Author Archives: russkamp

07.08.25
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Milliman: Corporate Pension Funding Up

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

Milliman released its monthly Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans, and they are reporting that the collective funded ratio has risen to 105.1% as of June 30th from 104.9% at the end of May. The driving force behind the improved funding was the powerful 2.6% asset return for the index’s members, which more than offset the growth in pension liabilities as the discount rate fell by 19 bps.

As a result of the significant appreciation during the month, the Milliman PFI plan assets rose by $27 billion to $1.281 trillion during the month from $1.254 trillion at the end of May. The discount rate fell to 5.52% in June, from 5.71% in May and it is now down slights from 5.59% at the beginning of the year. 

“The second quarter of 2025 was a win-win for pensions from both sides of the balance sheet, as market gains of 3.42% drove up plan assets while modest discount rate increases of 2 basis points reduced plan liabilities and resulted in the highest funded ratio since October 2022,” said Zorast Wadia, author of the PFI.

Zorast further stated that “if discount rates decline in the second half of the year, plan sponsors will need to be ever more focused on preserving funded status gains and employing prudent asset-liability management.” We couldn’t agree more. We, at Ryan ALM, believe that the primary goal in managing a DB pension plan is to secure the promised benefits at a reasonable cost and with prudent risk. It is NOT a return objective. Having achieved this level of funding allows plan sponsors and their advisors to significantly de-risk their plans through Cash Flow Matching (CFM), which is a superior duration strategy, as each month of the assignment is duration matched.

07.08.25
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Ryan ALM, Inc’s 1H’25 Newsletter

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

We are pleased to share with you the Ryan ALM, Inc. 1H’25 Newsletter. As always, we hope that you find our ALM insights useful. We encourage you to reach out to us with any of your questions or observations. Despite the rollercoaster nature of 2025’s first half, pension America is enjoying a strong YTD. Although we aren’t in the game of forecasting U.S. interest rates, there is a fairly good chance that rates will maintain current levels or even elevate from here, as multiple forces are working to once again lead to higher inflation. Rising rates are great for the liability side of pensions. Perhaps not as positive for assets.

07.08.25
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ARPA Update as of July 3, 2025

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

Welcome to the Summer doldrums. The PBGC’s ARPA activity appears to have been impacted by the holiday-shortened week. We hope that you and your family had a terrific Fourth of July weekend.

There isn’t a whole lot to discuss about last week. There were no applications received as the PBGC’s e-Filing portal remains temporarily closed. No applications were approved or denied, and there were no pension funds looking to be added to a very crowded waiting list.

However, there was one fund, Trucking Employees of North Jersey Welfare Fund, Inc. Pension Plan, that repaid a portion of the Special Financial Assistance (SFA) received earlier. The $7.7 million repayment represents 0.99% of the $774.3 million grant. The Truckers’ fund is the 55th fund to repay a portion of the SFA grant. There are four funds that had no census errors. It was estimated that roughly 60 pension funds had been granted SFA prior to the PBGC’s use of the Social Security Master Death file. In total, $229.4 million has been recouped from $50.9 billion in grants (0.45%).

In other ARPA news, eight funds currently on the waitlist have elected their measurement lock-in date. As a reminder, the measurement date refers to the date on which a plan submits a lock-in application to PBGC. This date is crucial because it sets and permanently establishes the plan’s SFA measurement date and base data for its eventual SFA application, regardless of when the full application is later submitted. Specifically, the lock-in application fixes: 1) the non-SFA and SFA interest rates, 2) the SFA measurement date, and 3) participant census data. Five of the funds chose March 31, 2025, while the other three selected April 30, 2025, as the measurement date for their pension plans.

According to the ARPA legislation, the PBGC is prohibited from accepting initial applications after December 31, 2025. They may receive and review revised applications until December 31, 2026. They currently have about 70 plans on the waitlist, in addition to the 46 that are under review or have been withdrawn. It will take a tremendous effort to process these initial applications prior to the legislation’s deadline.

