Tag Archives: db-pensions

08.06.26
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Is Your Asset Allocation Responsive?

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

We are happy to share with you Ron Ryan’s latest thoughts related to asset allocation and how it should be responsive and not strategic. We at Ryan ALM, Inc. have witnessed many investing cycles during our decades in the pension industry. We have seen well-funded defined benefit pension plans witness their funded status/ratio deteriorate quickly as markets retrenched. As Ron highlights in his latest thoughtful piece, public pension plans have made terrific strides to improve funding from roughly 71% to a recent high of 88.7% according to Milliman.

Given the improved funding, are U.S.-based pension plans de-risking? Unfortunately, no. They continue to operate with an objective to maximize the return on the assets and not with the more appropriate objective to SECURE the promises made to their members. The former objective continues these plans on a rollercoaster of returns. Regrettably, a return focus only guarantees volatility: volatility of returns leading to volatility of contributions and ultimately the funded status of the plan. It makes little sense.

Adopting an objective that is focused on securing the pension promises creates an element of certainty within the management of pensions not often found, if at all. By securing the promises, one dramatically improves the liquidity needed to meet those monthly obligations. It also creates a longer investing horizon for the assets not used to meet the plan’s liquidity.

We believe that Cash Flow Matching (CFM) is the only strategy that creates the necessary liquidity with certainty, as the asset cash flows of principal and interest are matched to the liability cash flows of benefits and expenses. There is no sweeping of the dividends and capital distributions, which should be reinvested in the products with higher potential returns and NOT used for distributions to beneficiaries.

As your plan’s funded status improves, respond by allocating more of the plan’s assets to CFM. Don’t let your winnings ride. Take risk form the plan’s asset allocation in a responsive way to positive changes in the plan’s funded status. Markets have been producing outsized positive returns, but standard deviations measure both upside and downside possibilities. Is your plan’s sponsor able to withstand a major market correction similar to what we’ve seen previously (2000-’02 and 2007-’09)? Will the likely increase in contributions be crushing?

Who knows what is going to happen with interest rates, inflation, the price of oil, equity markets, etc. Bringing some certainty to pension management should be everyone’s objective. If done correctly, everyone will be able to sleep well at night knowing that your future promises have been secured no matter what transpires in markets that remain out of our control.

08.04.26
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Really, WSJ?

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

The WSJ’s editorial board recently published an article based on a new report from Equable Institute highlighting AI’s positive contribution to public pension plans (public workers) and the taxpayers that fund the pensions. This assessment is based on the fact that the AI “market boom” specifically and NASDAQ’s performance generally have continued to generate outsized returns despite so much global uncertainty.

The market’s strong performance has boosted the funded ratios of government pension funds, which Equable estimates hit 85% nationwide this year—the highest level since 2007. Equable estimates that roughly 8% to 10% of government pension funds are benefiting from their investments in about 50 publicly traded AI-related companies. Their analysis doesn’t include investments in privately managed funds that own stakes in private AI companies like OpenAI and Anthropic. 

Equable highlighted the fact that while AI is yielding positive returns for pension funds, the magnitude of the outperformance also bears a warning. They claim that nearly 32% of every $ going into a pension plan is paid by the employers (aka taxpayer), and that should the AI bubble burst, it could lead to significantly higher taxpayer contributions. The WSJ stated that some AI company valuations may be stretched in the current boom and could be in for a correction. They also mentioned that government policies that seek to slow AI including robot taxes and data-center moratoriums—could stifle the boom. 

If that correction becomes reality, taxpayers would be stuck paying much bigger pension bills, which could force worker layoffs as happened after the 2008-09 Great Financial Crisis. They claim that it would be better for governments to move workers to 401(k)-style plans that reduce the risk for taxpayers and give public workers a direct stake in the success of AI and other companies. 

So let me get this straight: the WSJ editorial board is concerned that a potential AI correction might just happen because of stretched valuations leading to greater taxpayer funded contributions, so to minimize that potential risk, it would be better to shutter public pension plans and force public sector workers into DC-like programs. If they are concerned that valuations are stretched perhaps leading to a correction, why would they want public workers to have a direct stake in the “success” of AI and other companies?

