Author Archives: russkamp

07.28.25
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ARPA Update as of July 25, 2025

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

Welcome to the last update for July. I don’t know how you feel, but it certainly seems as if Summer 2025 has been a blur. Based on last week’s activity, it doesn’t appear that the excessive heat and humidity has negatively impacted the PBGC’s activity. Good for them.

With regard to the ARPA legislation, the week ending July 25th saw one new application filed, another three approved (yes!), one more repayment of excess SFA funds, and another two multiemployer plans added to the waitlist, which continues to grow despite a deadline for action on the applications that is drawing near.

Distributors Association Warehousemen’s Pension Trust, a non-priority group member, has filed a revised application seeking nearly $30 million in SFA for their 3,358 plan participants. The PBGC has until November 21, 2025, to act on the application.

Pleased to announce that the PBGC has approved the SFA applications for United Food and Commercial Workers Unions and Participating Employers Pension Plan, the Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund, and the Bricklayers Pension Fund of Western Pennsylvania. Each of the applications were the initial filings. In total, these funds will receive $303 million in SFA plus interest for the 15.3k participants.

As previously mentioned, Pension Plan of the Printers League – Graphic Communications International Union Local 119B, New York Pension Fund has agreed to return $1.4 million in SFA or 1.34% of the $106.7 million in SFA and interest received.

Finally, Teamsters Local 264 Van Drivers Pension Fund and UFCW Local 2013 Pension Fund have been added to the waitlist, which has ballooned to 160 members of which 76 are still waiting to file an SFA application with the PBGC.

07.25.25
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Milliman: Public Pension Funding Rises

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

Milliman released the latest results of its Public Pension Funding Index (PPFI), which analyzes data from the nation’s 100 largest public defined benefit plans. 

Milliman is reporting that for a second consecutive month above average returns powered asset growth of $115 billion for the constituents of the PPFI for June. The strong asset growth equated to a roughly 2.3% gain during the month, with results for members of the index ranging from 1.5% to 3.6%. As a result, plan assets for the index rose from $5.327 trillion as of May 31 to $5.457 trillion as of June 30.

With the substantial growth in assets, the estimated deficit between plan assets and liabilities declined from $1.242 trillion at the end of May to $1.127 trillion at the end of June, resulting in an improved funded ratio for the index of 82.9% as of June 30, from 81.1% as of May 31. This marks the highest level for the aggregate funded ratio since December 31, 2021. Importantly, 37 of the plans are more than 90% funded, which is an improvement of seven funds since the end of May, while 11 plans remain less than 60% funded.

To view the report, click on this link: View the Milliman 100 Public Pension Funding Index.

07.24.25
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A few Observations from Newport

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

As I mentioned in my ARPA update on Monday, I had the pleasure of attending the Opal Public Fund Forum East in beautiful Newport, RI, and neither the conference nor Newport disappointed. I don’t attend every session during the conference, but I do try to attend most. In all honesty, I can’t listen to another private equity discussion.

As always, there were terrific insights shared by the speakers/moderators, but there were also some points being made that are just wrong. With this being my first day back in the office this week, I don’t have the time to get into great detail regarding some of my concerns about what was shared, but I’ll give you the headline and perhaps link a previous blog post that addressed the issue.

First, DB pension plans are not Ponzi Schemes that need more new participants than retirees to keep those systems well-funded and functioning. Actuaries determine benefits and contributions based on each individual’s unique characteristics. If managed appropriately, systems with fewer new members can function just fine. Yes, plans that find themselves in a negative cash flow situation need to rethink the plan’s asset allocation, but they can continue to serve their participants just fine. Remember: a DB pension plan’s goal is to pay the last benefit payment with the last $. It is not designed to provide an inheritance.

Another topic that was mentioned several times was the U.S. deficit and the impending economic doom as a result. The impact of the U.S. deficit is widely misunderstood. I was fortunate to work with a brilliant individual at Invesco – Charles DuBois – who took the time to educate me on the subject. As a result of his teaching, I now understand that the U.S. has a potential demand problem. Not a debt issue. I wrote a blog post on this subject back in 2017. Please take the time to read anything from Bill Mitchell, Warren Mosler, Stephanie Kelton, and other disciples of MMT.

