06.13.25
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One Can Only Hope!

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

The title of this post could be used to discuss any number of uncertainties that we are currently facing including geopolitical risk, economic risks associated with potentially disruptive policies, to the economic burdens faced by many Americans. I’ve chosen to apply this title to the prospect that America’s sponsors of defined benefit plans may not be offloading those pension liabilities with the rapidity that they’ve shown in the last decade or so.

There recently appeared an article in PlanSponsor titled, “Fewer Plan Sponsors Terminating DB Plans Amid Risk Management Shifts”. Again, one can only hope that this trend continues. “Half of plan sponsors do not intend to terminate their DB plans, up from 36.7% in 2023 and 28.3% in 2021, according to Mercer’s 2025 CFO Survey,” The survey was based on response from 173 senior finance officers. Unfortunately, it doesn’t undo the harm wrought by all the previous DB terminations, but it is still wonderful news for the American workforce!

As I’ve reported previously, Milliman’s monthly index of the Top 100 corporate plans currently shows a 104.1% funded ratio. Managing surplus assets is now the focus for many of these pension plans. Generating pension earnings, as opposed to living with the burden of pension expense will change one’s perspective. In Ron Ryan’s excellent book, titled, “The U.S. Pension Crisis”, he attributes a lot of the crisis to the accounting rules. For many corporations, pension expenses became a drag on earnings. Sure, they might have said that the company’s primary focus was manufacturing XYZ product and not managing a pension, but the costs associated with managing a DB plan certainly weighed heavily on the decision to freeze, terminate, and eventually transfer the plan.

Now that companies are sitting with a surplus leading to pension earnings, they are reluctant to shift those assets to an insurance company. According to the Mercer survey “70.1% reporting they have implemented dynamic de-risking strategies, an increase of nearly 10 percentage points from 2023. Additionally, 44% have boosted allocations to fixed-income assets to stabilize their funded status.” Let’s hope that they just haven’t engaged a duration strategy to mitigate some of the interest rate sensitivity. As we’ve stated, cash flow matching is a superior strategy to duration matching as every month of the coverage period is duration matched and you get the liquidity as a bonus to meet monthly distributions. Moreover, the Ryan ALM model will outyield ASC 715 discount rates which should enhance pension income or reduce pension expense.

Clearly, this is a positive trend, but we are far from out of the woods in preserving DB pensions. Unfortunately, plan sponsors are still considering risk transfers which continue to “dominate strategic discussions”, as more than 70% of organizations plan to offer lump-sum payments to some portion of their plan beneficiaries in the next two years.” The American workforce is far more interested these days in securing their golden years and a DB plan is the best way to accomplish that objective.

06.10.25
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HF Assets Hit Record – Why?

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

I touched on the subject of hedge funds a few years ago. Unfortunately, results haven’t gotten any better. Yet, P&I is reporting that Hedge Fund assets have reached an all-time high of $5.7 trillion. My simple question – WHY?

I believe that we have overcomplicated the management of DB pension plans and the use of hedge funds is a clear example. If the primary objective is to fund the promised benefits in a cost-efficient manner with prudent risk, why do we continue to waste so much energy buying complicated, opaque products and strategies that often come with ridiculously high fees and little alpha? Furthermore, the management of a DB pension plan has a relative objective – funding the plan’s liabilities of benefits and expenses. It is not an absolute objective which is what a hedge fund strives to produce. It really doesn’t matter if a hedge fund produces a 5% 10-year return if liability growth far exceeds that performance.

Here’s the skinny, the HFRI Composite index reveals that the 10- and 20-year compounded returns are 5.0% and 5.1%, respectively through March 31, 2025. We know that we didn’t get those “robust” returns at either an efficient cost or with prudent risk. What are these products hedging other than returns? Why do we continue to invest in this collection of overpriced and underperforming products? Are they sexy? Does that make them more appealing? Do we think that we are getting a magic elixir that will solve all of our funding issues?