I’m sorry, have the folks at the Journal not seen the median account balances for those in DC-styled plans? Do they understand that asking workers – public or private – to fund, manage, and then disburse a “retirement” benefit with little disposable income, no investment acumen, and no crystal ball to help with longevity issues is just silly? Do they not also realize that the public sector workers (roughly 20 million) pay taxes, too. They also buy things which leads to economic activity and job growth. Do we really want our Senior population sitting on the economic sidelines because they can no longer afford to participate? We’ve already messed up retirement for a good portion of the private sector. Enough is enough!

07.29.26
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There Is No “One Size Fits All” Asset Allocation

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

I recently attended a public pension conference in which the following question was asked by the moderator: Should public pension funds once again adopt a 60%/40% asset allocation framework? As a reminder, there may be an average exposure that results from a review of all public fund data, but there is NO such thing as an appropriate or standard asset allocation. Given that every defined benefit plan has its own unique liabilities, funded status/funded ratio, different workforces, ability to contribute, etc., how could there be a standard exposure to any asset class, let alone a standard 60% equity/40% fixed income allocation.

I’m sure that this question originates through the belief that the pension objective is to achieve a return on asset (ROA) assumption, as if there is some magic combination of assets and weightings that will enable the pension plan to achieve the return target. However, as regular readers of this blog know, we, at Ryan ALM, think that the primary objective when managing a DB pension plan is NOT a return objective but it is to SECURE the promised benefits at a reasonable cost and with prudent risk.

Pursuing a return objective guarantees volatility – volatility of returns, contributions, and funded status. It does not guarantee success! Regarding the volatility of returns, the annual standard deviation for a pension plan’s asset allocation is roughly 12%-15%. Refocusing on the plan’s unique liabilities secures, through cash flow matching (CFM), the monthly promises (benefit payments) from the first month out as far as the allocation will cover. Through this process the necessary liquidity is provided each month, while also providing the additional benefit of extending the investing horizon for the remainder of the assets that are no longer needed as a source of liquidity. We refer to these residual assets as the alpha or growth assets that now can grow unencumbered.

These growth assets can be invested almost anyway that you want. You can decide to just buy the S&P 500 index at low fees or construct a more intricate asset allocation with exposures and weightings of your choice. Again, there is no one size fits all solution. We do suggest that the better the funded ratio/status of your plan, the greater the allocation to the CFM strategy. If your plan is less well funded today, start with a more modest CFM allocation, and expand it as funding levels improve. In any case, you are bringing an element of certainty to what has been historically a very uncertain process.

So, please remember that every DB plan is unique. Don’t let anyone tell you that your fund needs to have X% in asset class A or Y% in asset class B. Securing the benefits should be the most important decision. How you build the alpha portfolio will be a function of so many other factors related specifically to your plan and its governance.

07.22.26
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A “Joe Friday” Moment

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

Jack Webb, who portrayed Joe Friday in the 1950s crime drama “Dragnet”, was famous for saying in season two “all we want are the facts, ma’am.” The catchphrase eventually morphed into a shorter phrase with the help of comedian, Stan Freberg, who released his parody “St. George and the Dragonet” in which he stated, “just the facts, Ma’am”. That phrase has been carried forward in Dragnet remakes. But, I digress.

Today, I present to you a Joe Friday moment. Here are the facts: Oil prices have risen by 27% since July 6th. U.S. Treasury yields are rising across the yield curve, and the 30-year Treasury yield is within 6 bps of this cycle’s high of 5.2%. The 10-year Treasury yield is currently 4.66% as of 10:24 am on 7/22/26. Investment grade corporate bond spreads have finally started to widen although slowly. According to Morgan Stanley, the “average” yield on a BBB+ corporate is 6.23% or roughly 1.1% higher than the yield on the comparable 30-year Treasury bond. Inflation, which moderated in June, is likely to spike higher given the current direction of activity in the Middle East and its impact on shipping lanes.

These are the facts. They suggest to me, and hopefully you, that the current U.S. interest rate environment is ripe for de-risking activities through cash flow matching (CFM). Why continue to live with the uncertainty surrounding oil, inflation, rates, etc., when you can SECURE your fund’s promises in the near-term?

I wish that I had a crystal ball to help me forecast the future but alas I don’t, and I suspect that you don’t either. Given the lack of clarity related to future events, I suggest that we live in the moment. We have an environment in which the cost of those future promises (benefit payments) can be cut dramatically. An environment that brings an element of certainty to a very uncertain process. An environment in which U.S. interest rates are providing plan sponsors with a significant portion of the annual return on investment target.