Lastly, the issue of flows into strategies/asset classes seems not to be understood. The only reason we have cycles in our markets is through the movement of assets into and out of various products/strategies. Too much money chasing too few good ideas creates an environment in which those flows can overwhelm future returns. It is the same for individual asset management firms. Many of the larger asset management firms have become sales organizations in lieu of investment management organizations as they long ago eclipsed the natural capacity of their strategies. In the process, they have arbitraged away their insights which may have provided the basis for some value-added in the past. I believe that too much money is chasing many of the alternative/private strategies. In the process, future returns and liquidity will be negatively impacted. We’ve already seen that within private equity. Is private debt next?

Again, always enjoy seeing friends and industry colleagues at this conference. I continue to learn from so many of the presenters even after 44-years in the industry. However, not everything that you hear will be correct. It is up to you to challenge a lot of the “common wisdom” being shared.

07.21.25
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ARPA Update as of July 18, 2025

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

I have the pleasure of drafting this post from beautiful Newport, RI, where I’m attending and speaking at the Opal Public Fund Forum East. The West forum’s location wasn’t too shabby either as it took place in Scottsdale last January! Business travel isn’t as glamorous as those who don’t travel think, but there are some nice perks, too. As they say in real estate: location, location, location!

With regard to ARPA, since you likely didn’t decide to open post this to find Waldo or Russ, the PBGC was fairly busy during the previous week, as there was one new application, one approved application, two new additions to the waitlist and two funds that locked-in their measurement date. Now the details.

I’m pleased to report that the Roofers Local 88 Pension Plan, a Canton OH-based fund, has filed a revised application seeking $9 million for their 484 participants. As usual, the PBGC has 120-days to act on the application or it is automatically approved. In addition, Union de Tronquistas de Puerto Rico Local 901 Pension Plan, a San Juan, PR-based fund, a Priority Group One member will receive $49 million in SFA and interest for the 3,397 members.

In other news, Local 400 Food Terminal Employees Pension Trust Fund and the Textile Processors Service Trades Health Care Professional and Technical Employees International Union Local No. 1 Pension Fund (that name is a mouth full) have both added their funds to the PBGC’s waitlist for the submission of an SFA application. Good luck. There were also two funds from the waitlist, Iron Workers Local 473 Pension Plan and Greenville Plumbers and Pipefitters Pension Fund have locked in their measurement date and both chose April 30, 2025.

Lastly, there were no applications denied or withdrawn, and none of the previous SFA recipients were asked to rebate a portion of their proceeds due to census errors. As reported previously, the PBGC has their work cut out for them, as all of the outstanding applications need to be filed by year-end.

07.21.25
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More on Why Bonds Are Not Performance Drivers

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

As you’ve heard us say and write many times, U.S. investment-grade bonds are not performance drivers. Bond should be used for their cash flows, as they are the only asset class with a known terminal value and contractual interest payments. Those attributes should be used to SECURE the promised benefits (and expenses) each month chronologically, as far into the future as an allocation to cash flow matching can go.

In case you missed some of the previous posts that highlighted our concerns about bonds as a return generator, here are three posts among many:

Bonds Are NOT Performance Instruments
Bonds Aren’t performance Instruments – Part Deux!
Really Only One Significant Influence

Then there is today’s comment from a Glen Eagle Trading email:

The 2020s are experiencing the worst real (inflation-adjusted) returns for U.S. government bonds across all maturities on record, with 5-year, 10-year, and 20-year treasuries showing real returns of -3.5%, -5.1%, and -8.3% respectively. OUCH!

Those types of returns were not seen during the nearly four decades decline in U.S. interest rates, but the rising rate environment that we are currently experiencing is certainly playing havoc with total returns for bonds. As we’ve mentioned in the post titled, “Really Only One Significant Influence”, interest rate regimes tend to be long secular trends. Will that pattern persist? Your guess is as good as mine. Given the uncertainty, please use the higher yields present today to secure your promised benefits and bring an element of certainty to the management of your fund.

07.18.25
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AI Needs An Education Regarding ALM/CFM!

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

I asked an AI tool that I use the following: Asset/Liability Management (ALM) is an effective tool for pensions. What strategies are currently being deployed?

As usual, the response was nearly instantaneous, but was it correct? Here is what I got:

Overview

“Asset/liability management (ALM) remains central to pension fund sustainability, aiming to balance expected pension liabilities with optimal asset growth. In 2025, pension funds deploy a range of strategies to ensure their ability to meet long-term obligations while managing risk efficiently.” No argument there. However, here is a list of the strategies. This is where I have an issue.