07.07.25
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Don’t Engage in a Cash Sweep – Dividends Matter!

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

We’ve already shared with you the importance of dividends to the long-term return of the S&P 500 by referencing studies conducted by Guinness Global Investors.

According to the Guinness study, which was last updated as of April 2020, the contribution to return of the S&P 500 from dividends and dividends reinvested for 10-year periods since 1940 was a robust 47% down insignificantly from 48% a decade ago. Extending the measurement period to 20 years from 1940 forward highlights an incredible 57% contribution to the total return of the S&P 500 from dividends. Importantly, this study is on the entirety of the S&P 500, not just those companies that pay dividends. If the universe only included dividend payers, this analysis would reveal strikingly greater contributions since roughly 100 S&P 500 companies are not currently paying a dividend.

As if this study isn’t enough to convince you of the importance of dividends to the long-term return of stocks, Glen Eagle Trading put out an email today that referenced a recent Wall Street Journal article, titled “Why Investors Are Right to Love Dividends”. The article highlighted the fact that recent studies show S&P 500 dividend-paying stocks returned 9.2% annually over the past 50 years, which is more than double the 4.3% return of non-dividend payers, with lower volatility. Then there is this study by Ned Davis which broke down the contribution of dividends for the 47-years ending December 21, 2019.

Once again, it becomes abundantly clear why investing in companies paying dividends is a terrific long-term strategy. It also begs the question, why do many plan sponsors and their advisors regularly “sweep” income from their equity managers to meet ongoing benefits and expenses? In doing so, instead of structuring the pension plan to have a liquidity bucket to meet those obligations, this activity diminishes the potential long-term contribution to equities from dividends. As longer-term returns are reduced, greater contributions are needed to make up the shortfall compounding the problem.

Please don’t sweep interest and dividend income or capital distributions for that matter, establish an asset allocation that has a dedicated liquidity bucket that uses cash flow matching to secure and fund ongoing benefits and expenses. The remainder of the assets not deployed in the liquidity bucket go into a growth bucket that benefits from the passage of time.

07.03.25
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Segal: Benefits of Pension De-Risking

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

Jason Russell and Seth Almaliah, Segal, have co-authored an article titled, “Benefits of Pension De-Risking and Why Now is the Right Time”. Yes! We, at Ryan ALM, agree that there are significant benefits to de-risking a pension plan and we absolutely agree that NOW is the right time to engage in that activity.

In their article they mention that the current interest rate environment is providing opportunities to de-risk that plan sponsors haven’t seen in more than two decades. In addition to the current rate environment, they reflect on the fact that many pension plans are now “mature” defining that stage as a point where the number of retired lives and terminated vested participants is greater than the active population. They also equate mature plans to one’s that have negative cash flow, where benefits and expenses eclipse contributions. In a negative cash flow environment, market corrections can be more painful as assets must be sold to meet ongoing payments locking in losses, as a result.

They continue by referencing four “risk reducing” strategies, including: 1) reducing Investment Volatility, 2) liability immunization, 3) short-term, cash flow matching, and 4) pension risk transfers. Not surprisingly, we have some thoughts about each.

