Author Archives: russkamp

02.21.25
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Milliman’s Multiemployer Study Released

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

Milliman released the 2024 year-end results of its Multiemployer Pension Funding Study (MPFS). The MPFS analyzes the funded status of ALL U.S. multiemployer DB pension plans. As of December 31, 2024, Milliman estimated multiemployer plans have an aggregate funded ratio of 97%, up from 89% as of December 31, 2023. Impressive!

Milliman determined that the improved funded status was largely due to investment gains, but they also highlighted the critical contribution from the special financial assistance (SFA) granted under the ARPA. Milliman highlighted that as of year-end 2024, 102 plans have received nearly $70 billion in SFA funding, including $16 billion paid during 2024. Incredibly, without the support of SFA grants, the MPFS plans’ aggregate funded percentage at year-end 2024 would be approximately 89% or the same as the end of December 2023. As my chart below highlights, as of today, 109 plans have now received $71 billion in SFA grants.

Chart provided by Ryan ALM, Inc.

According to Milliman, “53% (627 of 1,193 plans) are 100% funded or more, and 84% (1,005) are 80% funded or better.” They also highlighted the more challenged members of this cohort, stating that “7% of plans (85) are below 60% funded and may be headed toward insolvency. Many are likely eligible and expected to apply for SFA in 2025.” As the chart above highlights, there still 93 plans going through the process of submitting applications with the PBGC to receive SFA support.

ARPA’s pension reform legislation has clearly been a godsend to many struggling multiemployer plans (roughly 10% of ME plans to date). That said, a review of the universe of all multiemployer plans points to terrific stewardship of the retirement assets on the part of a significant percentage of plans. My one concern is that the use of the return on Asset (ROA) assumption by most of these plans as the discount rate for plan liabilities is overstating the true funded status relative to a discount rate of a blended AA corporate rate used by the private sector. Milliman’s other DB pension plan studies have public sector plans at an 81.2% funded ratio and private plans at 105.8%.

02.20.25
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Friend or Foe?

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

At hearings yesterday, President Trump’s nominee for secretary of labor, Lori Chavez-DeRemer, faced questions from members of the U.S. Senate Committee on Health, Education, Labor and Pensions. During the questioning, Ms. Chavez-DeRemer did state that she was supportive of the Butch Lewis Act (BLA).

NO candidate for Secretary of Labor should ever be considered who isn’t in favor of the BLA. To date, $70.9 billion in Special Financial Assistance (SFA) and interest has been awarded to 109 multiemployer pension plans. Oh, and roughly 1.53 MILLION American workers and retirees have seen their promised pensions secured. This legislation has been a HUGE success, and there are more than 90 plans still going through the process.

Just think about all of the economic activity that will be produced by these retirees who can remain active participants in our economy. Without BLA, they were doomed to become reliant on state and federal social safety nets. Who wants to be forced to live like that, especially when you’ve been a productive member of society for an entire career? You don’t believe that they were doomed to economic hardship? Please read about those pensioners impacted by the passage of the Multiemployer Pension Relief Act of 2014 (MPRA) (eventually 18 plans received DOL support to slash benefits) that saw benefits, which were already being collected, slashed by more than 50% in some cases. Talk about lives being turned upside down!

Ms. Chavez-DeRemer, if you have any questions about why BLA is so critical, may I encourage you to go to my blog at kampconsultingblog.com and read about Carol. All you must do is put her name in my search bar (upper right corner). I believe that you’ll be as shocked as I was that our government sanctioned the action that came from MPRA. We can’t allow BLA to become a political football at this time. There are too many American workers and retirees counting on the benefits that they worked hard for and those that were promised. If you support BLA – great. If you do not – please step aside! The Labor Department and American workers need someone else!

02.20.25
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Parallels to the 1970s?

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

My recollection of the 1970s has more to do with playing high school sports, graduating from PPHS in 1977, and then going off to Fordham where I would meet my wife in an economics class in 1979. I wasn’t really focused on the economy throughout much of the decade. You see, college was reasonably affordable, and gas and tolls (GWB) were not priced outrageously, so getting back and forth to the Bronx wasn’t crushing for me and my parents.

