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

Welcome to October. It is always a beautiful time of year in New Jersey.

With regard to the PBGC’s implementation of the ARPA legislation, there was some activity last week. After a short pause in accepting applications, the PBGC accepted two initial applications from two non-Priority Group members. Cement Masons Local No. 524 Pension Plan and the Roofers Local No. 75 Pension Plan, both Ohio-based, filed applications seeking $11.3 million combined in SFA for 486 plan participants. As a reminder, the PBGC has 120 days to act on those applications.

In addition to the 2 new applications, the PBGC recouped another $1.2 million in SFA overpayments due to census errors. This brings the repayment to of excess SFA to $144.1 million for 19 plans. The recovery of SFA amounts to 0.37% of the grant monies awarded. In other news, there were no applications approved, denied or withdrawn during the last week. There also were no funds seeking to be added to the waitlist.

As the chart above highlights, there are 110 funds yet to have applications approved. US Treasury yields are once again on the rise after a dramatic retreat as bond investors plowed into bonds anticipating very aggressive rate cuts by the Federal Reserve. Higher rates reduce the PV cost of those FV payments of benefits and expenses. A defeasement strategy significantly reduces interest rate risk as FVs are not interest sensitive. As we’ve discussed on many occasions, using a cash flow matching strategy to meet those benefits and expenses reduces the uncertainty associated with a traditional benchmark relative fixed income product. We are happy to discuss this subject in far greater detail.