Tag Archives: cfm

11.05.26
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What Do You Mean By Cost Savings?

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

The title for this post came from a question that I got in reply to my recent post related to my election platform. I highlighted the following benefits of cash flow matching (CFM):

  • Secure the promised benefits at low cost and with prudent risk,
  • Dramatically improve the monthly liquidity to meet those promised benefits (and expenses) chronologically,
  • Extend the investing horizon for the alpha assets,
  • Eliminate interest rate risk for the CFM assets, as they are defeasing benefits that are future values,
  • Keep the plan from forcing liquidity when selling assets to meet benefits is not advantageous,
  • Significantly reduce the cost of those future promises effective on the day the portfolio is constructed, and
  • Provide all of this at modest cost

As you can read, I used the word cost three times in my list of benefits, and they do actually mean two different things for me. When I mentioned that CFM can secure the promised benefits at low cost and with prudent risk, what we believe is the primary objective in managing a DB pension plan, I was referring to asset management fees. When I used cost in the seventh point on my list, I was also referring to the cost to manage the mandate. Unfortunately, our pension community has created a much more expensive investment management structure through the migration of significant assets to alternative products. Ryan ALM’s CFM strategy is priced at a level that supports our belief that pension management should be focused on securing benefits at low cost. Please reach out to us for our published fee schedule.

Further down the benefits list (point 6), I mentioned significantly reducing the cost of those future promises. In this case, I am speaking to the difference between the future value (FV) of benefits and the present value (PV) assets needed to fund those benefits. We are producing significant cost reduction in this higher interest rate environment. Now, finance students will say that this “cost reduction” is nothing more than the time value of money, and they wouldn’t be wrong. However, on the day that we construct a CFM portfolio we achieve that cost savings due to the benefits of investing in bonds. Someone striving for a 6.5% annual return (the plan’s ROA) over some period of time might be able to accomplish the same “savings” through a diversified asset allocation framework, but that annual pursuit of the 6.5% comes with great volatility and uncertainty. The sequencing of those annual returns can also create havoc in the pursuit of that objective.

So, I did use cost interchangeably. In one case, I wanted to highlight the low fees that we charge to manage a CFM mandate. In the other, it was the difference between the PV of assets and the FV of benefits being secured with certainty absent any defaults, which in the investment-grade universe occurs at <2/1,000 bonds annually (S&P study of the last 40-years).

We’d appreciate the opportunity to manage a slice of your pension plan’s assets so that you too can benefit from our ability to significantly reduce cost, whether I’m speaking about fees or future benefit payments. Keep the questions coming – thank you!

11.04.26
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Pension Plan to be Stable in X Years – Really?

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

I first posted about this phenomenon 5-years ago. It is still so relevant today. I can’t tell you how many times I’ve read articles about underfunded pension systems that are “on track” to be fully funded in x # of years. The most recent one claims that the fund will be stable by 2048 (should I hold my breath?). However, what these articles fail to highlight are the actions required to achieve a fully funded status. First, the plan sponsor must make all annual actuarially determined contributions, which usually increase every year. Second, the assets must earn the actuarially determined ROA consistently for the next 22 years. But those are HUGE ifs, especially when one looks at the tremendous uncertainty that investors must wade through today – oil, inflation, interest rates, geopolitical crisis, the AI trade, etc.

What is the probability that the ROA will be achieved on a consistent basis? Furthermore, the sequencing of returns can play a meaningful role in whether the return objective is met, especially since the DB plan in question is a closed plan that will have greater outflows tomorrow than 20 years from now. What this plan needs to do is to secure the promised benefits for the next 10 years or so through a cash flow matching (CFM) mandate. Doing so will BUY TIME that will insulate the plan from potentially adverse market conditions that would harm the plan’s alpha assets. Buying time (extending the investing horizon) for these alpha assets permits them to grow unencumbered, as they are no longer a source of liquidity.

