By: Russ Kamp, CEO, Ryan ALM, Inc.

Regrettably, the investment industry has trained pension fiduciaries to think in terms of returns:

• “Can we earn 7.25%?”
• “Can we outperform the benchmark?”
• “Should we own more equities?”
• “How about alternatives?”

But we at Ryan ALM, Inc. believe chasing returns is NOT the economic objective of a defined benefit plan. Pursuing a return objective only guarantees volatility and not success. Volatility of returns, volatility of the Funded Ratio, and volatility of contributions! We believe that the objective is much simpler:

Deliver every promised benefit at the lowest sustainable COST to the sponsor.

Given that objective, we help pension plans reduce the cost of delivering every pension promise through our turnkey pension sustainable solutions. Reducing cost and SECURING the promised benefits is what every stakeholder should desire from trustees, to sponsors, and most importantly, plan participants.

As a pension Fiduciary what would you do if given this choice?

Imagine two pension funds that both owe retirees $100 million over the next 30 years. One fund invests with the goal of earning the highest possible return, while the other invests with the goal of meeting every payment at the lowest expected long-term cost.

Which strategy sounds more prudent? We believe that most trustees will immediately recognize that the second action better aligns with their responsibilities as Fiduciaries.

Here’s another example to consider. Lets think about funding your pension like you would a 30-year mortgage on your home.

Would you rather:

• Put all your money in the stock market and hope it’s there when each payment comes due?

Or:

• Structure your cash flows so each payment is already funded when it’s due?

I believe (hope) that most people would choose the second option for a monthly obligation they cannot afford to miss. Funding your monthly benefits is the exact same thing. Why not ensure that those benefits have been secured and the liquidity available as far into the future as possible through a cash flow matching (CFM) portfolio. It is absolutely time to get off the performance rollercoaster. Bring some certainty to a very uncertain process.

In conclusion, the primary pension objective is to pay every promised benefit at the lowest sustainable cost. Everything we do at Ryan ALM follows from that premise.