Tag Archives: benefits

09.22.26
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Negative Cash Flow

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

Negative cash flow occurs when a defined benefit pension plan pays out more in benefits and expenses than it receives in contributions. Don’t panic if your DB plan is experiencing this phenomenon, as negative cash flow is often a perfectly natural consequence of pension-plan maturity. In fact, as a defined benefit plan ages, you would generally expect its cash-flow profile to move in that direction. The issue isn’t the fact that the pension plan is experiencing negative cash flow, the potential problem is how the negative cash flow (liquidity) is financed.

I’ll be addressing this topic at both the FPPTA (9/29 in Orlando) and the IFEBP (10/26 in New Orleans). According to the Public Plans Data (publicplansdata.org), which has robust information on roughly 250 public pension plans covering about 95% of the public assets, 87.2% of the plans are currently in negative cash flow. There are many ways that pension plans are funding monthly benefits and expenses, including:

Liquidity strategyHow it works
1. Cash / money-market reserveMaintain cash, STIFs or money-market funds for near-term benefit payments
2. Contributions + investment incomeEmployer/employee contributions, dividends, and bond coupons fund benefits
3. Fixed-income liquidity sleeveBonds serve as both investment allocation and source of liquidity
4. Rebalancing to fund benefitsSell overweight asset classes and use proceeds for benefit payments
5. Public-market liquidationSell stocks, bonds, ETFs, or other liquid assets as cash is needed
6. Distribution harvestingUse dividends, interest, real estate/private-market capital distributions
7. Cash-flow matching / bond laddersBond coupons and maturities are deliberately aligned with projected benefits

The strategies above highlight two fundamentally different philosophies. The first category are the Asset-driven liquidity group whose practitioners believe that when they need liquidity, they can get it. They are the “When we need cash, where can we get it?” crowd. The strategies that fall under that philosophy include items 1-6 in the above matrix.

The second category is the Liability-driven liquidity cohort, whose supporters claim that “they know when benefits must be paid, so why don’t we arrange the assets today to produce the cash when those payments occur?”. This category includes the Cash Flow Matching and Bond Ladder folks.

The latter strategy is what Ryan ALM espouses for plans with negative cash flow. If you’d like to learn why or to receive a copy of my presentation, don’t hesitate to either reply to this post or email me at rkamp@ryanalm.com, and I’ll be happy to share it with you.

08.21.26
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It’s Yield AND Principal

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

I hope that you’ve had a great week. I very much enjoyed my three days at the NCPERS Funding Forum in Chicago, where I spoke about bringing certainty to pension plans through cash flow matching (CFM) in an investment landscape providing abundant uncertainty.

As I mentioned during my talk, the only certainty in most pension plans today are the benefit payments that are due each month. How are plans managing that responsibility? Unfortunately, not well, as most cobble together liquidity through a cash sweep of bond interest, dividends, capital distributions, and sales of securities. The only contributor to that liquidity pot that makes sense is bond interest, as dividends and capital distributions should be reinvested in their potentially higher earning strategies, while sales of securities don’t always occur at advantageous times.

But can a pension plan generate enough interest income from their bonds to cover the necessary liquidity? NO! Following my talk on Wednesday morning, an experienced trustee questioned my promotion of CFM based on his math that would have the entire pension plan’s corpus needing to be in bonds for the YTM to produce enough interest (liquidity) to meet his fund’s monthly obligations. He did not realize that a properly constructed CFM portfolio would use both interest and principal from maturing bonds (no sales). The combination of interest and principal will be used to meet those pesky obligations each month (chronologically) when due without any collective deficits.

We often recommend that a pension plan convert their current active core bond portfolio from a benchmark focused strategy to a CFM portfolio now focused on meeting the monthly promises. But the allocation to CFM should really be a function of the plan’s funded status. Better funded plans don’t need to take as much risk as weaker funded plans. Negative cash flow plans, of which most public funds are today, especially need reliable cash flow to meet liquidity challenges. Again, the last thing any pension plan should be doing is forcing sales of securities to meet on-going cash needs.

As U.S. interest rates continue to rise, the YTM on CFM portfolios continues to rise. Longer-term CFM assignments, such as a 30-year period, are seeing YTMs in the 6%+ range. Given the average public fund ROA is roughly 6.6%-6.75%, pension plans can cover a significant percentage of their return target through a strategy providing certainty, barring any defaults (a rare IG event). Please don’t let this opportunity to secure the pension promises pass you by. We’ve seen this happen before and the outcome isn’t pretty.

05.28.26
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DB Pension Plans – Powerful Economic Drivers

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

For regular readers of this blog or the research published at RyanALM.com, you know that I/we are huge supporters of defined benefit pension plans for many reasons. Not the least is the fact that asking the average American worker to fund, manage, and then disburse a “retirement” benefit with little to no disposable income, no investment acumen, and no crystal ball to help with longevity issues is just silly policy.

Importantly, public defined benefit pensions continue to be a major contributor to economic activity in the U.S. The sheer magnitude of public pensions asset bases (>$6 trillion) and the benefits that they annually pay ($418.3 billion in 2025) make them an economic force. These impressive stats and much more can be found in the Annual Survey of Public Pensions (ASPP) released recently by the U.S. Census Bureau.

The ASPP’s annual compendium provides revenues, expenditures, financial assets, and membership information about defined-benefit public pension systems. There is additional detailed actuarial data for state and locally administered defined-benefit public pension systems.

Survey Highlights:

  • In 2025, state and local governments invested $6.49 trillion in pension plans, up 8.46% from $5.98 trillion in 2024.
  • More than 37 million people (including inactive employees) participated in state and local pension plans in 2025.
  • Employees contributed nearly 25%, while governments contributed 75.2% of the total $315.0 billion contributed to state and local government pension plans in 2025.
  • State and local government pension plans in 2025 provided $418.25 billion in benefit payments to beneficiaries, up 3.40% from $404.46 billion in 2024. Much of that payment is spent in the recipient’s local community creating economic activity and jobs in the process.

Given the magnitude of the economic stimulus that DB pension plans provide, whether they be corporate, public, or multiemployer, they must be preserved and protected. The survey provides myriad statistics at the national level and for individual states. State and locally administered defined benefit plan information is also available. Just click on the link below.

Visit the Annual Survey of Public Pensions webpage for more information.