 35,223 plan participants. Let’s hope that the third time proves to be the charm.

There was one additional plan added to the waiting list. Local Union No. 1430 Pension Fund was supposedly added to the queue on 12/28/23, but this is the first time that I’ve seen them listed. That makes 112 non-priority pension funds that are seeking Special Financial Assistance (SFA) under ARPA. Of the 112 plans on the waitlist, 22 have been given approval to submit their applications. Of those 22, 5 have had the applications approved, 11 are under review, and 6 have withdrawn to presumably revise data in some way.

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

We recently shared with you the Ryan ALM, Inc. Newsletter. Attached for you review is the Ryan ALM, Inc. Pension Monitor. This document uses the asset allocation output from P&I’s annual survey of the top 1000 defined benefit plans. Their survey clearly highlights significant differences in the asset allocation of corporate and public DB plans, most notably the exposure to fixed income presumably for hedging purposes.

In addition, we highlight the fact that different accounting rules (FASB vs. GASB) often lead to different conclusions. 2023’s performance differential favoring public plans was significantly smaller than the outperformance of corporate plans in 2022.

As always, we stand ready to respond to any of your questions. Please don’t hesitate to reach out to us if we can help you think through your risk reducing goals. Corporate plans have engaged in these strategies for years and the differential in funded status is stark. The US interest rate environment is providing a wonderful opportunity to take risk off the table without a substantial impact on potential returns.

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

We are once again pleased to share with you the Ryan ALM, Inc. Newsletter. This edition is a review of 2023. It was a surprisingly good year for Pension America. Markets overcame significant uncertainty related to the Fed’s action related to interest rates, inflation, economic growth, war, etc. Much of the outperformance of plan assets to liabilities is attributable to equities, both domestic and foreign, which enjoyed significantly improved results following 2022’s challenging markets.

US interest rates were on a rollercoaster for a good chunk of the year, as the Fed continued to elevate the FFR to its present level of 5.25%-5.5%. However, during the path upward in the FFR we had markets rocked by the regional banking crisis which sent yields plummeting only to have them reach decade high levels by October. A pause by the Fed with regard to additional FFR increases has convinced many investors that the Fed will now aggressively reduce rates. As a result, the Treasury yields curve dropped since October with most maturities seeing yields plummet by at least 1% to levels below 4%. That action seems premature.

As always, we welcome feedback related to this newsletter. Please don’t hesitate to reach out to us with any questions. We are always available to assist you in thinking through asset/liability issues. May 2024 be your best year yet!

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

I recently reported on Milliman’s Corporate Pension Plan Index that indicated aggregate funding for the top 100 plans had settled at 102% at the end of November. Today, P&I ran a report form Willis Towers Watson (WTW), that suggested that the aggregate funding for 358 of the Fortune 1000 companies with a defined benefit plan had reached 100%, up 2% since the end of 2022. Both reports are highlighting considerable strength for Corporate America’s pension funding. Great!

Now what?

After a great 2021, we asked not only what Corporate America would do regarding their pension systems, but pension plans in general including public and multiemployer. Unfortunately, they didn’t do much and the Fed’s aggressive interest rate moves beginning in March 2022 created a lot of angst and uncertainty for sponsors and large drawdowns in asset values. The rising rates led to a significant reduction in the present value of those future benefit payments or the funding situation would have been much worse.

Well, 2023 was a surprisingly good year for pension plans from both an asset and liability standpoint. Will plan sponsors and their advisors work to protect the gains or will they once again allow the markets to dictate the funded status? We believe that a defined benefit plan is superior to a defined contribution plan. We believe that they act as great recruiting and retention tools. As a result, DB plans need to be protected and preserved. SECURING the promised benefits at a reasonable cost and with prudent risk should be the goal. Chasing a return through a traditional asset allocation only leads to excessive volatility in contributions and funded status.

US interest rates are still at very attractive levels. Take advantage of this environment to secure the promised benefits through a defeasement strategy. Use your current bond allocation to match bond cash flows with liability cash flows (benefits and expenses) chronologically as far into the future as the allocation will permit. Your fund will now have the necessary liquidity to meet your monthly needs, while buying time (extending the investing horizon) for the plan’s alpha assets to grow unencumbered.

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

Happy New Year! I hope that your 2024 is filled with great health, prosperity, joy, and friendships! Higher US interest rates would be welcomed, too, as that makes managing defined benefit pensions and the Special Financial Assistance (SFA) much easier.

With regard to the PBGC’s implementation of the ARPA legislation, they reported (12/29) no activity for the week. So, no new applications received, denied, approved, and no new pension funds added to the waiting list, which hasn’t seen a new addition since 8/23. Here is the current status of the activity:

There remains a ton of work before the PBGC can declare an end to this process, as only 69 applications have been approved to date, which is 35% of the 197 total applications that will eventually be processed. Importantly, those 69 approved plans have received $53.5 billion in SFA.