However, I do recall the two oil embargoes that rocked the economy during the decade. I vividly recall the 1973 oil embargo that was triggered by the Yom Kippur War. I was a newspaper delivery boy for the Hudson Dispatch and was frequently amazed by the long gas lines that would stretch for blocks on both odd and even days, as I drove by on my bike. The Organization of Arab Petroleum Exporting Countries instituted the oil embargo against any country supporting Israel, including the U.S. This led to a dramatic increase in oil prices from about $3/barrel to roughly $12/barrel. This action led to widespread economic disruption, and as you can imagine, significant inflationary pressures.

The 1979 oil crisis was precipitated by the Iranian Revolution which saw the overthrow of the Shah of Iran in February 1979. The Revolution created a significant disruption in oil production in Iran, causing global oil supply issues. Similarly, to the 1973 crisis, oil prices surged from about $14/barrel to nearly $40/barrel. Once again, gasoline shortages materialized and inflation rose rather dramatically. This oil impact would lead to a period of economic stagnation that would eventually be defined as “stagflation”.

Now, I am NOT saying that we are about to face significant oil embargoes. But I am reminding everyone that history does have a tendency to repeat itself even if the players aren’t exactly the same. The graph below is pretty eye-opening, at least to me.

For those of you who can recall the 1970s, you’ll remember that the US Federal Reserve tried to mitigate inflation through aggressive increases in the Fed Funds Rate, which would eventually hit 20% in March 1980. As a result of their action, U.S. Treasury yields rose dramatically, too. For instance, the yield on the US 10-year Treasury note would peak at 15.84% in September 1981. As an FYI, I would enter our industry in October 1981.

Despite the aggressive action by the Fed’s FOMC beginning in March 2022, inflation has not been brought under control. Were they premature in reducing the FFR 3 times and by 1% to end 2024? A case could certainly be made that they were. So, where do we go from here? There certainly appears to be some warning signs that inflation could raise its ugly head once more. We are in the midst of a rebound in food inflation, and not just eggs. I just read this morning that those heating with natural gas will see about a 10% increase in their bills relative to last year – ouch. There are other worrying signs as well without even getting into the potential impact from policy changes brought about by the new administration.

It is quite doubtful that we will witness peaks in inflation and interest rates described above, but who really knows? Given the great uncertainty, and the potentially significant ramifications of a renewed inflationary cycle (2022 was not that long ago), plan sponsors should be working diligently to secure the current funding levels for their plans. Why continue to subject all of the assets to the whims of the markets for which they have no control over? Inflationary concerns rocked both the equity and bond markets in 2022. In fact, the BB Aggregate Index suffered its worst loss (-13%) by more than 4X the previous worst annual return (-2.9% in 1994). Rising rates crush traditional core fixed income strategies, but they are a beautiful benefit when matching asset cash flows (principal and interest) to liability cash flows (benefits and expenses) through CFM.

As a plan sponsor, I’d want to find as much certainty as possible, given the abundant uncertainty of markets each and every day. As Milliman has reported, both private and public pension funded ratios are at levels not seen in years. Don’t blow it now!

02.18.25
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Terrific Issue Brief from the American Academy of Actuaries

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

An acquaintance of mine shared an issue brief that was produced by the American Academy of Actuaries last April. They Academy describe their organization and role, as follows. “The American Academy of Actuaries is a 20,000-member professional association whose mission is to serve the public and the U.S. actuarial profession. For more than 50 years, the Academy has assisted public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States.”

The brief addressed surplus management for public pension systems. What does it mean and what should be done when a plan is in “surplus”. It is important to understand that a surplus calculation (plan assets – plan liabilities) is a single point in time. Our capital markets (assets) and U.S. interest rates (discounting of liabilities) are constantly changing. A plan that is deemed to be in surplus today could easily fall below 100% the very next day.

The go go decade of the 1990s witnessed public pension’s producing fairly consistent double-digit returns. Instead of locking in these gains through sound surplus management, benefits were often enhanced, contributions trimmed, or both. As a result, once the decade of the ’00s hit and we suffered through two major recessions, the enhancements to the benefits which were contractually protected and the lowered contributions proved tough to reverse.

According to Milliman, they estimate the average public funded ratio at 81.2% (top 100 plans) as of November 30, 2024. This is up substantially from September 30, 2022 when the average funded ratio was roughly 69.8%. But it highlights how much work is still needed to be done. I agree that it is wise to have a surplus management plan should these critically important funds once again achieve a “surplus”. I would hope that the plan is centered on de-risking their traditional asset allocations by using more bonds in a cash flow matching (CFM) strategy to reduce the big swings in funding. Furthermore, it is critically important to secure what has already been promised than to weaken the funded status by enhancing benefits or cutting contributions prematurely.