Key ALM Strategies Currently in Use

1. Liability-Driven Investing (LDI)

  • Matching Asset Duration to Liabilities: Many corporate pension plans invest in high-quality bonds with durations closely matching those of plan liabilities to mitigate interest rate risk. This ensures that both assets and liabilities react similarly to interest rate changes, stabilizing the funded status from year to year.
  • Glidepath Strategies: Plans gradually shift the asset mix towards more fixed-income securities as funded status improves or as the plan matures, further reducing risk and aligning assets with near-term liabilities.

2. Dynamic Asset Allocation

  • Strategic Shifts in Asset Mix: Pension funds adjust allocations based on changing liabilities, market conditions, and funding status. For instance, U.S. public pension plans have recently shifted asset allocations to maintain return expectations and recover from volatility.
  • Scenario-Based Modeling: Funds use forward-looking models to stress-test outcomes under varying economic scenarios, reviewing assumptions about returns, inflation, and participant demographics.

3. Risk Transfer Solutions

  • Pension Risk Transfer (PRT): Many sponsors employ annuity purchases and lump-sum windows to reduce long-term liability, transferring obligations to insurers. In 2024, settlement payouts (such as annuity buyouts) remained a significant tool for risk management among major pension plans.

4. Liability Modeling Innovations

  • Member-Level Simulation: Advanced models project individual participant cash flows, account for currency exposure, and enable granular liability projections. Such approaches allow more precise matching of assets to future obligations, improving ALM decision-making.
  • Regular Reviews and Assumption Updates: ALM programs, such as those at CalPERS, involve systematic reviews of demographic and financial assumptions (e.g., life expectancy, inflation), with revisions made every four years to incorporate emerging trends.

5. Use of Custom Benchmarks

  • Liability-Mimicking Portfolios: Funds create tailored portfolios (“benchmark” portfolios) that track the liability profile as closely as possible, often blending nominal bonds, inflation-linked bonds, and equities according to the plan’s specifics (such as maturity and inflation sensitivity).

That’s it? Where is Cash Flow Matching (CFM)? In each of these scenarios, liquidity needed to fund benefits and expenses is missing. Duration strategies minimize interest rate risk, but don’t produce timely liquidity to fully fund B+E. Furthermore, duration strategies that use an “average” duration or a few key rates don’t duration match as well as CFM that duration matches EVERY month of the assignment.

In the second set of products – dynamic asset allocation – what is being secured? Forecasts related to future economic scenarios come with a lot of volatility. If anyone had a crystal ball to accomplish this objective with precision, they’d be minting $ billions!

A PRT or risk transfer solution is fine if you don’t want to sustain the plan for future workers, but it can be very expensive to implement depending on the insurance premium, current market conditions (interest rates), and the plan’s funded status

In the liability modeling category, I guess the first example might be a tip of the hat to cash flow matching, but there is no description of how one actually matches assets to those “granular” liability projections. As for part two, updating projections every four years seems like a LONG TIME. In a Ryan ALM CFM portfolio, we use a dynamic process that reconfigures the portfolio every time the actuary updates their liability projections, which are usually annually.

Lastly, the use of Custom benchmarks as described once again uses instruments that have significant volatility associated with them, especially the reference to equities. What is the price of Amazon going to be in 10-years? Given the fact that no one knows, how do you secure cash flow needs? You can’t! Moreover, inflation-linked bonds are not appropriate since the actuary includes an inflation assumption in their projections which is usually different than the CPI.  

Cash Flow Matching is the only ALM strategy that absolutely SECURES the promised benefits and expenses chronologically from the first month as far out as the allocation will go. It accomplishes this objective through maturing principal and interest income. No forced selling to meet those promises. Furthermore, CFM buys time for the residual assets to grow unencumbered. This is particularly important at this time given the plethora of assets that have been migrated to alternative and definitely less liquid instruments.

As mentioned earlier, CFM is a dynamic process that adapts to changes in the pension plan’s funded status. As the Funded ratio improves, allocate more assets from the growth bucket to the CFM portfolio. In the process, the funded status becomes less volatility and contribution expenses are more manageable.

I’m not sure why CFM isn’t the #1 strategy highlighted by this AI tool given its long and successful history in SECURING the benefits and expenses (B&E). Once known as dedication, CFM is the ONLY strategy that truly matches and fully funds asset cash flows (bonds) with liability cash flows (B&E). Again, it is the ONLY strategy that provides the necessary liquidity without having to sell assets to meet ongoing obligations. It doesn’t use instruments that are highly volatile to accomplish the objective. Given that investment-grade defaults are an extremely rare occurrence (2/1,000 bonds), CFM is the closest thing to a sure bet that you can find in our industry with proven performance since the 1970s.