Sadly, the story is even worse when you take a gander at the returns associated with the HFRI Hedge Fund of Funds Composite Index. I shouldn’t have been surprised by the weaker performance given the extra layer of fees. According to HFRI, 10- and 20-year annualized returns fall to 3.5% and 3.3%, respectively. UGH! For those two time frames, the S&P 500 produced returns of 12.5% and 10.2% respectively, and for a few basis points in fees. Furthermore, as U.S. interest rates have risen, bond returns have become competitive with the returns produced by HFs and HF of Funds. In fact, during the 1-year period both T-bills (4.9%) and the BB Aggregate index (5.2%) have outperformed HFs (4.6%), while matching or exceeding the HF of Funds (4.9%) as of March 31, 2025.

While pension systems struggle under growing contribution expenses and plan participants worry about the viability of the pension promise, the hedge fund gurus get to buy sports franchises because of the outrageous fees that are charged and the incredible sums of assets (again, $5.7 trillion!!!) that have been thrown at them? I suspect that the standard fee is no longer 2% plus 20%, but the fees probably haven’t fallen too far from those levels. As Fred Schwed asked with his famous publication in 1952 titled, “Where are the Customers’ Yachts?”, I haven’t been able to find them. Unfortunately, I think that the picture below is more representative of what plan sponsors and the participants have gotten for their investment.

Participant’s yacht – deflated results

Don’t you think that it is time to get back to pension basics? Let’s focus on funding the promised benefits through an enhanced liquidity strategy (cash flow matching) for a portion of the plan’s assets, while allowing the remainder of the portfolio’s assets to enjoy the benefit of time to grow unencumbered (extended investing horizon). This bifurcated approach is superior to the current strategy of placing all of your eggs (assets) into a ROA bucket and hoping that the combination will create a return commensurate with what is needed to meet those current Retired Lives Benefit promises and all future benefits and expenses.

06.09.25
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ARPA Update as of June 6, 2025

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

Pleased to provide you with another weekly update on the PBGC’s implementation of the critically important ARPA pension legislation. We are roughly 1 1/2 years from the completion of this program and yet, more pension funds are seeking to be added to the waitlist. In just the past week, another six funds were added to the list, including Bakery and Sales Drivers’ Local 33 Partitioned Pension Fund, Oregon Printing Industry Pension Trust, Local No. 171 Pension Plan, Licensed Tugmen’s and Pilots’ Pension Fund, San Diego Plasterers Pension Trust, and the Ironworkers Local No. 6 Pension Plan. In total 132 funds sought SFA that weren’t part of the original six priority groups that became five after further review.

There were no new applications submitted during the prior 7-day period, as the PBGC’s eFiling portal remains temporarily closed. There are currently 19 applications with the PBGC, including one Priority Group 1 member and a recently submitted Priority Group 2 application. There remains one application with a June 2025 deadline for action. Happy to report that two funds received approval for their applications, including New Bedford Longshoremen’s Pension Plan and Cement Masons Local No. 524 Pension Plan, both of which are non-priority group members. In total, they will receive just under $6 million in SFA plus interest for the 280 plan participants.

There were no plans asked to repay a portion of the SFA due to census errors and no plans had their applications denied. There were two plans running up against the PBGC’s 120-day window that withdrew applications, including Teamsters Local 277 Pension Fund and Laborers National Pension Fund.

Given uncertainty related to the impact of the tariffs on consumption, jobs, earnings, etc. The Federal Reserve remains cautious in its approach to future rate movements. As a result, U.S. interest rates have migrated higher providing plan sponsors with a wonderful opportunity to defease the promised benefit payments and in the process extend the potential coverage period. As always, we are willing to provide a free analysis to help any SFA recipient think through an appropriate asset allocation framework.

06.09.25
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Capital Distributions From Private Equity Collapse

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

I recently published a blog titled, Problem – Solution: Liquidity, in which I discussed the impact of pension plan sponsors cobbling together interest, dividends, and capital distributions from their roster of managers, and how that practice was not beneficial, especially during periods of stress in the markets. Well, one of those three legs of the “gotta, but how am I gonna, meet my monthly payment of benefits and expenses”, is really falling short at this time.