Furthermore, buying time enhances the probability that these growth assets will achieve their forecasted ROA since they are not diluted to make benefit payments. A Guinness Global research study on history of the S&P 500 tells us that dividends and dividends reinvested account for 47% of the total return on a rolling 10-year horizon since 1940 and the contribution to the total return is even greater for 20-year periods.

Actuaries do a terrific job despite the uncertainty in forecasting contributions, benefit payments, and expenses far into the future. But they aren’t magicians. There should be an expectation built into their forecasts that those inputs will not be achieved as predicted, especially market-based forecasts. We’ve seen this scenario play out time and time again. Given the volatility associated with predictions of this kind, perhaps a greater emphasis should be placed on the contributions, which reduces the reliance on markets, thus improving the likelihood of success. Just a thought!

11.03.26
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What Would You do…

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

Election day is finally upon us. I really couldn’t take one more political ad, especially given how nasty most of them have become. I’m not sure that I watched many in which the candidate talked about what they’d previously accomplished and what they hoped to do once elected. Most of the commercials were just about bashing their opponent. Something has got to change.

If I were running for office to secure Pension America – I actually ran in six prior elections (won 5) for two different boards of education and town council – this would be my platform. I would propose that every defined benefit pension plan have as its core holding a cash flow matching (CFM) portfolio in lieu of active core fixed income. The balance of the plan’s assets could then be managed as they are today, or perhaps more aggressively since CFM will expand the investing horizon increasing the probability of those assets achieving their desired outcome. My promise to you (no fingers crossed behind my back): Ryan ALM, Inc. would,

  • Secure the promised benefits at low cost and with prudent risk,
  • Dramatically improve the monthly liquidity to meet those promised benefits (and expenses) chronologically,
  • Extend the investing horizon for the alpha assets,
  • Eliminate interest rate risk for the CFM assets, as they are defeasing benefits that are future values,
  • Keep the plan from forcing liquidity when selling assets to meet benefits is not advantageous,
  • Significantly reduce the cost of those future promises effective on the day the portfolio is constructed, and
  • Provide all of this at modest cost

Like many politicians promising the moon, these “benefits” may sound too good to be true, but this is what CFM does all of the time! To show you that we mean what we say, we are always willing to provide plan sponsors with a free analysis to highlight what CFM could do for your plan.

What do you say? Do we have your vote? I believe that your plan participants would say, “YES!”

10.06.26
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And There You Go: 6.5% YTM on a 30-year CFM assignment – Incredible!

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

For those of you responsible for the management of public DB pension systems, the news that we can build a 30-year cash flow matching (CFM) portfolio with a YTM of 6.5% through an investment-grade corporate bond portfolio while restricting quality to BBB+ or better should be incredibly exciting and enticing!

According to NASRA’s April 2026 survey of 132 major public pension plans, the long-term assumed rate of investment return is:

  • Average assumed return: 6.91%
  • Median assumed return: 7.00%
  • This has fallen substantially from an average of 7.94% in 2009.

As a result of today’s rapidly rising rate environment, our CFM optimization process can capture 94.1% of the annual target return, with little uncertainty. This YTM was achieved for a Florida-based public pension plan that was interested to see how CFM could work for them. Here’s what we can do:

  • Secure all the net benefits and expenses (B&E) through 9/30/56
  • The future value of those net B&E is $80.1 million
  • It takes only $31.7 million in assets to secure those FV B&E for a cost reduction on day-one of -60.4%
  • The YTM is 6.5%
  • The average quality is A-, with no exposure to BBB or BBB- bonds

Since we are building the portfolio net of forecasted contributions, those contributions are now known for the next 30-years. What a gift to the sponsor funding this program who no longer needs to be concerned about what annual surprises await. I have no idea where rates will go from here. They are currently not high, as I entered this industry when the 10-year Treasury note’s yield was >15%, and certainly not as low as we witnessed just 6-years ago, when that same note’s yield hit 0.52%. All I know is that the current environment is providing plan sponsors with the opportunity to secure the promised benefits at significant cost reduction with certainty (barring any defaults).