So, if you are using an AI tool to provide you with some perspective on ALM strategies, know that CFM may not be highlighted, but it is by far the most important risk reducing tool in your ALM toolbox.

07.16.25
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Really Only One Significant Influence

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

Managing fixed income (bonds) can be challenging as there are a plethora of risks that must be evaluated including, but not limited to, credit, liquidity, maturity/duration, yield, prepayment and reinvestment risk, etc. within the investment-grade universe. But the greatest risk – uncertainty – remains interest rate risk. Who really knows the future direction of rates? As the graph below highlights, U.S. interest rates have moved in long-term secular trends with numerous reversals along the way. Does that mean that we are headed for a protracted period of rising rates similar to what was witnessed from 1953 to 1981 or is this a head fake along the path to historically low rates?

When rates are falling, it is very good for bonds as they not only capture the coupon, but they get some capital appreciation, too. However, when rates rise, it is a very different game. Yes, rising interest rates are very good for pension funds from a liability perspective, as the present value (PV) of those future benefit payments (I.e. liabilities) is reduced, but the asset side may be hurt and not only for bonds but other asset classes as well.

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This is the primary reason why bonds should be used for their cash flows of interest and principal and not as a performance generator. The cash flows should be used to meet monthly benefits and expenses chronologically through a cash flow matching strategy (CFM). Unfortunately, Bonds are frequently used for performance and perhaps diversification benefits while compared to a generic index, such as the BB Aggregate index, which doesn’t reflect the unique characteristics of the pension plan’s liabilities.

U.S. interest rates are presently elevated but aren’t high by historic standards. However, the current level of rates does provide the plan sponsor with a wonderful opportunity to take risk from their traditional asset allocation by defeasing a portion of the plan’s liabilities from next month out as far as the allocation will cover. While the bond portfolio is funding monthly obligations, the remaining assets can just grow unencumbered.

Given the uncertainty regarding the current inflationary environment, betting that U.S. rates will fall making a potential “investment” in bonds more lucrative is nothing short of a crapshoot. Investing in a CFM strategy helps to mitigate interest rate risk as future values are not interest rate sensitive.

07.14.25
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ARPA Update as of July 11, 2025

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

Welcome to the All-Star break for Major League baseball. I hope that your team has had a good first half. I think that the PBGC has had a terrific “first half”, approving the SFA applications for 20 multiemployer plans that will help secure the promised benefits for >326k American workers. Excellent!

Regarding last week’s activity, Alaska Teamster – Employer Pension Plan, submitted a revised application with an expedited review designation. This non-Priority Group member is seeking $154.1 million for the 8,838 participants, after having twice withdrawn previous applications in late 2024 and March of 2025.

In other ARPA news, there were no applications approved or denied last week nor were there any pension plans asked to repay a portion of the SFA previously received. There were two plans, Roofers Local 88 Pension Plan (initial application) and Alaska Teamster – Employer Pension Plan (revised) that withdrew applications. In total, these entities are seeking $168.3 million in SFA for their 9,322 members.

Following significant activity by plans seeking to be added to the waitlist of non-Priority Group funds, there was only one plan added last week. The Cleveland Soft Drink Workers Pension Plan is now the 156th non-priority plan to have found its way onto the list. In addition, nine plans made the decision to “lock-in” their measurement date with each fund using April 30, 2025. There are still 16 plans on the waitlist that have yet to lock in their measurement period.

07.10.25
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Taylor-Made?

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

The Federal Reserve meeting notes have been published, and there seems to be little appetite among the Fed Governors to reduce U.S. interest rates at the next meeting. They continue to believe that the recently inflated tariffs and current trade policy actions could lead to greater inflationary pressures. These notes do not support the current administration’s push to see the Fed Funds Rate dropped significantly – perhaps as much as 3%.

In a very informative Bloomberg post from this morning, John Authers reminded everyone that President Trump selected Jerome Powell over John Taylor, Stanford University, in 2017 to become Chairman of the Federal Reserve. I must admit that I didn’t remember that being the case, while also not recalling that it is John Taylor who is credited with developing the Taylor Rule in 1993. When I think of famous Taylors, John isn’t at the top of my list. I might have believed that it had something to do with Lawrence Taylor’s dominance on the football field where he “ruled” for 13 Hall of Fame seasons and is considered by many the greatest defensive player in NFL history (yes, I am a Giants’ fan).

