Tag Archives: fasb

09.03.25
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Ryan ALM discount rates: ASC 715 and ASC 842

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

As we enter the final third of 2025 (how is that possible?), actuaries, accounting firms, and pension plan sponsors may begin reviewing their current discount rate relationship(s). If you are one of those, you may want to speak with us about the Ryan ALM discount rates. Since FAS 158 became effective December 15, 2006, Ryan ALM has created a series of discount rates in conformity to then FAS 158 (now ASC 715). Our initial and continuous client is a BIG 4 accounting firm, which hopefully testifies to the integrity of our data.

The benefits of the Ryan ALM ASC 715 Discount Rates are:

  1. Selection – we provide four yield curves: High End Select (top 10% yields), Top 1/3, Above Median (top 50%), Full Universe
  2. Transparency – we provide very detailed info for auditors to assess accuracy and acceptability of our rates
  3. Precision – precise and consistent reflection of current/changing market environment (more maturity range buckets, uses actual bond yields rather than spreads added to Treasury yield curve, no preconceived curve shape/slope bias relative to maturity/duration) than most other discount rate alternatives  
  4. Competitive Cost – our discount rates are quite competitive versus other vendors and can be purchased with a monthly, quarterly, or annual subscription
  5. Flexibility – we react monthly to market environment (downgrades, gaps at certain maturities) with flexibility in model parameters to better reflect changing environment through variable outlier exclusion rules, number of maturity range buckets, and minimum numbers of bonds in each maturity range bucket to better capture observed nuances in the shape of the curve, especially at/near the 30 year maturity point where the market is sparse or nonexistent at times.
  6. Clients – our rates are used by individual plan sponsors, several actuarial and accounting firms including, as stated above, a Big 4 accounting firm
  7. Integration into Ryan ALM products – we use ASC 715 discount rates for our Custom Liability Index and Liability Beta Portfolio™ (cash flow matching) products

Development of our discount rates is the first step in our turnkey system to defease pension liabilities through a cash flow matching (CFM) implementation. Our Custom Liability Index (CLI) and Liability Beta Portfolio (LBP) are the other two critical products in our de-risking process/capability.

In addition to ASC 715, Ryan ALM provides ASC 842 rates, which is the lease accounting standard issued by the Financial Accounting Standards Board (FASB). This standard supersedes ASC 840 and became effective December 15, 2018, for public companies and December 15, 2021, for private companies and nonprofit organizations. Given the widespread prevalence of off-balance sheet leasing activities, the revised lease accounting rules are intended to improve financial reporting and increase transparency and comparability across organizations. ASC 842 will provide management better insight into the true extent of their lease obligations and lead to improvements in capital allocation, budgeting and lease versus buy decisions.

The discount rate to be used is the rate implicit in each lease. This could be difficult and not readily determined. In that case ASC 842 requires the lessee to use the rate that the company borrows at based on their credit rating. Ryan ALM can provide the ASC 842 discount rates based on each lessee borrowing rate or credit rating (i.e. A or BBB). We can provide these discount rates monthly, quarterly or whatever frequency is needed.

We’d be pleased to discuss with you our discount rates or any element of this state-of-the-art capability.

01.08.25
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Corporate Funding Improved Significantly in 2024!

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

Milliman is out with the year-end report on corporate pension funding and it tells a beautiful story. The Milliman 100 Pension Funding Index (PFI), is reporting an average 105% funded ratio at the end of 2024 compared to 99.5% at the end of 2023. But wait, assets for the top 100 plans only grew by 4.2%, which must have been below the stated ROA. Furthermore, total assets declined by $26 billion after accounting for benefits and expenses. How is that possible? Oh, I get it, the growth in liabilities matters.

Milliman is reporting that the discount rate used to value corporate pension liabilities increased 59 bps during the year from 5.0% at 12/31/23 to 5.59% as of year-end 2024. That significant move up in rates drove the present value of those pesky liabilities down by -$94 billion creating a $68 billion improvement in the asset/liability relationship and a significantly improved funded ratio! Congrats corporate America and the participants that you serve!

I was recently asked by an industry reporter if the “underperformance” of corporate plans versus other sponsoring groups – public and multiemployer – should be a concern. I, of course said NO, that managing a DB plan is all about the relationship of assets to liabilities. Both could have negative or positive growth rates, but if asset growth exceeds liability growth the plan wins! It is really a simple concept.

Now, I would suggest that corporate America get even more conservative at this time, as we live in an environment of stretched valuations, stubborn inflation, the prospect of higher rates, etc. Congrats on your collective victory. Secure those promises through a cash flow matching (CFM) strategy that will not only provide you with the security that the benefits are protected, but the enhanced liquidity and lengthened investing horizon for any residual growth assets will also be realized.

As always, thanks to Zorast Wadia and the Milliman organization for taking the time to produce this important analysis. Without good data, it is difficult to know how to play the game – assets versus liabilities is the name of the pension game!

