Author Archives: russkamp

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.

11.27.24
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Happy Thanksgiving to You and Yours!

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

I want to wish you and yours a Happy Thanksgiving holiday from my family and me. May the beginning of this holiday season be truly memorable! I wish that I could thank each person individually who has played such an important and meaningful role in who I am today, but there are just so many. THANK YOU! Your support and encouragement have been amazing.

As a nation, we are blessed in so many ways, but there are many among us who are in need of assistance at this time. During this holiday season, let us ALL strive to do just a little more to help our family members, friends, neighbors, and perfect strangers overcome their unique challenges.

In 1863, President Abraham Lincoln proclaimed that a day should be set aside to reflect on all our blessings. Lincoln saw the reason for thanks despite trying times (the country was in the grip of the Civil War). Given the challenging times that many in our country have faced this year (illness, fires, floods, hurricanes, poverty, etc.), a day such as Thanksgiving is critically important for all of us to reflect on how truly fortunate we are. Let us collectively make tomorrow better for all and as good as possible!

11.26.24
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These are Essential Programs!

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

I initially posted most of these thoughts directly on LinkedIn.com yesterday, but the message seems to have struck a chord with a good number of my contacts. Glad to see that we are of a similar mindset. Putting this out on my blog is one way to record my thoughts (I’ve now published 1,509 posts) and refer back when appropriate to do so. Here is yesterday’s post.

I received an email from Seeking Alpha this morning that discussed priorities under the new Department of Government Efficiency (DOGE), with the mandate to “cut the federal government down to size.” They began with the following, “the hardest area to tackle has been popular (my emphasis) entitlement programs like Medicare, Medicaid and Social Security,…”

I don’t know about you, but to describe Medicare, Medicaid, and Social Security as “popular” really irked me. These are essential, and often lifesaving, programs counted on by millions of Americans, who, more often than not, have no other place to turn for support. The use of the word “popular” puts these in the same category as my favorite soda, film, song, sports team, etc.

The US enjoys the benefit of a fiat currency and the ability to deficit spend. That “deficit” is an asset of the private sector. The concern should be the enhanced demand for goods and services that is created by this stimulus and not the level of debt. I produced a post on August 24, 2024, called “Social Security and the Misplaced Scare Mongering” in which I wrote it is a fallacy to believe that there exists an “operational constraint on the government’s ability to meet all Social Security payments.”

According to the SSA, 70.6 million Americans are receiving some form of support. I’m sure that most feel that they’ve earned this benefit. Just as I’m sure that workers in the multiemployer plans supported by the ARPA/SFA also feel that they earned the right to collect a monthly pension benefit that was promised. When the private sector isn’t doing enough for Americans, thank God that we have a federal government with the capacity to support us.

Let us NOT compound our daily financial challenges by misunderstanding how our monetary system truly works. Americans deserve much better.

11.25.24
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ARPA Update as of November 22, 2024 – #100!!!

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

Welcome to Thanksgiving Holiday week. We wish for you and your family a day filled with love, laughs, and lots of great eating. I wish for myself a TV blackout so that I don’t have to watch the Giants!

We are thrilled to report that the PBGC has approved the Special Financial Assistance (SFA) for the 100th multiemployer plan. Employers’ – Warehousemen’s Pension Plan, a Los Angeles, CA, based non-priority plan will receive $41.4 million in SFA grants and interest for its 1,821 plan participants. The PBGC has now approved grants in the amount of $69.5 billion. By our estimate, there are still 102 funds in the queue to potentially receive an SFA allocation. Clearly, there is much more to do.

In other news from last week, Laborers’ Local No. 265 Pension Plan was permitted to submit a revised application seeking just over $55 million to support its 1,460 members. Rounding out the week, there were no applications denied or withdrawn. There were no excess SFA funds returned. Finally, no pension funds sought to be added to the waitlist, which currently has 58 funds waiting to submit an initial application.

As we enter the Thanksgiving holiday week, let us be incredibly thankful for how beneficial the ARPA legislation has been for the 1,414,505 plan participants who have seen their promised benefits SECURED. For many of these pensioners who were in pension plans on the verge of collapse, the securing of these benefits through the SFA grants has been the difference between supporting oneself or being at the mercy of the Federal social safety net through no fault of their own. The nearly $70 billion may seem like a steep price to pay to some, but it is far less expensive than the cost of a pay-as-you-go system to support those 1.4 million American workers who buy goods and services with their pension checks. We all benefit from that activity. Great job ARPA and the PBGC.

11.22.24
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And So It Is!

