Tag Archives: db-pensions

11.04.26
by

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
by

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!”

10.14.26
by

PBGC Premiums: Helpful Or A Burden?

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

I’ve written often about the demise of the traditional defined benefit pension plan. We’ve gone from a retirement system in which employers provided workers with a monthly benefit for life to one in which employees are increasingly expected to fund, manage, and then disburse their own retirement benefit. There are many reasons for this transformation. But here’s one that deserves much more attention: Have PBGC premiums helped accelerate the demise of the pension plans the PBGC was created to protect?

The Pension Benefit Guaranty Corporation (PBGC) was established by ERISA in 1974 to protect the retirement incomes of participants in private-sector defined benefit plans. That is an incredibly important mission. But protecting pension promises requires pension plans to exist in the first place. Unfortunately, the cost of maintaining a traditional pension has increased dramatically, and I believe that PBGC premiums have become part of that burden.

Consider what has happened. In 2012, the flat-rate PBGC premium for a single-employer plan was $35 per participant. By 2026, it is $111. Even more significant is the variable-rate premium assessed on underfunded plans. That charge has risen from $9 per $1,000 of unfunded vested benefits in 2012 to $52 today. In other words, before considering the participant cap, an employer can effectively pay an additional 5.2% annually on its unfunded vested pension liability simply for the privilege of continuing to sponsor the plan.

This image has an empty alt attribute; its file name is image-1.png

Since 2012, consumer prices have risen approximately 47%. Over the same period, PBGC’s flat-rate premium has increased 217%, while its variable-rate premium has increased 478%.

Suppose an employer has $100 million in unfunded vested benefits and isn’t constrained by the per-participant cap. The variable-rate premium alone could theoretically amount to roughly $5.2 million per year. That money doesn’t improve the plan’s funded status. It doesn’t purchase bonds to secure future benefit payments (cash flow matching). It doesn’t generate investment income for the pension trust. And it doesn’t pay a retiree’s monthly pension benefit. It goes to the PBGC.

I’m certainly not suggesting that PBGC premiums are solely responsible for the decline of defined benefit plans. They aren’t. Accounting changes, funding volatility, investment risk, interest-rate movements, longevity risk, regulatory complexity, and the introduction of defined contribution plans have all contributed. Furthermore, the decline in private-sector DB plans began long before today’s higher premiums existed. But those increases have not helped sponsors maintain DB plans.

Interestingly, the PBGC’s single-employer insurance program is no longer in the precarious financial condition that originally helped justify dramatic premium increases. In fact, the PBGC now enjoys a $64.9 billion surplus as of the end of fiscal year 2025, including a $62.2 billion surplus for private pension plans. Wow! Yet employers maintaining DB plans continue to face substantial and ever increasing premiums. We should at least be asking whether those premium levels remain appropriate.

The PBGC was created to protect pension promises. That’s a mission I strongly support. But if the cost of that protection contributes to employers deciding they no longer want to provide those promises, we have a problem worth discussing.

10.06.26
by

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
by

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.

09.10.26
by

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.

08.28.26
by

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.

08.06.26
by

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
by

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
by

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.