Dividends are far lower these days than they once were when equities were perceived to be quite risky. In fact, it wasn’t until 1958 that dividend income fell below interest income from bonds. Couple that phenomenon with the fact that capital distributions have plummeted, and plan sponsors are placing far greater emphasis on capturing interest from bonds than ever before. Yes, thankfully interest rates have risen, but the YTM on the BB Aggregate index is still only in the 4.7% range. That is not likely sufficient to meet monthly payouts, which means that bonds will have to be sold, too. The last thing one should want to do in a rising rate environment is to sell securities at a loss.

However, if the plan sponsor engaged a Cash Flow Matching (CFM) manager in lieu of an active core fixed income manager, the necessary liquidity would be made available each and every month of the assignment, as asset cash flows would be carefully matched against liability cash flows. Both interest and maturing principal would be used to meet those benefits and expenses. No forced selling. No scurrying around to “find” liquidity. A far more secure and certain process.

What if my plan isn’t fully funded. Does it make sense to use CFM? Of course, given that benefits and expenses are paid each month whether your plan is fully invested or not, wouldn’t it make more sense to have those flows covered with certainty? Sure, a poorly funded plan may only be able to use CFM for the next 3-5-years, but that’s the beauty of CFM. It is a dynamic process providing a unique solution for each pension plan. No off the shelf products.

06.06.25
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Milliman: Corporate Pension Funding Improves

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

Milliman has once again released the findings from the Milliman 100 Pension Funding Index (PFI). The index analyzes the top 100 largest corporate pension plans. May’s results highlighted an improved funded ratio, as the present value (PV) of liabilities fell by $19 billion, while assets grew by $2 billion. The combination led to a funded ratio of 104.9%, up from 103.0% as of April 30, 2025.

“The large jump in discount rates was the primary reason the PFI funded ratio rose for the second straight month in May,” said Zorast Wadia, author of the PFI. Today’s rate environment is likely putting pressure on traditional core fixed income strategies, but higher rates are providing plan sponsors of DB pension plans a wonderful opportunity to reduce risk by defeasing pension liabilities through cash flow matching (CFM).

“While this (large jump in discount rates) helped to offset the first-quarter funding slump, discount rates may not remain elevated indefinitely, underscoring the value of an asset-liability matching strategy for corporate pensions.” said Wadia. Don’t continue to live with great uncertainty. Secure a portion of your fund’s promises and bring a level of certainty to your plan. There is no better “sleep well at night” strategy than CFM.

Milliman’s full report can be viewed by clicking on the link below.

View the complete Pension Funding Index.

06.02.25
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Problem – Solution: Liquidity

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

Plan Sponsors of defined benefit pension plans don’t have an easy job! The current focus on return/performance and the proliferation of new, and in some cases, complicated and opaque products, make navigating today’s market environment as challenging as it has ever been.

At Ryan ALM, Inc. we want to be our clients’ and prospects’ first call for anything related to de-risking/defeasing pension liabilities. Ryan ALM is a specialty firm focused exclusively on Asset/Liability Management (ALM) and how best to SECURE the pension promise. For those of you who know Ron Ryan and the team, you know that this have been his/our focus for 50+ years. I think that it is safe to say that we’ve learned a thing or two about managing pension liabilities along the way. Have a problem? We may just have the solution. For instance:

Problem – Plan sponsors need liquidity to meet monthly benefits and expense. How is this best achieved since many plan sponsors today cobble together monthly liquidity by taking dividends, interest, and capital distributions from their roster of investment advisors or worse, sell securities to meet the liquidity needs?

Solution – Create an asset allocation framework that has a dedicated liquidity bucket. Instead of having all of the plan’s assets focused on the return on asset (ROA) assumption, bifurcate the assets into two buckets – liquidity and growth. The liquidity bucket will consist of investment grade bonds whose cash flows of interest and principal will be matched against the liability cash flows of benefits and expenses through a sophisticated cost-optimization model. Liquidity will be available from the first month of the assignment as far out as the allocation to this bucket will secure – could be 5-years, 10-years, or longer. In reality, the allocation should be driven by the plan’s funded status. The better the funding, the more one can safely allocate to this strategy. Every plan needs liquidity, so even poorly funded plans should take this approach of having a dedicated liquidity bucket to meet monthly cash flows.

