Moving On Up and Over

Good morning. This is the last day that the KCS blog will be produced. However, you will soon be able to get similar insights from the Alan Biller website ( where a new blog will begin soon.

I would like to thank everyone for your support during the last five or so years. It has been fun sharing my thoughts on OUR retirement industry while receiving from you critical feedback on the issues of the day.  We have a lot of good things to celebrate, but we have many challenges, too.  It is time to tackle those together.


More Rounded Support

We are pleased to bring to your attention the fact that Congressman Richard Neal’s proposed legislation, H.R. 397 – Rehabilitation for Multiemployer Pensions Act – is getting support from members of both parties.  In fact, there are currently 19 co-sponsors of this legislation, including 7 members from the Republican party. The legislation that will be considered seems to be getting a more favorable response this time around then those which were floated in the previous Congress (115th).

Obviously, we need to see significantly more support coming from the House, but it is a good start. We are at a point in time when further delays could be devastating to the future of many of the struggling multiemployer plans. As we’ve reported before, the universe of “Critical and Declining” (C&D) plans has already expanded from 114 to 121, and that was before the poor performance of markets during the fourth quarter.

There is no way that these C&D plans can earn their way to solvency given the significantly negative cash flow situations that these plans are in. The loan program that is once again being considered addresses the short-term liquidity needs while extending the investment horizon for the balance of the assets and future contributions to meet future liabilities, interest on the loans, and the balloon payment of the loan in year 30. They are a necessary bridge to future solvency. Please reach out to your representatives in both the House and Senate to garner their support for this critical legislation.

Will This Do The Trick?

According to a recent article in CIO Magazine, the Dallas Police and Fire System’s new CIO, Kevin Custer, wants to both “improve fund liquidity and shift our growth engine predominantly to the public equity markets”. In order to implement the new asset allocation, the Board, Custer, and their consultant are going to dramatically reduce exposure to private markets, including “fully liquidate the plan’s private infrastructure and private debts holdings, and partially liquidate its holdings in private natural resources, as well as a host of other initiatives to help attain an average 7.25% per year.”

But, will this strategy accomplish their objective? We can certainly appreciate the need for improved liquidity given the plan’s <50% funded status and lower contributions.  However, public markets have enjoyed a long bull market for both bonds and equities. How much do they have left in the tank?

Another potential strategy that they might want to consider would be to convert their current fixed income exposure (which they are increasing) to a cash flow matching strategy to meet current and near-term benefit payments.  The cash flow matching implementation would extend the investment horizon for the balance of their assets while removing the need to liquidate the private investments, which carry a potentially enhanced return through the liquidity premium.

Finally, this alternative cash flow matching strategy will potentially stabilize the funded status of the Dallas P&F while setting it on a glide path toward full funding.

Is This What Sinatra Was Singing About?

And now, the end is near
And so I face the final curtain
My friend, I’ll say it clear
I’ll state my case, of which I’m certain…

Mr. Frank Sinatra sang the above lyrics in the song “My Way”. The lyrics popped into my head this morning as I read an article from Pensions and Investments relating to a survey conducted by MetLife. The “2019 Pension and Risk Transfer Poll” revealed that 76% of corporate DB plans that have engaged in derisking activities intend to fully divest plan liabilities at some point down the road. The demise of the traditional DB pension system is moving full-steam ahead.

According to the P&I article, the “Poll” involved 102 corporate DB sponsors with derisking goals. Wayne Daniel, an SVP and Head of U.S. Pensions at MetLife was quoted as saying that “this is the strongest indication of how intentions of corporate plan sponsors have shifted”. Of the 67% of the sponsors considering a risk transfer strategy, more than three-quarters of them have evaluated the potential cost and nearly 60% have evaluated potential solutions available in the marketplace.

Mr. Daniel went on to say that “Managing a pension plan continues to be a distraction. It puts you in the pensions business…it distracts you from your core business.”  That is unfortunate because DB pensions used to be a great retention tool for companies. Furthermore, it helped move employees through their work life-cycle, encouraging a transition to retirement in a dignified way. Clearly, this is no longer the focus.