We’ve seen this scenario before. At the start of the 2000s, we had pension plans extremely well-funded and contribution expenses well-controlled. That opportunity went unheeded. The result of that inaction proved to be disastrous as we saw DB pension funding get pounded by two major equity market corrections. Are you confident that another major correction isn’t around the corner?

Like Joe Friday, I rely on the facts, which I’ve now presented to you. Ignore them at your peril.

07.08.26
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Complexity Doesn’t Make it Good or Appropriate

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

We have a serious retirement problem in the U.S. Defined benefit plans have mostly been replaced in the private sector, and rising contribution levels are making public pension offerings problematic for the sponsoring entities. These issues are compounded by the fact that many defined benefit plans have migrated significant assets to opaque, complex, and costly alternative investments. In the process, creating liquidity to meet ongoing benefits and expenses has become more challenging.

Managing a DB pension plan isn’t complicated, yet we continue to make it so. I read an Institutional Investor article with interest, and some alarm, that a public pension system operating with negative cash flow (contributions < benefits and expenses) has decided that the best way to address the liquidity shortfall is to move assets into “”a lot more esoteric lending strategies” like asset-based finance and royalty-based lending in sectors such as entertainment, healthcare, and aircraft engine leasing.” The CIO for this fund continued, “we’re going into a lot of illiquid structures, so we structure the portfolio to make sure we have enough liquidity to meet our benefit payments at all times,” Really????

Going into illiquid structures to ensure adequate liquidity seems oxymoronic. We’ve seen what has transpired in both private equity and private debt regarding distributions and the lack thereof. Again, our industry often brings complexity to a problem when there are far simpler ways to tackle an issue. For decades, Cash Flow Matching (CFM) has carefully matched asset cash flows of bond interest and principal with the liability cash flows of benefits and expenses (B&E) chronologically. There is no hoping that the liquidity will be available when needed.

U.S. rates are currently at levels providing plan sponsors with the ability to SECURE future B&E at low cost and with certainty barring any defaults in IG bonds (<0.2%/year for the last 40-years). Why engage in expensive, opaque “solutions” when a CFM strategy can be adopted for pennies on the $. CFM is a-sleep-well-at-night strategy, which will be comforting to not only the plan sponsor but the plan’s participants. Please stop thinking that a solution needs to be complex to be good. Some of the very best approaches are transparent, straight-forward, and inexpensive: like CFM!

07.06.26
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It’s The Wrong Benchmark!

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

Mark Stricherz has penned an article for The Center Square discussing the Pennsylvania Public-School Employees’ pension fund and its $41 billion shortfall. The gist of article centered on the fact that PSERS failed to exceed it’s investment benchmark last years which fund officials blamed on private equity.

A bit of background: As of Dec. 31, PSERS held $85.3 billion in assets, including $10.1 billion in private equity. Long-term return expectations for this asset class were an annual 10.06% return. The precision of the return expectation seems a bit silly and quite modest given the asset class’s poor transparency, lack of liquidity, and excessive fees. As a point of comparison, the S&P 500 returned 11.4% for the 20-years through June 30, 2026. Regrettably, PSERS’ PE funds produced only a 2.59% last year. As ugly as that return is, that is NOT the reason that PSERS is $41 billion in the whole and Pennsylvania taxpayers on the hook.

An investigation by The Center Square found that private equity was the only one of PSERS’ eight asset classes to miss its benchmarks over one-, three-, five-, 10- and 15-year periods. Interesting! I find it hard to believe that the fund had this kind of relative outperformance and yet still must deal with a $41 billion shortfall. Again, I don’t believe that PE is the sole cause.

As I’ve been reporting for years, the primary objective in managing a defined benefit plan is NOT one focused on return (the ROA). It is the SECURING of the promised benefits at a reasonable cost and with prudent risk. It is a LIABILITY objective. It doesn’t matter that a plan’s assets outperform their respective asset class objectives if the plan’s total fund fails to exceed liability growth. Presently, there are roughly 500,000 members and beneficiaries counting on those promised benefits.

A successful DB pension plan understands its commitments. You’ve made a promise: measure it – monitor it – manage it – and SECURE it! Focusing on return only guarantees volatility. Volatility of returns, contributions, and funded status. Get off the performance rollercoaster.


