Tag Archives: db-pensions

06.16.25
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The Power of Bond Math

By: Ronald J. Ryan, CFA, Chairman, Ryan ALM, Inc.

Bonds are the only asset class with the certainty of its cash flows. That is why bonds have always been used to cash flow match and defease liabilities. Given this certainty, bonds provide a secure way to reduce the cost to fund liabilities. This benefit is not as transparent or valued as one might think. If you could save 20% to 50% on almost anything, most people would jump at the opportunity? But when it comes to pre-funding pension liabilities there seems to be a hesitation to capture this prudent benefit.

Bond math tells us that the higher the yield and the longer the maturity… the lower the cost. Usually there is a positive sloping yield curve such that when you extend maturity you pick up yield. What may not be evident is the fact that extending maturity is the best way to reduce costs even if yields were not increased. Here are examples of what it would cost to fund a $100,000 liability payment with a bond(s) whose maturity matches the liability payment date:

Cost savings is measured as the difference between Cost and the liability payment of $100k. As you can see, extending maturity produces a much greater cost reduction than an increase in yield. More importantly, the cost reduction is significant no matter what maturity you invest at, even if yields are unchanged. The cost savings range from 21.9% (5-years) to 38.1% (10-years) and 62.8% (20-years) with rates unchanged. Why wouldn’t a pension want to reduce funding costs by 21.9% to 62.8% with certainty instead of using bonds for a volatile and uncertain total return objective? Given the large asset bases in many pensions, such a funding cost reduction should be a primary budget consideration.

Ryan ALM is a leader in Cash Flow Matching (CFM) through our proprietary Liability Beta Portfolio™ (LBP) model. We believe that the intrinsic value in bonds is the certainty of their cash flows. We urge pensions to transfer their fixed income allocation from a total return objective versus a generic market index (whose cash flows look nothing like the clients’ liability cash flows) to a CFM strategy. The benefits are numerous:

Secures benefits for time horizon LBP is funding (1-10 years)

Buys time for alpha assets to grow unencumbered 

Reduces Funding costs (roughly 2% per year)

Reduces Volatility of Funded Ratio/Status

Reduces Volatility of Contribution costs

Outyields active bond management

Mitigates Interest Rate Risk 

Low fee = 15 bps

For more info on our Cash Flow Matching model (LBP) or a free analysis to highlight what CFM can do for your plan, please contact Russ Kamp, CEO at rkamp@ryanalm.com

06.16.25
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ARPA Update as of June 13, 2025

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

I hope that you and/or the men in your life had a wonderful Father’s Day.

Regarding the ARPA legislation and the PBGC’s oversight, last week was fairly tame in terms of activity. There weren’t exciting developments such as approvals or submissions of applications, as access to the PBGC’s eFiling portal remains “limited”, which means that it “is open only to plans at the top of the waiting list that have been notified by PBGC that they may submit their applications. Applications from any other plans will not be accepted at this time.”

There were no applications denied, withdrawn, and no further recipients of the SFA required to repay a portion of the grant due to census errors. It has been a little over a month (5/5/25) since the last plan repaid a portion of the SFA. As I’ve mentioned several times, there likely aren’t many plans that still might be asked to return a portion of the grant monies.

So what did transpire during the previous week? Well, mutliemployer plans continue to be added to the waitlist. In fact, since April 30, 2025, twenty pension plans have been added to the list. In total, 136 pension plans have sought Special Financial Assistance through the waitlist path with 56 of those yet to file an application with the PBGC. Two of the recent waiting list additions to the waitlist have locked in the valuation date as of March 31, 2025. As a reminder, a “lock-in application will set the plan’s SFA measurement date and base data but has no impact on the process PBGC follows for accepting complete SFA applications for review”, per the PBGC.

Continuing uncertainty surrounding economic policies and geopolitical risks has U.S. Treasury yields hovering around cycle highs. This rising rate environment is not helpful to active core fixed income managers, but it is quite helpful to plan sponsors looking to secure the promised benefits through the SFA grants.

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.

06.02.25
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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.

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?

05.13.25
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Bonds Are NOT Performance Instruments

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

As we wrote a year ago this past April, it is time to Bag the Agg. For public pension plan sponsors and their advisors who are so focused on achieving the return on asset (ROA) assumption, any exposure to a core fixed income strategy benchmarked to the Aggregate index would have been a major drag on the performance since the decades long decline in rates stopped (2020) and rates began to rise aggressively in early 2022. The table below shows the total return of the Bloomberg Aggregate for several rolling periods with returns well below the ROA target return (roughly 7%).

For core fixed income strategies, the YTW should be the expected return plus or minus the impact from changes in interest rates. Again, for nearly 4 decades beginning in 1981, U.S. interest rates declined providing a significant tailwind for both bonds and risk assets. What most folks might not know, from 1953 to 1981 U.S. interest rates rose. Could we be at the beginning of another secular trend of rising rates (see below)? If so, what does it mean for pension plans?

Rising rates may negatively impact the price of bonds, but importantly they reduce the present value (PV) of future benefit payments. They also provide pension funds and their advisors with the option to de-risk the plan through a cash flow matching (CFM) strategy as the absolute level of rates moves closer to the annual ROA. Active fixed income management is challenging. Who really knows where rates are going? But we know with certainty the cash flows that bonds produce (interest income and principal at maturity). Those bond cash flows can be used to match and fully fund liability cash flows (benefits and expenses). A decline in the value of a bond will be offset by the decline in the PV of the plan’s liabilities. So, a 5-year return of -0.3%, which looks horrible if bonds are viewed as performance instruments may match the growth rate of liabilities it is funding. Using bonds for their cash flows, brings certainty and liquidity to the portion of the plan that has been defeased.