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

Milliman has released the results for its Public Pension Funding Index (PPFI), which analyzes data from the nation’s 100 largest public defined benefit plans. They are reporting that the collective funded ratio deteriorated during the last month from 82.8% as of September 30th, to 81.2% as of October 31st, as the combined investments of these plans fell for the first time since April. The estimated return for the PFFI was -1.6%, as losses ranged from -2.9% to -0.6%. The $s lost were roughly $80 billion during the month. The funding deficit now stands at about $1.1 trillion.

You may recall that on November 8th, I produced a blog post titled, “Another Inconsistency”, in which I wrote about Milliman’s reporting of its corporate index that highlighted the fact that the collective funded ratio improved during the month despite asset losses due to the fact that liabilities fell to a great extent as interest rates rose.

I also wrote the following, “what do you think will happen in public fund land? Well, given weak markets, asset levels for Milliman’s public fund index will likely fall” (they did, as reported above). “Given that the discount rate for public pension systems is the ROA, there will be no change in the present value of public pension plans’ future benefit obligations (silly). As a result, instead of witnessing an improvement in the collective funded status of public pensions, we will witness a deterioration.” (and we did!) The inconsistency is startling!

Decisions with regards to benefits and contributions are made all the time based on information related to the funded ratio/status of these pension plans. Using different accounting standards clearly produces different outcomes that might just lead to inappropriate conclusions and the subsequent decisions. Oh, boy!

11.18.24
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It Doesn’t Have to be This Way

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

The Financial Times (FT) recently published an article highlighting the struggles of Ivy League schools trying to manage liquidity in the face of an extended downturn in the performance of private markets. Collectively, this august group of institutions continues to underperform the average return for higher education endowments of 10.3% for fiscal year 2024, with only 6 of 8 universities outperforming. This follows an even more challenging fiscal 2023 in which all 8 universities failed to top that year’s 6.8% average return. This difficult period in which distributions have dried up considerably, is forcing some, including Princeton, to issue bonds in order to support the operations of the schools. Haven’t we seen this story play out before?

Despite the troubles, there seems to be this reluctance to alter a strategy first adopted nearly four decades ago when Yale began to invest heavily in these strategies. In the article, Roger Vincent, former head of private equity at Cornell University said, “Everybody still believes in having as big an allocation to private equity as possible.” Really? Why? No asset class will always outperform. The problem with private equity at this time is the fact that too much money has chased to few quality deals driving up the costs of acquisition and lowering future returns. In the process, managers have become reluctant to reduce valuations in order to sell these portfolio companies which has crushed liquidity.

As I’ve written on many occasions, assets shouldn’t be lumped into one bucket focused on return either to meet benefit payments, or in this case, a spending policy. There should be two buckets – liquidity and growth. If the Ivies had structured their portfolios with this design in mind, they would have had sufficient liquidity when needed and issuing bonds wouldn’t have been necessary. Endowments and foundations would be well-served to adopt this structure. Liquidity can be managed through a cash flow matching (CFM) process, which will ensure (barring any defaults) that the cash will be on hand monthly, quarterly, and/or annually depending on the needs of the organization.

I’ve witnessed too many times throughout my 40+ year career investment ideas that got overwhelmed by cash flows. We’ve had booms and busts in real estate, equities (Dot Com era), quantitatively managed equities, gold/commodities, emerging markets, Japan, hedge funds, and on and on and… Why would “investors” believe that private equity would be immune to such action? Again, if an investment is deemed to be all weather, money will naturally flow to that “opportunity” thus reducing future prospects. One way to minimize the short-term impact of these cycles is to build in a liquidity strategy that bridges these troubled times.

11.18.24
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ARPA Update as of November 15, 2024

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

I can’t believe that Thanksgiving is next week. It appears that the PBGC was motivated to get some things done in anticipation of that holiday, as we witnessed more activity last week than we’ve been seeing in the most recent past.

There were four applications filed last week, including the following pension plans: Roofers and Slaters Local No. 248 Pension Plan, Pension Plan of the Asbestos Workers Philadelphia Pension Fund, Local 1783 I.B.E.W. Pension Plan, and Cement Masons Local Union No. 567 Pension Plan. These plans are not seeking significant sums as far as the SFA goes, as in total they are seeking $92.6 million for 2,637 participants. The IBEW plan out of Armonk, NY submitted a revised application. The other three were the initial filings for these plans.

Pleased to report that Local 360 Labor-Management Pension Plan received approval for its revised application. This fund will receive $30.4 million for the 6,117 members of the plan. This fund initially filed an SFA application in early 2023 only to withdraw it in July 2023. Good for them that they were finally successful in receiving the grant.

