By: Ronald Ryan, CEO, and Russ Kamp, Managing Director, Ryan ALM, Inc.

Milliman recently published an article that explains in detail what they called a “Goldilocks” moment for corporations to reopen their frozen DB pension plans. The article identifies and answers 10 frequently asked questions. Ryan ALM applauds Milliman for their very insightful review of this opportunity at this moment in time. We encourage all sponsors of corporate DB plans to read this timely article.

We would like to add our thoughts on this evolution, too. As corporate DB plan sponsors have learned, you do not want to have a volatile funded status that leads to higher contribution costs, PBGC variable premiums, and pension expense noted on their income statements. One way to address this potential volatility is through de-risking strategies. Fortunately, the time is right given higher US interest rates to defease pension liabilities in a cost-efficient manner with prudent risk. We believe that the most effective way to de-risk is through a strategy known as Dedication or Cash Flow Matching (CFM). Given that US interest rates are at their highest in 20+ years, CFM provides the certainty of funding liability cash flows in a very cost-efficient manner.

The Ryan ALM CFM product (Liability Beta Portfolio™ or LBP) will fully fund liability cash flows (benefits and expenses) at a cost savings of about 2% per year (50% – 60% on a 1-30 year liability cash flow assignment). Such cost savings is realized upon the implementation of our LBP so the plan sponsor realizes immediately the enormous benefit. Importantly, the LBP portfolio is 100% investment grade bonds and in harmony with each client’s investment policy statement (IPS). Since our LBP matches and fully funds monthly liability cash flows, we will provide a more precise duration match of the plan’s liabilities, and immunize interest rate risk since we are defeasing benefits that are future values. Given our emphasis on using IG corporate bonds (BBB+ or better), the LBP portfolio should outyield the ASC 715 discount rate (AA corporates) thereby enhancing pension income or reducing pension expense. As you can see, there are so many benefits to using CFM.

Ryan ALM’s experience with CFM goes back to the 1970s when Ron Ryan was the Director of Fixed Income Research at Lehman Bros. As a result, we believe that we have one of the most experienced CFM teams in the fixed income industry today with over 160 years of fixed income experience. We offer any corporate DB plan the opportunity to evaluate our value added capability by offering a FREE analysis, including the production of a Custom Liability Index and an LBP. All we need to receive from the sponsor and/or their actuary are the liability cash flow projections of benefits, expenses, and contributions. Through this free snap shot you will come to appreciate the many benefits of our turnkey asset/liability management capability. What’s the downside?