I’d recommend to everyone involved in pension management that they spend a little time with this report. The demise of DB pension plans in the private sector has created a very uncertain retirement for many of our private sector workforce. Let’s not engage in practices that lead to the collapse of public sector DB plans.

02.18.25
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ARPA Update as of February 14, 2025

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

Credit to the PBGC for not letting Valentine’s Day get in the way of a productive week, as they continue to implement the ARPA legislation, which is quickly approaching its fourth anniversary!

The eFiling portal has been sporadically open since the beginning of the year. Last week they turned the spigot on a little more, as three non-priority group plans submitted applications, including Teamsters Local 277 Pension Fund, Teamsters Local 210 Affiliated Pension Plan and Cement Masons Local No. 524 Pension Plan. In the case of Local 277, this was the initial filing, while the other two submitted revised applications. In total, these three pension plans are seeking $153.2 million in SFA for the nearly 10k participants.

In other news, the checks are no longer in the mail, as Laborers’ Local No. 265 Pension Plan, Local 734 Pension Plan, Upstate New York Engineers Pension Fund, and The Legacy Plan of the UNITE HERE Retirement Fund received the approved SFA plus interest and FA loan repayments. The $800 million gorilla within this group was Unite Here receiving $868.8 million from a total distribution of $1.1 billion. I suspect that the 103,118 members of these plans slept pretty well this weekend knowing that the promised benefits had been secured.

I’m pleased to report that no applications were denied during the past week. In addition, there were no plans required to repay excess SFA on account of census issues. Lastly, there were no new funds seeking inclusion on the waitlist. The chart below highlights where we are in the process. Despite the significant progress to date, there remains quite a bit of work for the PBGC.

Don’t forget, the legislation requires pension funds receiving SFA to rebalance the allocation between fixed income and equities back to 67%/33% one day every 12-months. Given the significant outperformance of equities vis-a-vis bonds plus the monthly benefit payments most likely coming from the fixed income program, there should be some significant rebalancing needs. It seems like a good time to reduce risk and take some profits.

02.13.25
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Nothing Here! Really?

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

Yesterday’s financial news delivered an inflation surprise (0.5% vs. 0.3%), at least to me and the bond market, if not to the U.S. equity market. The Federal reserve had recently announced a likely pause in their rate reduction activity given their concerns about the lack of pace in the inflation march back to its 2% target. This came on the heels of “Street” expectations after the first 0.5% cut in the FFR that there were “likely” to be eight (8!) interest rate cuts by the summer of 2025. Oh, well, the two cuts that we’ve witnessed since that first move last September may be all we get for a while. “Ho hum” replied the U.S. stock market.

The discounting of yesterday’s inflation release is pretty astounding. Like you, I’ve read the financial press and the many emails that have addressed the CPI data 52 ways to Sunday. Much of the commentary proclaims this data point as a one-off event. For instance, the impact of egg price increases (13.8% last month alone) is temporary, as bird flu will be contained shortly. Seasonal factors impacting “sticky-priced” products tend to be announced in January. I guess those increases shouldn’t matter since they only impact the consumer in January. As a reminder, Core inflation (minus food and energy) rose from 3.1% to 3.3% last month. That seems fairly significant, but we are told that the other three core readings were down slightly, so no big deal. Again, really? Each of those core measures are >3% or more than 1% greater than the Fed’s target.

Then there are those that say, “what is significant about the Fed’s 2% inflation objective anyway”? It is an arbitrary target. Well, that may be the case, but for the millions of Americans that are marginally getting by, the difference between 2% and 3% inflation is fairly substantial, especially when we come up with all of these measures that exclude food, energy, housing (shelter), etc. Are you kidding?

As mentioned previously, expectations for a massive cut in interest rates due to the perception that inflation was well contained have shifted dramatically. Just look at the graph above (thanks, Bloomberg). Following the Fed’s first FFR cut of 50 bps, inflation expectations plummeted to below 1.5% for the two-year breakeven. Today those same expectations reveal a nearly 3.5% expectation. Rising inflation will certainly keep the Fed in check at this time.