06.30.26
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As a Fiduciary, Would you…

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

Regrettably, the investment industry has trained pension fiduciaries to think in terms of returns:

  • “Can we earn 7.25%?”
  • “Can we outperform the benchmark?”
  • “Should we own more equities?”
  • “How about alternatives?”

But we at Ryan ALM, Inc. believe chasing returns is NOT the economic objective of a defined benefit plan. Pursuing a return objective only guarantees volatility and not success. Volatility of returns, volatility of the Funded Ratio, and volatility of contributions! We believe that the objective is much simpler:

Deliver every promised benefit at the lowest sustainable COST to the sponsor.

Given that objective, we help pension plans reduce the cost of delivering every pension promise through our turnkey pension sustainable solutions. Reducing cost and SECURING the promised benefits is what every stakeholder should desire from trustees, to sponsors, and most importantly, plan participants.

As a pension Fiduciary what would you do if given this choice?

Imagine two pension funds that both owe retirees $100 million over the next 30 years. One fund invests with the goal of earning the highest possible return, while the other invests with the goal of meeting every payment at the lowest expected long-term cost.

Which strategy sounds more prudent? We believe that most trustees will immediately recognize that the second action better aligns with their responsibilities as Fiduciaries.

Here’s another example to consider. Lets think about funding your pension like you would a 30-year mortgage on your home.

Would you rather:

  • Put all your money in the stock market and hope it’s there when each payment comes due?

Or:

  • Structure your cash flows so each payment is already funded when it’s due?

I believe (hope) that most people would choose the second option for a monthly obligation they cannot afford to miss. Funding your monthly benefits is the exact same thing. Why not ensure that those benefits have been secured and the liquidity available as far into the future as possible through a cash flow matching (CFM) portfolio. It is absolutely time to get off the performance rollercoaster. Bring some certainty to a very uncertain process.

In conclusion, the primary pension objective is to pay every promised benefit at the lowest sustainable cost. Everything we do at Ryan ALM follows from that premise.

06.25.26
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The Ryan ALM, Inc. Blog

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

Are you a recent subscriber (thank you) to the Ryan ALM, Inc. blog? Here’s a little history. I began writing this blog in 2013. I’ll never forget my elementary school friend, Tony, who helped me set up the blog, saying that I shouldn’t start one if I wasn’t going to be consistent in producing content. Well, 13-years later and there are now 1,800+ mostly pension-related posts and more than 600k words. When I joined Ryan ALM, Inc. in the summer of 2019, I was extremely grateful to Ron Ryan for supporting this effort and that support continues to this day, while also being a contributor of important content.

As a new subscriber, what should you expect to read among the plethora of posts? I believe the dominant themes are:

  1. DB Pensions exist to secure promised benefits, not maximize returns.
  2. Pension Liabilities should drive investment decisions and not the ROA.
  3. Funded status matters much more than asset returns.
  4. Cash Flow Matching (CFM) is the most prudent way to secure benefits.
  5. Custom Liability Indexes (CLI) are essential for measuring pension success – good governance.
  6. Reducing uncertainty through fully funding benefits is the true definition of pension risk management.
  7. Defined benefit plans should be protected and preserved.

As a reminder, Ryan ALM, Inc. is an independent pension risk management and SEC registered investment firm that helps defined benefit plans improve funded status, reduce liability risk, enhance liquidity, and secure retirement promises through custom liability measurement, cash flow matching, actuarially informed investment strategies, and ongoing monitoring.

Don’t hesitate to reach out to us with your questions and/or comments. They are always welcome on this blog, which can be found here.

06.17.26
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Just Another Meme Stock?

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

Equity markets are partying like it’s 1999! Valuations be damned! Are the improved funded ratios for defined benefit plans going to be secured through de-risking strategies or are they going to once again be subjected to the whims of the capital markets? For plan sponsors benchmarking your equity exposure to the S&P 500, are you prepared for the volatility potentially associated with the great technology concentration (now roughly 50% of the index)? For those invested in the Nasdaq indexes, are you prepared for SpaceX’s impact, which should happen soon?

Come on, folks. Let’s not repeat the mistakes of the past. Higher interest rates, higher inflation, crazy equity valuations, and geopolitical uncertainty have not seemed to tamp enthusiasm for U.S. stocks. What will? Will it take a stock like SpaceX – now valued at $2.75 trillion – to be the reason that stocks fall back to earth? SpaceX has been trading for three days. The action on the stock suggests that it is just another meme stock.