There Is No Comparison, But…

I truly appreciate all the feedback that we/I get from the posts that we produce.  Below is a response to my latest post, “So Out Of Touch!”, but it easily could have been in reference to our recent post titled, “A Developing Crisis Made Much Worse”. In any case, this is a story that must be shared. Why it hasn’t resonated at the same volume as the current plight of furloughed government workers is anyone’s guess.  Here is the reply:

Just pointing out the seriousness of comparison between the two issues or Groups NEEDS….”Furloughed Gov’t Workers” (FGW) vs “Benefit Reduced Pensioners” (BRP)… How long have we with Double the Victims 1.5 M vs 800K, for twenty times the Amount of Time near two years in some cases, have had to deal with Financial Devastation while Media screams for action NOW and gets it with S-24 in “13” days start to finish. WE have no recourse as Elderly & with Health issues prevent our Wealth Accumulation phase of Life Again… Where’s our Mortgage Forgiveness, where is our Gov’t promise of Back Pay ?? What must WE do for recognition… WE realize the Politics involved, with RESIST & OBSTRUCT but somewhere sometime these Legislators need to be doing something that benefits the Working Class Folks of this Country. Their Constituents… By speaking out, while riding the Coat Tails of these “FGW” Stories and News Articles we can highlight our own Crisis and bring these similar distressing details and facts into the Light……Here are Polling results of what WE are facing, just the ones still not “BRP” as of Yet. CSPF folks facts of life… Some of these “FGW” articles state that near 80% live check to check… WE as “BRP” know this situation all to well…86% of us live Check to Check by no fault of our own”

We have highlighted the plight of Carol, who has recently seen her benefits slashed by a very disgusting 63%, but thousands of pensioners have suffered considerable economic hardship and have had to endure for much longer. How can our august government agree, through MPRA, to slash the hard-earned benefits of these American workers with no relief in sight?  Why hasn’t this caught the attention of the American media? Whereas furloughed government workers are likely to get paid upon the opening of our government, the benefits that have been slashed for these retirees are permanent unless we can get Congress to finally act on legislation that will protect, preserve, and reinstate previously “guaranteed” monthly benefit payments.

Given that a significant majority of Americans are living paycheck to paycheck, could you endure a permanent slashing of your monthly compensation to the tune of 50% or more?  I wouldn’t think so. Let’s hope that the American media has finally awoken to the economic crisis that is afflicting most American workers and retirees. Please don’t stop letting us know about your situation. We are happy to take as many swings as we can on this issue.

As If On Cue.

Six days ago we published a post (“Hope That This Wasn’t A Surprising Revelation”) on the impact that student loan debt was having on the housing market.  Well, two days ago we got a glimpse of just how painful this debt load may be on the housing market, as the National Association of Realtors announced that existing home sales had fallen -6.4% in December and that they were down -10.3% from December 2017. OUCH!

A January 22nd WSJ article speculated as to why the weakest result since 2015 may have occurred, blaming both monetary policy (rising interest rates) and stock market volatility as the primary culprits.  Really? Our previous blog post highlighted the ever-growing mountain of student loan debt as a likely cause behind the sluggish US housing market.

Despite claims to the contrary, our employment situation is not robust, as we are still significantly behind where we were in 2007 with respect to the Labor Participation Rate (63.1%). Furthermore, the US continues to have a significant percentage of underemployed workers and those that have attached themselves to on-call jobs. Both of these categories have climbed substantially since before the GFC. In addition, wage growth, which had been muted for more than two decades, has only begun to show some life, which is one of the primary reasons that inflation has remained muzzled.

With so many Americans barely able to squeak by financially, a lack of affordable housing, modest wages, and an escalating debt burden may be too much to overcome at this time.

So Out of Touch!

It would be really nice to read stories about Washington DC politicians who truly understand what is happening to every day Americans, whether they are currently being impacted by the government shutdown or just life in general. However, we get frequent stories that just highlight over and over how out of touch they are with the American worker’s reality.

I received an email that highlighted the following: “U.S. Commerce Sec. Wilbur Ross (BTW, a former partner of mine at Invesco) appeared on CNBC this morning, ostensibly to warn Americans that trade talks with China are going poorly. But he also got asked about furloughed federal workers who have been lining up at food banks, to which the billionaire said: “I know they are, and I don’t really quite understand why.””

He clearly doesn’t understand or want to know that 78% of American workers claim to be living paycheck to paycheck! That is both extraordinary and terribly frightening given that we have experienced an unprecedented stock market run. The average American is being asked to allocate their pressure compensation in more ways than they have historically, including having to fund their own retirement program. Given how little disposable income there is for these families, is it any wonder why defined contribution balances are so anemic?

It is about time that we have “leaders” who can recognize that the American dream is getting further and further from most people’s grasp.