So, what is the Taylor Rule? The Taylor Rule is an economic formula that provides guidance on how central banks, such as the Federal Reserve, should set interest rates in response to changes in inflation and economic output. The rule is designed to help stabilize an economy by systematically adjusting the central bank’s key policy rate based on current economic conditions. It is designed to take the “guess work” out of establishing interest rate policy.

The Taylor rule suggests that the central bank should raise interest rates when inflation is above its target (currently 2%) or when GDP is growing faster than its estimated potential (overheating). Conversely, it suggests lowering interest rates when inflation is below target or when GDP is below potential (economy is underperforming). Ironically, President Trump’s dissatisfaction with Jerome Powell’s reluctance to reduce rates given significant economic uncertainty, may have been magnified by John Taylor’s model, which would have had rates higher at this time as reflected in the graph below.

As a reminder, Ryan ALM, Inc. does not forecast interest rates as part of our cash flow matching (CFM) strategy. In fact, the use of CFM to defease pension liabilities (benefits and expenses (B&E)) eliminates interest rate risk once the portfolio is built since future values (B&E) aren’t interest rate sensitive. That said, the currently higher rate environment is great for pension plan sponsors who desire to bring an element of certainty to the management of pensions which tend to live in a very uncertain existence. By funding a CFM portfolio, plan sponsors can ensure that proper liquidity is available each month of the assignment, while providing the residual assets time to grow. There are many other benefits, as well.

Since we don’t know where rates are likely to go, we highly recommend engaging a CFM program sooner rather than later before we find that lower interest rates have caused the potential benefits (cost savings) provided by CFM to fall.

07.09.25
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Problem/Solution: Asset Allocation

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

In this post, Ron continues with his series on identifying solutions to various pension-related problems. This one addresses the issue of asset allocation being driven exclusively from an asset perspective.

Most, if not all asset allocation models are focused on achieving a total return target or hurdle rate… commonly called the ROA (return on assets). This ROA target return is derived from a weighting of the forecasted index benchmark returns for each asset class except for bonds which uses the yield of the index benchmark. These forecasts are generally based on some historical average (i.e. last 20 years or longer) with slight adjustments based on recent observations. As a result, it is common that most pensions have the same or similar ROA. 

This ROA exercise ignores the funded status. It is certainly obvious that a 60% funded plan should have a much higher ROA than a 90% plan. But the balancing item is contributions. If the 60% funded plan would pay more in contributions than the 90% plan (% wise) then it can have a lower ROA. I guess the question is what comes first. And the answer is the ROA with contributions as a byproduct of that ROA target. The actuarial math is whatever the assets don’t fund… contributions will fund.

If the true objective of a pension is to secure and fully fund benefits and expenses (B+E) in a cost-efficient manner with prudent risk, then you would think that liabilities (B+E) would be the focus of asset allocation. NO, liabilities are usually missing in the asset allocation process. Pensions are supposed to be an asset/liability management (ALM) process not a total return process. Ryan ALM recommends the following asset allocation process:

Calculate the cost to fully fund (defease) the B+E of retired lives for the next 10 years chronologically using a cash flow matching (CFM) process with investment grade bonds. CFM will secure and fully fund the retired lives liabilities for the next 10 years. Then calculate the ROA needed to fully fund the residual B+E with the current level of contributions. This is calculated through an asset exhaustion test (AET) which is a GASB requirement as a test of solvency. The difference is GASB requires it on the current estimated ROA before you do this ALM process. Ryan ALM can create this calculated ROA through our AET model. If the calculated ROA is too high, then either you reduce the allocation to the CFM or increase contributions or a little bit of both. If the calculated ROA is low, then increasing the allocation to CFM is appropriate. Running AET iterations can produce the desired or most comfortable asset allocation answer.  

Cash flow matching (CFM) will provide the liquidity and certainty needed to fully fund B+E in a cost-efficient manner with prudent risk. The Ryan ALM model (Liability Beta Portfolio™ or LBP) will reduce funding costs by about 2% per year or roughly 20% for 1-10 years of liabilities. We will use corporate bonds skewed to A/BBB+ issues. According to S&P, investment grade defaults have averaged 0.18% of the IG universe annual for the past 40-years. Fortunately, Ryan ALM has never experienced a bond default in its 21-year history (knock wood).

Assets are a team of liquidity assets (bonds) and growth assets (stocks, etc.) to beat the liability opponent. They should work together in asset allocation to achieve the true pension objective.

For more info on cash flow matching, please contact Russ Kamp, CEO at  rkamp@ryanalm.com