Why would you want to continue riding the performance rollercoaster when you can jump off knowing that you’ve won the funding game? CFM truly is a sleep-well-at-night strategy for both the sponsor and participant. We provide the pillow!

10.01.26
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Kudos to Florida and Its Liquidity Statute

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

You are not likely to know about Florida Statute §112.661(6) unless you reside in Florida and sit on a pension board, and even then, you still might not have heard or read about this statute. It became effective October 1, 2000, as part of Chapter 2000-264, Laws of Florida, enacted through CS/SB 372, “Investment of Public Funds”, which Governor Jeb Bush approved on June 14, 2000,

This provision is the only one of its type among the 50 U.S. states. Florida should be commended for its inclusion in the management of public pension plans. The subsection for this statute is titled “Maturity and Liquidity Requirements.” 

It provides: “The investment policy shall require that the investment portfolio be structured in such manner as to provide sufficient liquidity to pay obligations as they come due.”

It then goes a meaningful step further: “To that end, the investment policy should direct that, to the extent possible, an attempt will be made to MATCH (the statute’s word, not mine) investment maturities (that says bonds to me) with known cash needs and anticipated cash-flow requirements.” As Phil Rizzuto would say, “Holy Cow”! If given the opportunity, I couldn’t have written this requirement any more clearly.

Again, the Investment Policy Statement (IPS) should direct that an attempt will be made to match investment maturities through bonds with known cash needs and anticipated cash-flow requirements. That sounds a lot like Cash Flow Matching (CFM) to me.

So, I ask, within your (IPS) do you have an explicit Liquidity Policy? If so, does it consider Florida Statute 112.661? At the most recent FPPTA conference in Orlando, I was asked to speak to liquidity management practices currently used in Florida. What I discovered is the there are two fundamentally different philosophies:

Asset-driven liquidity

“When we need cash, where can we get it?”

Liability-driven liquidity

“We know when benefits must be paid, so why don’t we arrange the assets today to produce the cash when those payments occur?”

Here are the seven strategies that I was able to identify that are currently being utilized. I’d be interested to hear from those of you that might have adopted some other means to secure liquidity.

Only #7 falls under the category of liability-driven liquidity, which comes closest to adhering to statute 112:661. Given the rapid rise in U.S. interest rates, creating a cash flow matching portfolio for some period of time (10-years) not only SECURES the necessary liquidity, it extends the investing horizon for the plan’s residual assets, while dramatically reducing the cost to fund those future benefits. We are always happy to provide a free analysis on what CFM could accomplish for you and your fund. Don’t let this wonderful rate environment pass you by.

09.23.26
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It’s Flattening!

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

Have you noticed the Treasury yield curve recently? There’s a great flattening occurring and it is quite beneficial for cash flow matching (CFM) assignments in the 1- to 10-year range. Bond math tells us that the longer the maturity and the higher the yield, the greater the cost reduction when securing future benefits. Our CFM strategy reduces the cost of future benefits by roughly 2% per year or >20% over 10-years. However, most of our clients have asked us to secure only the next 10-years, so capturing longer maturity is somewhat constrained, as we will not own bonds outside the range that we are covering. So the higher yields are quite beneficial. Can you imagine reducing future benefit costs by more than 40% for assignments stretching 20-years or longer?

Despite the fact that the Fed has only raised rates once since 2023, market participants have been demanding higher yields to compensate for the greater inflation and uncertainty. As a result, Treasury yields have elevated during the prior 12-months.

Graph provided by the WSJ

As the information below highlights (rates as of 10:29 am EST) greatest move up in rates has occurred in the 2-year to 5-year segment of the curve. In fact, the 2-year yield is at its highest in 27-years.

