Monthly Archives: December 2024

12.13.24
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Kamp Named CEO of Ryan ALM, Inc.

By: Ronald J. Ryan, CFA, CEO, Ryan ALM, Inc.

Press Release

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Russ Kamp Named CEO of Ryan ALM, Inc.

Effective 1/01/25 Russ Kamp will be the new CEO of Ryan ALM, Inc.

Ronald J. Ryan, CFA will become the Chairman and CFO. Ron announces “Ryan ALM has prospered in a rather difficult environment for fixed income asset managers in the last 20 years. As founder and CEO, it is time to pass the torch to someone who has the vision and talent to take us forward. Russ has demonstrated a professionalism and integrity that is most respected by his peers. His attention to client needs is unsurpassed. His resume is proof of his abilities and success. It is an honor to work with Russ. I will remain as head of research and a member of our asset management team. I look forward to the best years ahead for Ryan ALM working with Russ and our highly experienced team.”

Steve deVito, head of trading, will also become the Chief Compliance Officer of Ryan ALM. Steve has nearly 40 years of fixed income experience and serves as an important member of the asset management team.

Martha Monteagudo, head of product development, will continue in her position. She started with Ryan ALM in 2004 and is a valuable member of the asset management team.

As our name implies, Ryan ALM is an Asset Liability Manager (ALM) specializing in cash flow matching. We strongly believe that cash flow matching is the best fit for any liability objective. Our cash flow matching product (Liability Beta Portfolio™) can reduce funding costs by about 2% per year (about 20% on 1-10-year liabilities). Our turnkey system is unique in the industry including:

  1.  Custom Liability Index (CLI)
  2. ASC 715 Discount Rates
  3. Liability Beta Portfolio™ (LBP)
  4. Modified Asset Exhaustion Test (AET)

The Ryan ALM asset management team has over 160 years of experience making us one of the most experienced teams in the fixed income industry. For more information, please go to our web site at www.RyanALM.com.

12.12.24
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How Comforting is $1,305.54/year?

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

One doesn’t have to spend much time on LinkedIn.com these days without seeing a discussion about the pros and cons of Defined Benefit (DB) vs. Defined Contribution (DC) aka 401(k) plans. Anyone who has read just a few of the >1,500+ posts on this blog know that I and Ryan ALM, Inc. are huge supporters of DB plans. Based on the following, it becomes apparent why that is the case.

One topic frequently mentioned among our peers is financial literacy. As a former member of two boards of education (11 years in total), I have witnessed first-hand how little financial literacy is shared with our high school students, especially as it relates to saving and investing. That said, as important as education is, the greatest issue for me is the lack of disposable income for the average American worker.

Frequently we read about the spending habits of younger generations, including being the “avocado toast” crowd. Examples often used include the daily purchase of a Starbucks drink or two, the use of Uber Eats, and similar examples of perceived wasteful spending. They fail to mention that even “well-paid” workers (>$100k) are burdened by a mortgage or rent payment, they likely have student loan debt, they have to buy insurance in order to use their car, which is also a very expensive purchase, they are required to have health insurance, homeowners or rental insurance, and God forbid that they have a spouse and a couple of kids. Childcare expenses have gotten to be insane. Is there any wonder that funding one’s own retirement has proven to be incredibly challenging?

So how are we doing? Unfortunately, most of the literature on the subject uses average balances to represent 401(k) savings. This practice needs to stop. According to Vanguard the average balance in 2024 is $134,128, but the median balance is $35,285. In addition, Morningstar has just published an article stating that retirees should use only a 3.7% withdrawal rate (no longer 4%) to safely use a 401(k) retirement balance given the recent performance of equity markets and the current interest rate environment. Let’s see: 3.7% * $35,285 = $1,305.54. That is an annual withdrawal, although it looks like it should be a monthly payout! What kind of retirement will that level of annual withdrawals provide? For comparison purposes, the average DB payout in the private sector is $11k and nearly $25k in public pensions.