Can you believe that SpaceX has overtaken Amazon as America’s fifth-largest company? A closer examination of the fundamentals shows just how irrational our markets/investors have become. Let’s look at the current fundamentals of Amazon versus SpaceX.

Valuation

MetricSpaceXAmazon
Revenue$19.30B TTM $716.9B in 2025 
Earnings-$9.36B TTM $77.7B net income in 2025 
P/S137.7x about 3.5x 
P/E-284.2x about 34x normalized 

SpaceX’s valuation is being priced as an extraordinarily high-growth story, despite being a money-losing company, which is why its P/S is dramatically higher than Amazon’s. Amazon, by contrast, already has large-scale revenue and meaningful profitability, so its valuation looks much more grounded in current fundamentals, despite it carrying a rich valuation at 34x normalized earnings.

Profitability

Amazon is clearly ahead on earnings quality: it generated $80.0B of operating income and $77.7B of net income in 2025. SpaceX, on the other hand, reported a $9.36B trailing-twelve-month loss and a negative net margin.

Growth profile

Clearly, SpaceX’s case is mostly about future optionality: investors are paying for expected expansion in launch, satellite, and adjacent businesses rather than present-day profits. Amazon’s case is more balanced because it combines growth with profitability, especially from AWS and advertising, which support its margins.

SpaceX will need to increase sales by roughly 37x to match Amazons P/S of 3.5x. Nothing grows to the heavens – even a rocket company. Risks to pension funding seem to be skewed to the downside. It is time to take some profits and secure the promises that have been given to your plan participants. Please don’t waste another golden opportunity to fortify your plan’s funding.

06.12.26
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Try Clapping With One Hand

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

The only reason that your DB pension plan exists is because a promise was given to your participants that they would receive a monthly benefit for life upon meeting some requirements such as years employed and retirement age. The promise wasn’t based on whether your particular pension fund achieved the annual return on asset assumption (ROA). If the ROA was achieved – great. Contributions would be as forecasted by your actuary. If not, it would be time to ante up more in annual contributions. But at the end of the day, you remain on the hook to make that monthly payment.

Given that reality, does it make sense that the primary focus is on the ROA and not the promised benefits? Regrettably, for most of Pension America, the annual ROA is the goal. However, pursuing that objective only guarantees volatility and not success. On the other hand, we, at Ryan ALM, Inc., believe that the primary pension objective is to SECURE the promised benefits at a reasonable cost and with prudent risk. By securing that promise, you eliminate uncertainty and volatility in the funded status.

Here’s the rub, the pension liabilities are the domain of the actuaries, while asset allocation falls to the asset consultants. How often do those entities communicate? How often do you as the plan sponsor know how that promise you made is behaving? Does it make sense to you that assets are constantly being measured while the liabilities may get a once per year update 4-6 months delayed? Wouldn’t it make much more sense to have both the assets and liabilities updated at the same time so that asset allocation adjustments could be made as necessary?

Think about a bridge with two primary supports. One of the supports are representative of the actuaries and the other one is the asset consultants. To get from one side of the pension canyon to the other side, there needs to be a connector. What entity is that? It is not your investment managers, who are focused on a generic benchmark and not your plan’s liabilities. Ryan ALM believes that we can be that entity, as we provide a turnkey system of sustainable solutions to make sure that each pension fund that we support understands the promises that have been made, develops the correct cash flow roadmap, and carefully constructs the necessary match between liability cash flows of benefits and expenses with the asset cash flows (principal and interest) from IG bonds to SECURE those monthly promises.

Our mission is to secure your promises at both low cost and with prudent risk. It is not to have you sit firmly on the rollercoaster of market returns with the hope that the plan’s asset allocation will deliver a return near the ROA. The current breakdown in communication between actuaries and asset consultants is like trying to clap with one hand. As hard as you try, it just won’t work. Let Ryan ALM be your bridge. With us you’ll receive a monthly Custom Liability Index (CLI) based on your fund’s forecasted liabilities, monthly liquidity chronologically as far into the future as your allocation to a cash flow matching (CFM) mandate covers, time for the residual assets (alpha assets) to grow, low cost management fees, ongoing monitoring of the relationship of assets to liabilities, and a stable funded ratio and contribution expenses for that portion of the plan. We connect assets to liabilities through our proprietary turnkey system of four products. Think of us as the maestro leading the orchestra. Both hands are working for you and your participants.