  1. Reducing investment volatility – Segal suggests in this strategy that plan sponsors simply reduce risk by just shifting assets to “high-quality” fixed income. Yes, the annual standard deviation of an investment grade bond portfolio with a duration similar to that of the BB Aggregate would have a lower volatility than equities, but it continues to have great uncertainty since bond performance is driven primarily by interest rates. Who knows where rates are going in this environment?
  2. Liability Immunization – The article mentions that some plan sponsors are taking advantage of the higher rate environment by “immunizing” a portion of the plan’s liabilities. They describe the process as a dedicated portfolio of high-quality bonds matched to cover a portion of the projected benefits. They mentioned that this strategy tends to be long-term in nature. They also mention that because it is “longer-term” it carries more default risk. Finally, they mentioned that this strategy may lose some appeal because of the inverted yield curve presently observed. Let me comment: 1) Immunization is neither a long-term strategy or a short-term strategy. The percentage of liabilities “covered” is a function of multiple factors, 2) yes, immunization or cash flow matching’s one concern when using corporate bonds is default risk. According to S&P, the default rate for IG bonds is 0.18% for the last 40-years, and 3) bond math tells us that the longer the maturity and the higher the yield, the lower the cost. Depending on the length of the assignment, the current inverted yield curve would not provide a constraint on this process. Finally, CFM is dependent on the actuary’s forecasts of contributions, benefits, and expenses. Any change in those forecasts must be reflected in the portfolio. As such, CFM is a dynamic process.
  3. Short-term, cash flow matching – CFM is the same as immunization, whether short-term or not. Yes, it is very popular strategy for multiemployer plans that received Special Financial Assistance (SFA) under ARPA for obvious reasons. It is a strategy that SECURES the promised benefits at both low cost and with prudent risk. It maximizes the benefit coverage period with the least uncertainty.
  4. Pension Risk Transfers (PRT) – In a PRT, the plan sponsor transfers a portion of the liabilities, if not all of them, to an insurance company. This is the ultimate risk reduction strategy for the plan sponsor, but is it best for the participant? They do point out that reducing a portion of the liabilities will also reduce the PBGC premiums. But, does it impact the union’s ability to retain and attract their workers?

We believe that every DB pension plan should engage in CFM. The benefits are impressive from dramatically improving liquidity, to buying time for the growth (non-CFM bonds) assets, to eliminating interest rate risk for those assets engage in CFM, to helping to stabilize contributions and more. Focusing 100% of the assets on a performance objective only guarantees volatility. It is time to adopt a new strategy before markets once again behave badly. Don’t waste this wonderful rate environment.

Thank you, Segal, for your thoughtful piece.

07.01.25
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U.S. $ Decline and the Impact on Inflation

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

As I was contemplating my next blog post, I took a look at how many of my previous >1,625+ posts mentioned currencies, and specifically the U.S. $. NEVER had I written about the U.S. $ other than referencing the fact that we enjoy the benefit of a fiat currency. I did mention Bitcoin and other cryptos, but stated that I didn’t believe that they were currencies and still don’t. Why mention them now? Well, the U.S. $ has been falling relative to nearly all currencies for most of 2025. According to the WSJ’s Dollar Index (BUXX), the $ has fallen by 8.5% for the first half of 2025.

Relative to the Euro, the $ has fallen nearly 14% and the trend isn’t much better against the Pound (-9.6%) and the Yen (-8.7%). So, what are the implications for the U.S. given the weakening currency? First, the cost of imports rises. When the $ loses value, it costs more to buy goods and services from abroad. The likely outcome is that the increased costs get passed onto the consumer, who is already dealing with the implications from uncertain tariff policies.

Yes, exports become cheaper, which would hopefully increase demand for our goods, but the heightened demand could also lead to greater demand for U.S. workers in order to meet that demand leading to rising wages (great), but that is also potentially inflationary.

What have we seen so far? Well, first quarter’s GDP (-0.5%) reflected an increase in imports spurred on by fear of price increases due to the potential for tariffs. Q2’25 is currently forecasted to be 2.5% according to the Atlanta Fed’s GDPNow model, as U.S. imports have fallen. According to the BLS, import prices have risen in 4 of 5 months in 2025, with March’s sharp decline the only outlier.

The potential inflationary impact from rising costs could lead to higher U.S. interest rates, which have been swinging back and forth depending on the day of the week and the news cycle. Furthermore, there is fear that the proposed “Big Beautiful Bill” could also drive rates higher due to the potential increase in the federal deficit by nearly $5 trillion due to the stimulative nature of deficits. Obviously, higher U.S rates are great for individual savers, but they don’t help bonds as principal values fall.