As a reminder, DC plans were intended to be supplemental to DB plans. It is highly regrettable that they have morphed into most everyone’s primary means of “accumulating” retirement resources. This migration in proving to be an unmitigated failure and the consequences will be untenable. The American worker needs access to a DB plan. Let’s work together to protect and preserve those that remain, while encouraging former sponsors of these plans to rethink the decision to freeze or terminate. There are also state sponsored entities that afford employees in smaller companies access to a DB-like plan. That said, please manage them with a focus on the pension promise (securing benefits). Don’t rely on markets and all the volatility that comes with that exposure to “fund” these essential programs. That strategy hasn’t worked!

12.09.24
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Corporate Pension Funding Improves, Again: Milliman

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

The Milliman 100 Pension Funding Index (PFI) has once again been produced (View the complete Pension Funding Index). The index, which includes the largest 100 U.S. corporate pension plans, reveals a positive change in the funded ratio for November 2024. Asset growth of 1.88% lifted the combined assets of these 100 plans by $18 billion, which was more than enough to overcome growth in the present value of the future benefit payments ($13 billion). The funded ratio improved to 103.5% from October’s 103.2%.

The discount rate for valuing pension liabilities now stands at 5.21% as of November 30, 2024. The current rate represents a 10 basis point decline from the end of October. “November saw the second consecutive month of improvement in the PFI funded ratio, with the 1.88% investment gain more than offsetting the rise in plan liabilities caused by falling discount rates,” said Zorast Wadia, author of the PFI.

Given the incredible performance of risk assets during the last two years, valuations appear very stretched. Many corporate plans have reduced risk through ALM strategies, including cash flow matching (CFM). It may be time to reduce asset allocation risk to a greater extent, especially for those plans that continue to manage the pension’s assets in a more traditional approach.

12.09.24
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ARPA Update as of December 6, 2024

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

You have to be excited as a Mets fan given yesterday’s news that Juan Soto will be joining the organization on a massive contract. The $765 million is a staggering figure. Let’s see what happens to ticket prices and TV streaming services from a cost standpoint.

Since ARPA was passed in 2021 and signed into law in March of that year, there have been folks upset that the government is using “tax revenue” to rescue pensions for multiemployer plans. Well, in the latest update provided by the PBGC, we note that the Pressroom Unions’ Pension Plan, a non-priority group member, will receive $63.7 million to protect and preserve the promised pensions for 1,344 plan participants. That seems very reasonable since this grant will likely cover these benefit payments for roughly the same time frame that Soto will be a Met (15 years), at only $12.7 million more than just one year of Soto’s contract.

In other ARPA news, the e-filing portal is listed as “limited”, which according to the PBGC means that “the e-Filing Portal is open only to plans at the top of the waiting list that have been notified by PBGC that they may submit their applications. Applications from any other plans will not be accepted at this time.” PA Local 47 Bricklayers and Allied Craftsmen Pension Plan was the only plan to file an application (revised) last week. They are seeking $8.3 million in SFA for 296 members in the fund.

In other news, three funds, including Toledo Roofers Local No. 134 Pension Plan, Freight Drivers and Helpers Local Union No. 557 Pension Plan, and PACE Industry Union-Management Pension Plan, were asked to repay a total of $7 million in excess SFA due to census issues. The rebate represented 0.45% of the $1.6 billion received in SFA grants. Happy to report that there were no applications denied or withdrawn during the prior 7-day period.

As the chart above highlights, there are still 57 plans that have yet to file an application seeking SFA support. Estimates range from another $10 – $20 billion being allocated to the remaining entities.

12.06.24
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“Peace of Mind” – How Beneficial Would That Be?

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

As a member of the investment community do you often feel stressed, worried, insecure, uneasy, or are you just simply too busy to be at peace? In the chaotic world of pension management, finding peace of mind can sometimes be hard, if not impossible. How much would it mean to you if you could identify an investment strategy that provides you with just that state of being?

At Ryan ALM, Inc. our mission is to protect and preserve DB pension plans through a cash flow matching (CFM) strategy that ensures, barring any defaults, that the liabilities (benefits and expenses) that YOU choose to cover are absolutely secured chronologically. You’ll have the liquidity to meet those obligations in the amounts and at the time that they are to be used. There is no longer the worry and frustration about finding the necessary “cash” to meet those promises. CFM provides you with that liquidity and certainty of cash flows.