By adopting this framework, a plan sponsor no longer must worry where the liquidity is going to come from, especially for those plans that are in a negative cash flow situation. Also, removing dividend income from your equity managers has a long-term negative effect on the performance of your equity assets. Finally, during periods of market dislocation, a dedicated liquidity bucket will eliminate the need to transact in less than favorable markets further preserving assets.

We’re often asked what percentage of the plan’s assets should be dedicated to the liquidity bucket. As mentioned before, funded status plays an important role, but so does the sponsors ability to contribute, the current asset allocation, and the risk profile of the sponsor. We normally suggest converting the current core fixed income allocation, with all of the interest rate risk, to a cash flow matching (CFM) portfolio that will be used to fund liquidity as needed.

We’ll be producing a Problem – Solution blog on a variety of DB plan topics. Keep an eye out for the next one in the series. Also, if you have a problem, don’t hesitate to reach out to us. We might just have an answer. Don’t delay.

06.02.25
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ARPA Update as of May 30, 2025

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

Welcome to the last update for May 2025. It sure seems like the year is flying by. Are we having fun yet?

It has been nearly four years (July 2021) since the PBGC began implementing the ARPA pension legislation. Despite a few stumbles, I think that the program has been a huge success. Somewhat surprisingly, we are still seeing multiemployer pension plans being added to the waitlist as they seek a share of the Special Financial Assistance (SFA). In fact, an additional 5 funds were added to the waitlist in the last week.

In other news, there were no applications submitted to the PBGC for review, as their eFiling portal remains temporarily closed. There are currently 24 applications in the PBGC’s queue, with seven needing to be completed in some way by the end of June and another seven by the end of July. There was one application approved, as Sheet Metal Workers’ Local No. 40 Pension Plan received approval for an SFA grant of $9.9 million including interest for the plan’s nearly 1,000 participants.

There was one application withdrawn, as Retail Food Employers and United Food and Commercial Workers Local 711 Pension Plan withdrew a revised application seeking $64.2 million in SFA for the plans 25,306 participants. Perhaps the third submission will prove successful. Lastly, there were no applications denied nor asked to repay a portion of the SFA grant. As I’ve been reporting, we are likely very near the end of the census error issue repayments.

When the original Butch Lewis Act (BLA) was being legislated it was estimated that approximately 114 multiemployer plans would be eligible for a “loan”. There are currently 100 more funds seeking support. If I remember correctly, everything needs to wrap up regarding this legislation by December 31, 2026. Clearly, there is still a ton of work ahead for the PBGC.

05.30.25
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Public Pension Funding Stable – Milliman

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

Milliman has released the output of their Public Pension Funding Index (PPFI), which covers the largest 100 public DB plans. Despite the turbulent markets during the month, the index showed a slight investment gain of 0.4%. This compares to the -0.12% experienced by corporate plans and reported through Milliman’s Pension Funding Index, that covers the top 100 corporate plans.

Among the largest public funds individual plans’ estimated returns ranged from -1.8% to 1.4%. In aggregate, the plans added about $24 billion in market value during the period, increasing AUM to $5.213 trillion at the end of the month. Furthermore, the deficit between plan assets and liabilities was unchanged since March at $1.34 trillion. The PPFI funded ratio rose from 79.5% as of March 31, to 79.6% as of April 30th. If pension liabilities for public plans were valued using the same discount rate as corporate plans do under FASB, liability growth would have been negative, as Milliman reported a 7 basis points increase in the corporate discount rate to 5.57% at April 30th from 5.50% at the end of March in their corporate update. That movement up in rates would have reduced the present value (PV) of those future benefit promises causing the funded ratio to rise some more.

You can find the complete report here.

05.29.25
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Union Wins NEW Defined Benefit Pension!!

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

Anyone who reads this blog knows that we at Ryan ALM, Inc. are huge proponents of defined benefit (DB) plans. We promote the use of DB plans as the only sensible retirement vehicle for the American worker. Blog after blog has discussed ways to secure the benefit promises for those pension plans still operating in the hope that the tide to offloading these critical funds would be slowed, if not stemmed.