We recommend that plan sponsors and their advisors use bonds for the cash flows (interest and principal) and not as a performance driver. Use the fixed income exposure as a liquidity bucket designed to meet monthly benefits and expenses through the use of Cash Flow Matching (CFM), which will orchestrate a careful match of asset cash flows funding the projected liabilities cash flows. The remaining assets (alpha bucket) now benefit from time, as the investment horizon is extended.

Price increases on imports due to a weakening $ can impact U.S. inflation, but there are other factors, too. I’ve already mentioned tariffs and wage growth, but there other factors, including productivity and global supply chains. Some of these drivers may take more time to hash out. There are many uncertainties that could potentially impact markets, why not bring an element of certainty to your pension fund through CFM.

06.30.25
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ARPA Update as of June 27, 2025

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

Welcome to the end of 2025’s first half. That seems fast! The PBGC has been dealing with a ton of activity, and the second half seems as if it will be more intense given recent additions to the waitlist following the 2nd Circuit’s ruling on eligibility.

During the previous week there were no new applications submitted, as the PBGC’s eFiling system is temporarily closed. However, they did approve a revised application which was set to expire (120-day rule). Local 810 Affiliated Pension Plan, a Long Island City, NY, plan, will receive $105 million in SFA and interest in support of their 1,437 plan participants. This is the 126th plan to be approved to receive Special Financial Assistance (SFA).

In other ARPA news, there were no applications withdrawn or denied, but there was another plan that repaid a portion of the SFA due to census errors. New York State Teamsters Conference Pension and Retirement Fund repaid $2.7 million of the $1.4 billion in SFA or 0.2% of the award.

As mentioned above, the activity prompted by the 2nd Circuit’s judgement, led to another 3 pension funds being placed on the waiting list, which has grown by 38 funds just since May 1st. You can see why 2025’s second half will be quite busy for the PBGC.

The U.S. interest rate environment is still providing recipients of SFA with significant cost savings when using cash flow matching to secure the promised benefits. Please don’t hesitate to reach out to us if you’d like for us to prepare a free analysis on what that cost reduction might be and what the potential coverage period.

06.26.25
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There Is No “Standard” Exposure

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

I recently attended a public pension conference in which the following question was asked: What is the appropriate weighting to emerging markets? There may be an average exposure that results from a review of all public fund data, but there is NO such thing as an appropriate or standard weight. Given that every defined benefit plan has its own unique liabilities, funded status, ability to contribute, etc., how could there be a standard exposure to any asset class, let alone emerging markets.

I’m sure that this question originates through the belief that the pension objective is to achieve a return on asset (ROA) assumption. That there is some magic combination of assets and weightings that will enable the pension plan to achieve the return target. However, as regular readers of this blog know, we, at Ryan ALM, think that the primary objective when managing a DB pension plan is NOT a return objective but it is to SECURE the promised benefits at a reasonable cost and with prudent risk.

Pursuing a performance (return) objective guarantees volatility, as the annual standard deviation for a pension plan is roughly 12%-15%, but not success in meeting the funding objective. Refocusing on the liabilities secures, through cash flow matching, the monthly promises from the first month out as far as the allocation will cover. Through this process the necessary liquidity is provided each month, while also extending the investing horizon for the remainder of the assets that are no longer needed as a source of liquidity. We refer to these residual assets as the alpha or growth assets, that now can grow unencumbered.

This growth bucket can be invested almost anyway that you want. You can decide to just buy the S&P 500 index at low fees or construct a more intricate asset allocation with exposures and weightings of your choice. There is no one size fits all solution. We do suggest that the better the funded ratio/status of your plan, the greater the allocation to the liquidity assets. If your plan is less well funded today, start with a more modest CFM portfolio, and expand it as funding levels improve. In any case, you are bringing an element of certainty to what has been historically a very uncertain process.