Furthermore, you are buying time for the growth (alpha or non-bond) assets to now grow unencumbered, as they are no longer a source of liquidity. You don’t have to worry about drawdowns, as the CFM portfolio creates a bridge over the challenging markets with no fear of locking in losses due to cash flow needs. Don’t you just feel yourself nodding off with the knowledge that there is a way to get a better night’s sleep?

How much would you “spend” to achieve such peace of mind? Most pension systems cobble together disparate asset classes and products, many which come with hefty price tags, in the HOPE of achieving the desired outcome. With CFM, YOU choose the coverage period to be defeased, which could be as short as 3-5 years or as long as it takes to cover the last liability. The longer the time horizon the greater the potential cost reduction. As an FYI, most of our clients have chosen a coverage period of roughly 10-years. Knowing that you have SECURED your plan’s obligations for the next 10-years, and locked in the cost reduction, which can be substantial (2% per year = 20% for 1-10 years), on the very first day in which the portfolio is constructed, has to be just an incredible feeling compared to living in an environment in which traditional pension asset allocations can have significant annual volatility and no certainty of providing either the desired return or cash flow when needed.

Remember, the amount of peace of mind is driven by your decisions. If you desire abundant restful nights, use CFM for longer timeframes. If you believe that you only need “peace of mind” in the near-term, engage a CFM strategy for a shorter 3-5 years. In any case, I guarantee that the pension plan’s exposure to CFM won’t be the reason why you are restless when you put your head on the pillow. Oh, and by the way, we offer the CFM strategy at fee rates that are substantially below traditional fixed income strategies, let alone, non-bond capabilities. Call us. We want to be your sleep doctor!

12.05.24
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Another Example of the Games That Are Played

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

I continue to be involved in programs associated with the Florida Public Pension Trustees Association (FPPTA) for which I remain quite grateful. If you’ve been exposed to their conferences, you know that they do a terrific job of bringing critical education to Florida’s trustee community and have since its founding in 1984. I’m pleased to highlight an expansion of their program to include the Trustee Leadership Council (TLC). This program brings together a small collection of experienced trustees who want to delve more deeply into the workings of defined benefit pensions – both assets and liabilities. Furthermore, the instruction is mostly done through case studies that provide them with the opportunity to roll up their sleeves and really get into the nitty gritty of pension management. Great stuff!

I could go on for days about the FPPTA and their programming, but I want to raise another issue. During a recent conversation with the TLC leadership, information was shared from one particular case study (a non-Florida-based pension plan). This information was for a substantial public pension plan that has had a troubling past from a funding standpoint. We also had info shared from a much smaller Florida-based system. There appeared to be a stark difference in performance of these two systems, as measured by the funded ratios, with a particular focus on 2022’s results. Upon further review, the one actuarial report used a 10-year smoothing for the funded ratio, while the Florida plan highlighted the performance for just 2022 and the impact that had on that plan’s funded ratio. As you can imagine, given the very challenging return environment in 2022, funded ratios took a hit. Question answered!

However, in looking at the actuarial report for the larger system, I saw that 2023’s funded ratio dramatically improved from the depths of 2022’s hit. It seemed outsized given what I knew about the environment that year. Diving a little deeper into the report – is there anything drier than an actuarial report – I found information related to a change in the discount rate that had occurred during 2023. It seems that this system had come up with its own funding method, but that was going to lead to the system becoming insolvent relatively soon. As a result, they passed legislation mandating that future contributions were going to be determined on an actuarial basis. How novel!

As a result of the move from a 4.63% blended rate (used a combination of the ROA (7%) and a municipal rate) they have now adopted a straight 7% discount rate equivalent to the fund’s return on asset assumption. Here is the result of that action:

As one can see, the present value (PV) of those future promises based on a 4.63% blended rate creates a net pension liability of -$12.8 billion. Using a 7% discount rate creates a PV of those net liabilities of “only ” -$6.7 billion. The dramatic improvement in the funded status from 48.4% to 64.1% is primarily the result of changing the discount rate, as a higher rate reduces the PV of your promise to plan participants. It really doesn’t change the promise, just how you are accounting for it.