Treasury yields in the 2- to 5-year maturities are closing in on 5% levels. Should inflation persist and the Fed once again raise rates, it is not unreasonable to believe that 5% levels will be breeched providing plan sponsors of defined benefit plans with a wonderful opportunity to de-risk a portion of their plans for the next 10-years. That coverage extends the investing horizon for the residual assets of the plan and dramatically enhancing the probability that those strategies achieve the desired performance goals.

As always, we are pleased to provide a free analysis for any plan sponsor who would like to understand the impact that cash flow matching can have on your pension plan. Like Mikie, if you try us, you’ll like us!

09.10.26
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Pension Alert: 6.09%!

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

We just completed an analysis for a DB pension plan in which we were able to defease the fund’s liabilities for 30-years at a YTW of 6.09%. That is an incredible yield, especially given the fact that the YTW is basically what a pension plan will earn over the life of the cash flow matching (CFM) program. While core fixed income strategies are highly interest rate sensitive, defeasing pension liability cash flows (benefits and expenses) with asset cash flows of bond interest and principal eliminates interest rate risk, as future benefits are not interest rate sensitive.

The more extraordinary aspect of this analysis is the fact that the cost to fund FV benefits (and expenses) will be reduced by 70.5% versus the present value of assets needed to fund those liabilities, if the 30-year assignment is fully implemented. You read that correctly: there is a 70.5% reduction in the cost to fund those future value benefits given today’s interest rate environment.

Are you thinking that we must be injecting significant risk into the bond portfolio in order to achieve that level of interest? Well, the average quality rating on our 100% investment grade corporate bond portfolio is an A-. Furthermore, we have as an internal risk control prohibiting purchasing bonds rated below BBB+.

The rates below are from the WSJ as of 9:52 am on 9/10/26

We don’t know where U.S. interest rates are headed, but the beauty in building CFM portfolios is the fact that we don’t need to forecast rates. Once the asset cash flows are matched against the liabilities, the relationship is maintained whether rates rise or fall.

Few pension plans took advantage of the last de-risking opportunity back in 2020. Please don’t waste this chance to SECURE the promises made to your participants, while protecting the plan’s funded status and contribution requirements.

09.02.26
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Still Think That They Are Performance Drivers?

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

Bonds enjoyed a nearly 4-decade bull market as U.S. interest rates plummeted from historic highs to an environment of negative real rates. It was unprecedented. As a result, bonds were perceived to be performance drivers. But are they?

We are often told by plan sponsors or their advisors that they can’t invest in a cash flow matching (CFM) strategy because de-risking the portfolio will negatively impact the fund’s ability to achieve the annual return on asset (ROA) assumption. Is that reality?

Facts:

  • The Aggregate bond index has produced a -0.29% annualized return for the 5-years ending August 31, 2026!
  • A CFM portfolio would have generated a return commensurate with its YTW (or YTM) during that 5-years. Shorter maturity (1-5-year defeasement) CFM portfolios were yielding about 1.6% at that time. That equates to a nearly 2% per year return advantage. Still think that CFM is a drag on performance?
  • U.S. inflation remains elevated. A CFM portfolio is the perfect pension inflation hedge since it is fully funding liabilities that have inflation in the projected benefits to be funded.
  • The direction of U.S. rates is uncertain, although rates have been trending higher, putting more strain on core fixed income strategies that tend to underperform when rates rise.
  • For the 28-years prior to the bond bull market (1953-1981), U.S. rates rose. Are we in a secular long-term rising rate environment?
  • Bonds should only be used for their cash flows of interest and principal upon maturity, which can be modeled to match and FUND a pension plan’s liabilities (benefits and expenses), with certainty barring any defaults.

Plan sponsors have not had this level of U.S. interest rates in roughly 20-years, providing them with a wonderful opportunity to protect the improved funded status, while securing the liquidity necessary to meet those pesky monthly obligations. Will this opportunity go unheeded just as the one presented in 2000 did? We know that failing to protect and preserve DB plans in 2000 was followed by two major equity market corrections that crushed pension funding and caused contributions to skyrocket. Do you think that sponsors of DB plans have the financial wherewithal to see contributions escalate once more? I don’t!