So, please remember that every DB plan is unique. Don’t let anyone tell you that your fund needs to have X% in asset class A or Y% in asset class B. Securing the benefits should be the most important decision. How you build the alpha portfolio will be a function of so many other factors related specifically to your plan.

06.25.25
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Problem/Solution: Generic Indexes

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

We challenge you to find Pension Liabilities in any Generic Bond Index. We’re confident that you won’t. As a result, we’ve developed an appropriate solution, which we call the Custom Liability Index (CLI).

Pension liabilities (benefits and expenses (B+E)) are unique to each plan sponsor… different workforces, different longevity characteristics, different salaries, benefits, expenses, contributions, inflation assumptions, plan amendments, etc. To capture and calculate the true liability objective, the Ryan team created the first CLI in 1991 as the proper pension benchmark for asset liability management (ALM). We take the actuarial projections of (B+E) for each client and then subtract forecasted Contributions since contributions are the initial source to fund B+E. This net total becomes the true liability cash flows that assets have to fund. We then calculate the monthly liability cash flows as (B+E) – C. The CLI is a monthly report that includes the calculations of:

  • Net future values broken out by term structure
  • Net present values broken out by term structure
  • Total returns broken out by term structure
  • Summary statistics (yield, duration, etc.)
  • Interest rate sensitivity 

We recommend that the Ryan ALM CLI be installed as the index benchmark for total assets, as well as any bond program dedicated to matching assets and liabilities. This action should be the first step in asset allocation. The CLI can be broken out into any time segment that bond assets are directed to fund (i.e. 1-3 years, 1-10 years, etc.). Moreover, total assets should be compared versus total liabilities to know if the funded ratio and funded status have improved over time. If all asset managers outperform their generic index benchmarks but lose to liability growth rate the pension plan loses and must pay a higher contribution.   

Since the CLI is a monthly report, plan sponsors can compare assets versus liabilities monthly. Furthermore, we suggest that there should never be an investment update of just assets versus assets (generic index benchmarks), which unfortunately is common practice today. It is hard to understand in today’s sophisticated finance world why liabilities are missing as a pension index. It should be clear that no generic bond index could ever properly represent the liability cash flows that assets are required to fund. It is apples versus oranges, at a minimum. 

“Given the wrong index benchmark… you will get the wrong risk/reward”

For more info on the Ryan ALM CLI please contact Russ Kamp, CEO at  rkamp@ryanalm.com

06.23.25
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ARPA Update as of June 20, 2025

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

Despite the chaotic nature of our markets and geopolitics, it is comforting that I can report weekly on the progress being made by the PBGC implementing the critical ARPA legislation. That is not to say, that the 2nd Circuit’s recent ruling isn’t creating a bit of chaos, too.

Regarding last week’s activity, the PBGC’s efiling portal must have been wide open, as they accepted initial applications from 5 pension plans residing on the waitlist. The PBGC will now have 120-days to act on these submissions.

There were no applications approved, denied, or withdrawn last week, but that isn’t to say that the PBGC rested on its laurels. There were two more plans that repaid a portion of the SFA received, as census errors were corrected. International Association of Machinists Motor City Pension Plan and Western States Office and Professional Employees Pension Fund repaid 1.61% and 1.08% of the SFA, respectively. In total, 57 plans have “settled” with the PBGC, including four funds that had no census errors. To date, $219 million was repaid from grants exceeding $48 billion or 0.45% of the grant.

In other ARPA news, another 16 funds have been added to the waitlist resulting from the 2nd Circuit’s determination that previously terminated plans can seek SFA. We do believe that it will prove beneficial for these plans, but it will stress the resources of the PBGC to meet ARPA imposed deadlines.

Given the highly unpredictable nature of war and tariffs on inflation and U.S interest rates, it isn’t surprising that the U.S. Federal Reserve held the Fed Funds Rate steady last week. We encourage those plans receiving SFA grants to secure the promised benefits through a cash flow matching strategy. Who knows how markets will impact bonds and stocks for the remainder of the year.