The trustees who will participate in the TLC program offered by the FPPTA will receive a wonderful education that will allow them to dive into issues as referenced above. Knowing the ins and outs of pension management and finance will lead to more appropriate decisions related to benefits, contributions, asset allocation, etc.

12.04.24
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Good Job, PBGC!

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

Did you know that there exists an oversight body for the Pension Benefit Guaranty Corporation (PBGC)? The 1988 amendments to the Inspector General Act of 1978 created the PBGC Office of the Inspector General (OIG) of the PBGC. They are responsible for providing independent and objective audits, inspections, evaluations, and investigations to help Congress, the PBGC Board of Directors, and the PBGC itself to protect pension benefits for both multiemployer and private plans.

The latest report, covering the period April 1-September 30, 2024, has been sent to Congress. The PBGC has received mostly positive results. As a reminder, the PBGC ensures the pension benefits of more than 31 million American workers and retirees who participate in more than 24,500 private-sector pension plans through its single-employer and multiemployer insurance programs. Quite the effort!

Furthermore, as regular readers of this blog know, the PBGC has been engaged since 2021 in implementing the Special Financial Assistance (SFA) program, that was housed in the ARPA legislation. As of September 30, 2024, the report highlights the following stats regarding the PBGC’s effort:

  • received 165 SFA applications requesting $76 billion;
  • approved 127 of the SFA applications; (includes supplemental applications of which there were 35)
  • provided $68 billion in SFA; and
  • was reviewing 22 SFA applications, requesting a total of $2.5 billion.

One area of concern, which seems to have been corrected, was the census data possibly being wrong in the various applications leading to overpayment of SFA grants. According to the OIG report, there could be incorrect census data on applications leading to as much as $250 million in overpayments. To date, the PBGC has recouped $144 million from 19 plans. This sum is a small percentage (<0.5%) of what has been paid out to date.

The OIG says it “determined that the PBGC’s SFA procedures were generally sufficient to ensure that increases in projected benefit payments were (1) consistently identified, (2) evaluated against appropriate criteria, and (3) documented. In addition, the OIG reports that the PBGC responded to its findings and recommendations regarding the SFA program, which is says has significantly improved the PBGC’s SFA procedures.”

According to our analysis, there are potentially 202 applicants seeking SFA grants. With 102 funds having received approval to date, there remains much work is left to be done. There is no time to sit on one’s laurels!

12.02.24
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ARPA Update as of November 29, 2024

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

We hope that you had a very enjoyable holiday weekend. Welcome to December. That doesn’t seem possible.

Despite the holiday shortened week, the PBGC was quite busy, announcing that four multiemployer plans had submitted applications seeking Special Financial Assistance (SFA). Those funds included Laborers’ Local No. 91 Pension Plan, Southwestern Pennsylvania and Western Maryland Area Teamsters and Employers Pension Fund, Oregon Processors Seasonal Employees Pension Plan, and The Legacy Plan of the UNITE HERE Retirement Fund. Local 91’s application was its initial attempt at getting the SFA, while the other three submitted revised applications. In total, these four are seeking a total of just over $1 billion for the 102,356 plan participants. A significant majority of the assets being requested and plan members are in the UNITE HERE fund.

With regard to the Teamsters’ plan, they withdrew and then resubmitted the application on November 27th. That plan is hoping to receive $120.7 million in SFA for the 2,759 members of its fund. In other news, two funds received approval for their applications, including Lumber Industry Pension Plan and Local 1034 Pension Plan. Both plans had submitted revised applications. In total, they will get $159.6 million in SFA and interest for 7,155 plan participants. I suspect that the announcement of a successful PBGC approval made for a wonderful Thanksgiving celebration.

Finally, there were no applications denied, no funds repaid excess SFA, and no plans sought to be added to the waitlist at this time, which continues to list 53 non-priority plans that have not yet been allowed to submit an initial application.

The two plans that received approval for the SFA last week brings to 102 the number of plans that have been awarded SFA grants ($69.7 billion) since the program launched in July 2021. There are still 100 plans that may be eligible to receive this special financing.