Local 810 Affiliated Pension Plan wasn’t as fortunate as Local 360, as they withdrew the initial application that had been seeking $104.1 million for 1,437 members of the plan. In addition to the four new filings, the one withdrawal, and the one approved application, the PBGC also was involved in negotiating two repayment of excess SFA due to census errors. Iron Workers Local 17 Pension Fund
Bricklayers and Allied Craftsmen Local 7 Pension Plan returned $260,471.70 representing only 19 bps of the SFA grants awarded. To date, 25 funds have returned a total of $149.9 million representing 0.38% of the awarded grants.

Recessionary expectations have waned in the last couple of months and flows into bonds, which had been strong for most of the year have recently turned negative. As a result, US interest rates have backed up. It is a great time to secure the promised benefits (and expenses) through cash flow matching strategies. A rising rate environment will be quite bearish for traditional fixed income shops. We’ll be happy to provide you and your fund with a free analysis of what can be achieved through a defeasement strategy.

11.15.24
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Not so Fast!

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

You may recall in the 1970s Heinz Ketchup used Carly Simon’s song, “Anticipation” as a jingle for several of its commercials. US bond investors might just want to adopt that song once more as they wait for the anticipated rate cuts from the Federal Reserve’s FOMC. As you may recall, investors pounced early on the perceived likelihood of rate cuts, forecasting multiple cuts and a substantial move down in rates given the expectation of a less than soft landing. As a result, US rates, as measured by the Treasury yields, fell precipitously during a good chunk of the summer, bottoming out on September 16th, which was two days prior to the Fed’s first cut (0.5%).

However, economic and inflationary news has been mixed leading some to believe that the Fed may just take a more cautionary path regarding cuts. Those sentiments were echoed by Federal Reserve Chairman Powell just yesterday, who stated during a speech in Dallas, “The economy is not sending any signals that we need to be in a hurry to lower rates.” Not surprising, bond investors did not look favorably on this pronouncement and quickly drove Treasury yields upward and stocks down. If the prospect of lower rates is the only thing propping up equities at this time, investors of all ilk better be wary.

As the above graph highlights, inflation’s move to the Fed’s 2% target has been halted (temporarily?), as Core CPI has risen by 0.3% in each of the last three months. As I wrote above, the prospect of lower rates has certainly helped to prop up US equities. However, rising rates impacts the relationship of equities and bonds. According to a post by the Daily Shot, “the S&P 500 risk premium (forward earnings yield minus the 10-year Treasury yield) has turned negative for the first time since 2002, indicating frothy valuations in the US stock market.”

As a result of these recent moves in the capital markets, US pension plan sponsors would be well-served to use the elevated bond yields to SECURE the promised benefits through a cash flow matching defeasement strategy. As we’ve discussed on many occasions, not only is the liquidity to meet the promised benefits available when needed, this process buys time for the remaining assets to grow unencumbered, as they are no longer a source of liquidity. It is a win-win!

11.13.24
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The Joke’s On Us!

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

According to a P&I article, the ECB has undertaken an “exploratory review of bank exposures to private equity and private credit funds in order to better understand these channels and to assess banks’ risk management approaches.” According to P&I, the overarching message was that “complex exposures to private equity and credit funds require sophisticated risk management.”

Yesterday, there was a FundFire article that questioned the effectiveness of the “Yale Model” given the heavy dependence on alternatives and the weak performance associated with those products in recent periods. According to the article, the greater the alts exposure the likely weaker fiscal performance.

In a recent article by Richard Ennis, founder and former chairman of investment consultant EnnisKnupp, he estimates that Harvard University, with about 80% of its endowment assets in alternative investments, spends roughly 3% of endowment value on money management fees annually, including the operation of its investment office.

Given the concerns noted above with respect to fees, risk management, and the overall success of investing in alternative strategies, one would believe that a cautionary tone would be delivered at this time. But alas that isn’t the case when it comes to forging ahead with plans to introduce alternatives into DC plans where the individual participant lacks the necessary sophistication to undertake a review of such investments. According to yet another FundFire article in recent days, Apollo and Franklin are plowing forward with plans to make available alternative investments to the DC participant through a new CIT. Shameful!

I’ve commented numerous times that it is pure madness to believe that the average American worker has the disposable income, investment acumen, and/or the necessary crystal ball to effectively manage distributions upon retirement through a DC offering. Given this lack of investment knowledge, I find it so distasteful that “Wall Street” continues to look at these plans as just another source of high fees and revenue. Where are the FIDUCIARIES?

If the ECB doesn’t believe that their banks have the necessary tools in place to handle these complex investments, how on Earth will my neighbor, family member, former teacher, etc.? Can we please stop this madness!