Are you confident that your active fixed income will produce the YTW or better? Are you sure that U.S. interest rates are going to fall from these levels? Why bet on something that you can’t control? Convert your active core bond program into a CFM portfolio that will ensure that your plan’s liabilities and assets move in lockstep no matter which direction rates take. Moreover, CFM will provide all the liquidity needed to fund benefits and expenses thereby eliminating the need to do a cash sweep. Assume risk with your growth assets that will now have a longer investing horizon because you’ve just bought plenty of time for them to grow unencumbered.

05.13.25
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My Wish List as a Pension Trustee

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

I’ve been a trustee for a non-profit’s foundation fund. I haven’t been a Trustee for a defined benefit pension plan, but I’ve spent nearly 44-years in the pension industry as both a consultant and investment advisor working with many plan sponsors of varying sizes and challenges. As anyone who follows this blog knows, Ryan ALM, Inc. and I are huge advocates for DB pension plans. We believe that it is critical for the success of our retirement industry that DB pension plans remain at the core of everyone’s retirement preparedness. Regrettably, that is becoming less likely for most. However, if today I were a trustee/plan sponsor of a DB pension plan, private, public, or multiemployer, this would be my wish list:

  • I would like to have more CERTAINTY in managing my DB pension fund, since all my fund’s investments are subject to the whims of the markets.
  • I would like to have the necessary LIQUIDITY to meet my plan’s benefits every month without having to force a sale of a security or sweep income from higher growth strategies (dividends and capital distributions) that serve my fund better if they are reinvested.
  • I would like to have a longer investing HORIZON for my growth (alpha) assets, so that the probability of achieving the strategy’s desired outcome is greatly enhanced.
  • I don’t want to have to guess where interest rates are going, which impact both assets (bond strategies) and liabilities (promised benefits). Bonds should be used for their CASH FLOWS of interest and principal at maturity.
  • I don’t want to pay high fees without the promise of delivery.
  • I’d like to have a more stable funded status/funded ratio.
  • I want annual contribution expenses to be more consistent, so that those who fund my plan continue to support the mission.
  • I want my pension fund to perform in line with expectations so that I don’t have to establish multiple tiers that disadvantage a subset of my fund’s participants.
  • I want my fund to be sustainable, even though I might believe it is perpetual.

Are My Desired Outcomes Unreasonable?

Absolutely, not! However, there is only one way to my wish list. I must retain a Cash Flow Matching (CFM) strategy, that when implemented will provide the necessary liquidity, extend the investing horizon, eliminate interest rate risk, bring an element of certainty to a very uncertain process, AND stabilize both contribution expenses and the funded status for that portion of the portfolio using CFM.

Is there another strategy outside of an expensive annuity that can create similar outcomes? NO! I believe that the primary objective in managing a DB plan is to SECURE the promised benefits at a reasonable (low) cost and with prudent risk. CFM does that. Striving to achieve a return on asset (ROA) through various fixed income, equity, and alternative strategies comes with great uncertainty and volatility.  The proverbial rollercoaster of outcomes. The CFM allocation should be driven by my plan’s funded status. The higher the funded status, the greater the allocation to CFM, and the more certainty my fund will enjoy.

I believe that since every plan needs liquidity, EVERY DB pension fund should use CFM as the core holding. I want to sleep well at night, and I believe that CFM provides me with that opportunity. What do you think?

05.12.25
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ARPA Update as of May 9, 2025

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

Happy belated Mother’s Day to all the Moms. We hope that you had a special day.

Pleased to report that the PBGC had a very productive week ending last Friday. There were several actions taken including the filing of three initial applications from the waitlist. Alaska United Food and Commercial Workers Pension Fund, Local 73 Retirement Plan, and Local 807 Labor-Management Pension Fund are hoping to secure nearly $300 million for just over 10k plan participants. With these filings, the PBGC currently has 29 applications under review. As a result, their eFiling portal is temporarily closed. As per the legislation, they must act on an application within 120 days. The United Food and Commercial Workers Unions and Employers Pension Plan application reaches that milestone on May 17th. As a reminder, they are seeking $54 million in SFA for there more than 15k members. The PBGC will have its hands full during the next month, as 10 pension plans have applications hitting their 120-day window during June.

In other ARPA news, there were no applications approved, denied, or withdrawn during the past week. However, there was one more fund that repaid a portion of the SFA grant received due to census errors. Local Union No. 863 I.B. of T. Pension Plan repaid $3.2 million in SFA or about 1% of the grant received. To date, 55 plans have reported on potential census errors prior to the PBGC having access to the Social Security Master Death File. Of those 55, 51 have repaid a portion of the proceeds received totaling $214.8 million or 0.44% of the $48.4 billion in SFA received by those funds.

Lastly, there was one more plan added to the waitlist. Greenville Plumbers and Pipefitters Pension Fund becomes the 119th pension fund to seek SFA without being a priority group member. As reflected below, there are 38 pension funds from the waitlist that have yet to file an application with the PBGC.

Recent activity within the U.S. Treasury market have pushed long-term rates up. As of this morning, the 30-year Treasury Bond yield is at 4.89%, while the 10-year Treasury Note’s yield is at 4.48%. Both are quite attractive for a plan looking to secure the promised benefits through the SFA grant.