As mentioned earlier in this post, U.S. equities shrugged off the news as if the impact of higher inflation and interest rates have no impact on publicly traded companies. Given current valuations for U.S. stocks, particularly large cap companies, any inflation shock should send a shiver down the spines of the investing community. Should interest rates rise, bonds will surely become a more exciting investment opportunity, especially for pension plans seeking a ROA in the high 6% area. How crazy are equity valuations? Look at the graph below.

The current CAPE reading has only been greater during the late 1990s and we know what happened as we entered 2000. The bursting of the Technology bubble wasn’t just painful for the Information Technology sector. All stocks took a beating. Should U.S. interest rates rise as a result of the current inflationary environment, there is a reasonable (if not good) chance that equities will get spanked. Why live with this uncertainty? It is time to get out of the game of forecasting economic activity. Why place a bet on the direction of rates? Why let your equity “winnings” run? As a reminder, managing a DB pension plan should be all about SECURING the promised benefits at a reasonable cost and with prudent risk. Is maintaining the status quo prudent?

02.11.25
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Corporate Pension Funding Improves Once Again – Milliman

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

Milliman has provided its monthly update on the health of corporate America’s largest 100 pension plans with the release of the Milliman 100 Pension Funding Index (PFI). The good news continues, as the funded ratio for the PFI plans advanced last month from December’s 104.8% to 105.8% as of January 31, 2025. The improved funded ratio reflected both asset growth of $9 billion as a result of a 1.19% return for the index, while a minimal increase of 1 basis point in the discount rate (now 5.6%) reduced plan liabilities to $1.237 trillion. According to the Zorast Wadia, author of the Milliman PFI, the improved funded ratio marks a 27-month high.

Zorast went on to say, “With Fed rate cuts still a possibility this year, prudent asset-liability management remains a key directive for plan sponsors to preserve the funded status gains achieved thus far.” We don’t make interest rate forecasts at Ryan ALM, but we wholeheartedly agree with Zorast regarding the prudence of preserving the impressive funding gains realized during the last couple of years. Given the stretched equity valuations, taking risk of the table and securing the promised benefits through a cash flow matching strategy makes great sense.

02.11.25
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ARPA Update as of February 7, 2025

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

Welcome to February! I am a day late in reporting on the PBGC’s activity from last week, as I was an instructor at the IFEBP’s Advanced Trustee and Administrator’s Conference. Fortunately, it is in Orlando and not New Jersey, where the weather remains cold, snowy, and wet! For one of the first times in my 43-year professional career I’m hoping for a significant flight delay of perhaps three days!

The PBGC’s eFiling portal is now open but defined as limited. During the previous week there was one new application submitted. The Retail Food Employers and United Food and Commercial Workers Local 711 Pension Plan is seeking $64.2 million in Special Financial Assistance (SFA) for their 25,306 plan participants or $2,538.65 per member, which seemed modest, and in fact it is, as the average SFA payout has been $46,385 per beneficiary on applications that have been approved.

In addition to the one new application, two non-priority plans, Laborers’ Local No. 130 Pension Fund and Pension Plan of the Asbestos Workers Philadelphia Pension Fund each withdrew an initial application. Collectively, they are seeking $72.4 million for 2,124 members.

There were no applications denied or approved during the past week. In addition, there were no plans required to repay an overpayment of SFA due to census errors. There hasn’t been a repayment since December 2024. Finally, there were no plans seeking to be added to the waitlist. There are still 49 plans waiting to submit an initial application to the PBGC.

The U.S. interest rate environment remains favorable for plans looking to defease the pension liabilities with the proceeds from the SFA. Investment-grade corporate bond portfolios are currently producing yields above 5% despite very tight spreads between corporates and the comparable maturity Treasury. Given the elevated valuations for domestic equities, particularly large cap stocks, now is the time to use 100% of the SFA to secure the promises.

02.06.25
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Interesting Insights From Ortec Finance

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

PensionAge’s, Paige Perrin, has produced an article that referenced recent research from Ortec Finance. The research, which surveyed senior pension fund executives in the UK, US, the Netherlands, Canada, and the Nordics, found that 77% believe that risk will be elevated, either dramatically or slightly, in 2025. That’s quite the stat. It also follows on reporting from P&I that referenced heightened uncertainty by U.S. plan sponsors. As regular readers of this blog know, I’ve been suggesting to (pleading with) sponsors that they don’t need to live with uncertainty, which is truly uncomfortable.