We recommend converting your current core fixed income allocation, with all of its interest rate risk, to a cash flow matching bond portfolio, that will carefully match and fund all of the monthly obligations as they come due. A CFM portfolio matches interest and principal against future obligations, and in doing so, eliminates interest rate risk as future values are not interest rate sensitive. If you owe a plan participant $2,000 in benefits next month, it is $2k whether interest rates are at 2% or 10%. The higher rates reduce the future value cost of the promised benefits in present value $s. We are seeing roughly 6% YTMs in our recent 30-year assignments and a >50% reduction in the cost of those future benefit payments.

You could continue to use a core fixed income allocation with all of its uncertainty or you could create certainty within a portion of your plan that doesn’t exist today. I suspect that your participants would appreciate knowing that the promised benefits are secure no matter what transpires in global markets.

08.28.26
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About Time!

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

FINALLY!!!

Yesterday, there appeared a P&I article with the headline: “Ohio State Teachers says beating peers isn’t the point — paying benefits is”

YESSSSS! The only reason that a defined benefit pension plan exists is to fund a promise given to the participant. Managing a pension plan isn’t about achieving an ROA or beating a hybrid total fund index or eclipsing the performance of a peer group (silly concept). It is truly only about SECURING the liquidity necessary to match and fund benefits (and expenses) when they come due!

The pursuit of a return objective has only guaranteed volatility and NOT success. That is volatility of returns, contributions, and funded status. It is time to get off the performance rollercoaster.

The higher U.S. interest rate environment is providing plan sponsors with a great opportunity to de-risk and enhance liquidity through cash flow matching (CFM), which is designed to secure the liability cash flows (benefits and expenses) through the careful matching of asset cash flows (principal and interest) from bonds. 

An opportunity such as this hasn’t existed since 2000, when the average pension plan was well-overfunded and contribution expenses well-contained. It has been 26-years since the first market crash of the aughts began and public pension funds have only clawed back to an average funded status of 88% (Milliman). They can’t afford another crash that will only lead to a deterioration in the funded status and an escalation in contributions.

No one knows when that next correction may be just around the corner. Given that reality, don’t leave your pension plan vulnerable to this uncertainty. Put in place today a CFM strategy that will SECURE the promised benefits with certainty (barring an IG default), while buying time for the return-seeking assets to wade through the next market crisis. The time to act is now and not after the next market correction.

08.24.26
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ARPA Update as of August 21, 2026

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

Welcome to the last full week of August. How is that possible? What does the final third of 2026 have in store for us? Equity investors will hope that the good times roll, while active fixed income managers/investors hope that something changes to stabilize U.S. rates and their near-term prospects. Let’s not forget the mid-terms. The next four months should be quite interesting.

Regarding the PBGC’s implementation of the ARPA pension legislation, last week proved to be busy, as 6 pension funds submitted applications seeking special financial assistance (SFA). One of the five, Bindery Industry Employers GCC/IBT Pension Plan, a Priority Group 1 plan, submitted a revised application. Bindery first submitted an application back in February 2023. They are seeking $18.8 million for 686 members of its plan. The other five applicants are all listed as having been impacted by mass withdrawal prior to 2020. Collectively they are requesting $128.4 million for 3,272 participants. As reported previously, the PBGC is accepting applications from those plans located in the Second Circuit (NY, CT, and VT), and each of these five plans are domiciled in NY.

In other news, there were no plans receiving approval, but there were also no plans being denied based on ineligibility. Furthermore, there were no plans withdrawing an application in the prior week, too.

There remains plenty of work for the PBGC as they currently sit with 19 applications in front of them. The good news for those potential SFA recipients: U.S. interest rates remain inflated providing those plans with the potential to significantly reduce the cost of those future benefits that they will be covering. I implore those plans to secure the promises through a cash flow matching (CFM) implementation. There is so much more downside risk to potential reward by choosing to go active with allocations to both core fixed income and equities.