When IBM announced that they were going to reopen their plan, I produced the post “Oh, What A Beautiful Morning”, and promised not to sing. I’m also not going to sing today, but I might just shout from the rooftops, if the rain stops in NJ. Why? There is a new DB fund that has just been approved! YES!!

Dee-Ann Burbin, The Associated Press, is reporting that “U.S. meatpacking workers are getting their first new defined benefit pension plan in nearly 40 years under a contract agreement between Brazil-based JBS, one of the world’s largest meat companies, and an American labour union”.

The United Food and Commercial Workers union said 26,000 meatpacking workers at 14 JBS facilities would be eligible for the multi-employer pension plan. “This contract, everything that was achieved, really starts to paint the picture of what everybody would like to have: long-term stable jobs that are a benefit for the employees, a benefit for the employers and a benefit for the community they operate in,” Mark Lauritsen, the head of the UFCW’s meatpacking and food processing division, told the Associated Press in an interview.

In a statement, JBS said the pension plan reflected its commitment to its workforce and the rural communities in which it operates. “We are confident that the significant wage increases over the life of the contracts and the opportunity of a secure retirement through our pension plan will create a better future for the men and women who work with us at JBS.” Lauritsen said DB pension plans used to be standard in the meatpacking industry but were cut in the 1980s as companies consolidated. Big meat companies like Tyson Foods Inc. and Cargill Inc. now offer 401(k) plans but not traditional pensions.

According to Burdin’s article, the union started discussing a return to pensions a few years ago as a way to help companies hang on to their workers. “The good thing about a 401 (k) is that it’s portable, but the bad thing about a 401 (k) is that it’s portable,” he said. “This was a way to capture and retain people who were moving from plant to plant, chasing an extra dime or a quarter”, according to Lauritsen

Workers hailed the plan. “Everything now is very expensive and it’s hard to save money for retirement, so this gives us security,” said Thelma Cruz, a union steward with JBS at a pork plant in Marshalltown, Iowa. A return to DB pension plans is unusual but not unheard of in the private sector. International Business Machines Corp. reopened its frozen pension plan in 2023. Let’s hope that this becomes a trend. As I’ve said many times, asking untrained individuals to fund, manage, and then disburse a “benefit” without disposable income, investment acumen, or a crystal ball is just silly! DB plans help the American worker avoid that trifecta of stumbling blocks!

05.28.25
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Where’s The Beef?

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

In case this little ditty got by you, today is National Hamburger Day. According to the history books, the beef patty that most of us love originated in Hamburg, Germany. It has nothing to do with the meat, which as far as I know was never pork/ham. I bring you this info not only because I am looking forward to my burger later this evening, but because of a lack of “beef” in today’s retirement industry.

Despite adoption of financial wellness programs, millions of workers in their 50s and early 60s remain critically unprepared to fund their retirement, “according to a new report from the Institutional Retirement Income Council”. How bad are the stats? Nearly 50% of Americans aged 55 to 64 have NO retirement savings – zilch, nada, zippo! That info comes courtesy of the Federal Reserve Board’s 2023 Survey of Consumer Finances, which was cited in the IRIC report. Furthermore, for those that have accumulated retirement savings, the median account balance is only $202,000, and totally insufficient for a retirement that could last more than 20 years. Applying the 4% rule to annual withdrawals provides this median participant an annual spending budget of $8,080. That certainly won’t get you much.

It gets worse. According to a bank of America study, “only 38% understand how to properly claim Social Security”. Compounding these issues is the fact that most underestimate how much they might need for health care, estimated at up to $315,000 in medical expenses, per Fidelity Investments.  

IRIC Executive Director Kevin Crain, the report’s author, wrote that the lack of preparedness is already leading to a troubling trend of “delayed retirements, workplace disruption, and heightened financial stress among older employees and their employers.”  

This dire situation needs to be rectified immediately, and the only way to ensure a sound retirement for our American workforce is to once again institute defined benefit (DB) pension plans. Asking untrained individuals to fund, manage, and then disburse a “benefit” through a DC plan without disposable income, investment acumen, or a crystal ball to help with longevity is just silly. There’s just no beef in today’s retirement offerings!

Where’s Clara Peller when we need her the most?