Among several risks cited were interest rates, inflation, and market volatility. I can’t say that I blame them for their concerns. Who among us are able to adequately forecast rates and inflation? Seems like most fixed income professionals and bond market participants have been forecasting an aggressive move down in rates. Some of these prognosticators were forecasting as many as 7 rate reductions in 2024 and several others in 2025. We didn’t get 2024’s tally. Who knows about 2025 given that inflation has remained fairly sticky.

There is an easy fix for those of you who are concerned about interest rates and inflation. Adopt a cash flow matching (CFM) strategy that will carefully match asset cash flows of interest and principal with liability cash flows (benefits and expenses). Because benefit payments are future values (FVs), they are not interest rate sensitive. Problem solved! Furthermore, the use of CFM extends the investing horizon for the remainder of the fund’s growth assets, so they now have the appropriate time to grow to meet future liabilities.

One other startling stat caught my attention, as “77 per cent of senior pension fund executives believe the increasing number of retirees relative to the number of new hires in defined benefit (DB) plans pose a “significant” or “slight” risk to the DB pensions industry.” That concern is misplaced. I just wrote a post earlier this week on that subject. DB Pension plans are not Ponzi Schemes. They don’t need more depositors than those receiving payments. It is truly frightening that a significant percentage of our senior plan sponsors don’t understand how these plans are actuarial determined and subsequently funded.

Lastly, I nearly jumped out of my chair with excitement when I read the following quotes from Marnix Engels, Ortec Finance’s managing director for global pension risk, who stated the following:

“We believe assessing the risks of both (the bolding is my emphasis) assets and liabilities in combination is crucial to get the full picture on the health of a pension fund,” he said.

“If the impacts of risk drivers are only understood for one side of the funding health equation, then it is possible to misrepresent the overall effect.”

“If a fund is not assessing both assets and liabilities, then it is difficult to conclude the overall impact of interest rate hikes on the plan’s funding ratio.”

YES!!

02.04.25
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DB Pensions Are NOT Ponzi Schemes!

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

I recently stumbled onto an article that was highlighting the impending pension crisis (disaster) that is unfolding in Florida. The author’s primary reason for concern is the fact that there are now more beneficiaries collecting (659,333) than workers paying in (459,428). Briefly mentioned was the fact that the pension system currently has a funded ratio of 83.7% up from 82.4% last year. The fact that there are more recipients than those paying into the system is irrelevant. DB pension systems are not Ponzi Schemes, which in nothing more than a fraudulent vehicle that relies on a continuous influx of new “investors” (substitute plan participants) to pay the existing members of the pool.

A DB pension’s promises (benefit payments) are calculated by actuaries who have an incredibly challenging job of forecasting each individual’s career path (tenure), salary growth, longevity, etc. They do a great job, but they’ll be the first to tell you that they don’t get the individual participant calculations correct, but they do an amazing job of getting the total universe of payments nearly spot on. An acquaintance of mine, who happens to be an excellent actuary shared the following, “pension plans are funded over an active member’s career so that there will be sufficient funds to pay retirement benefits for life.  The funding rules in Florida require contributions to get the plan 100% funded over time.”

Granted, there are states that have not made the annual required contribution, in some cases for decades, and those plans are suffering (poorly funded) as a result. That isn’t the actuary’s issue, but they are left to try to make up the difference by forecasting the need for greater contributions and more significant returns. The payment of contributions comes with little uncertainty, while the reliance on greater investment performance comes with a huge amount of uncertainty over short time frames. I wouldn’t want my pension fund or livelihood (Executive Director, CIO, etc.) dependent on the capital markets.

I frequently hear the concern expressed about negative cash flow plans (i.e. contributions do not fully fund benefits). Why? If pension systems are truly designed based on each participant’s forecasted benefit, mature plans are bound to eventually fall into negative cash flow situations. These plans are designed to pay the last plan participant the last $1 of assets. These pension systems aren’t designed to be an inheritance for some small collection of beneficiaries who make it to the finish line. Importantly, there should be different investment strategies used for plans that are collecting more than they are paying out versus those in negative cash flow situation.

DB pensions are critically important retirement vehicles that need to be protected and preserved. Fabricating a crisis based on an incorrect observation is not helpful. If plan sponsors contribute the necessary amount each year and manage the assets prudently, these pension systems should be perpetual. Neglect the basics and all bets are off!