12.09.24
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Corporate Pension Funding Improves, Again: Milliman

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

The Milliman 100 Pension Funding Index (PFI) has once again been produced (View the complete Pension Funding Index). The index, which includes the largest 100 U.S. corporate pension plans, reveals a positive change in the funded ratio for November 2024. Asset growth of 1.88% lifted the combined assets of these 100 plans by $18 billion, which was more than enough to overcome growth in the present value of the future benefit payments ($13 billion). The funded ratio improved to 103.5% from October’s 103.2%.

The discount rate for valuing pension liabilities now stands at 5.21% as of November 30, 2024. The current rate represents a 10 basis point decline from the end of October. “November saw the second consecutive month of improvement in the PFI funded ratio, with the 1.88% investment gain more than offsetting the rise in plan liabilities caused by falling discount rates,” said Zorast Wadia, author of the PFI.

Given the incredible performance of risk assets during the last two years, valuations appear very stretched. Many corporate plans have reduced risk through ALM strategies, including cash flow matching (CFM). It may be time to reduce asset allocation risk to a greater extent, especially for those plans that continue to manage the pension’s assets in a more traditional approach.

11.22.24
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And So It Is!

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Milliman has released the results for its Public Pension Funding Index (PPFI), which analyzes data from the nation’s 100 largest public defined benefit plans. They are reporting that the collective funded ratio deteriorated during the last month from 82.8% as of September 30th, to 81.2% as of October 31st, as the combined investments of these plans fell for the first time since April. The estimated return for the PFFI was -1.6%, as losses ranged from -2.9% to -0.6%. The $s lost were roughly $80 billion during the month. The funding deficit now stands at about $1.1 trillion.

You may recall that on November 8th, I produced a blog post titled, “Another Inconsistency”, in which I wrote about Milliman’s reporting of its corporate index that highlighted the fact that the collective funded ratio improved during the month despite asset losses due to the fact that liabilities fell to a great extent as interest rates rose.

I also wrote the following, “what do you think will happen in public fund land? Well, given weak markets, asset levels for Milliman’s public fund index will likely fall” (they did, as reported above). “Given that the discount rate for public pension systems is the ROA, there will be no change in the present value of public pension plans’ future benefit obligations (silly). As a result, instead of witnessing an improvement in the collective funded status of public pensions, we will witness a deterioration.” (and we did!) The inconsistency is startling!

Decisions with regards to benefits and contributions are made all the time based on information related to the funded ratio/status of these pension plans. Using different accounting standards clearly produces different outcomes that might just lead to inappropriate conclusions and the subsequent decisions. Oh, boy!

11.08.24
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Another Inconsistency

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

The US pension industry is so critically important for the financial future of so many American workers. The defined benefit coverage is clearly not what it once was when more than 40% of workers were covered by traditional pension. There were a number of factors that led to the significantly reduced role of DB plans as the primary retirement vehicle. At Ryan ALM we often point out inconsistencies and head-scratching activities that have contributed to this troubling trend. One of the principal issues has been the conflict in accounting rules between GASB (public plans) and FASB (private plans). We frequently highlight these inconsistencies in our quarterly Pension Monitor updates.

The most striking difference between these two organizations is in the accounting for pension liabilities. Private plans use a AA corporate yield curve to value future liabilities, while public plans use the return on asset assumption (ROA) as if assets and liabilities move in lockstep (same growth rate) with one another. As a reminder, liabilities are bond-like in nature and their present values move with interest rates. I mention this relationship once more given market action during October.

Milliman has once again produced the results for the Milliman 100 Pension Funding Index (PFI), which analyzes the 100 largest US corporate pension plans (thank goodness that there are still 100 to be found). During the month of October, investment returns produced a -2.53% result. Given similar asset allocations, it is likely that investment results will prove to be negative for public plans, too. We’ll get that update later in the month from Milliman, also. Despite the negative performance result for the PFI members, their collective Funded Ratio improved from 102.5% at the end of September to 103.4% by the end of October.

The improved funding had everything to do with the change in the value of the PFI’s collective liabilities, as US rates rose significantly creating a -0.35%  liability growth rate and a discount rate now at 5.31%. This was the first increase in the discount rate in six months according to Zorast Wadia, author of the PFI. The upward move in the discount rate created a -$51 billion reduction in the projected benefit obligation of the PFI members. That was more than enough to overcome the -$41 billion reduction in assets.

What do you think will happen in public fund land? Well, given weak markets, asset levels for Milliman’s public fund index will likely fall. Given that the discount rate for public pension systems is the ROA, there will be no change in the present value of public pension plans’ future benefit obligations (silly). As a result, instead of witnessing an improvement in the collective funded status of public pensions, we will witness a deterioration. The inconsistency is startling!

10.07.24
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Ryan ALM, Inc. 3Q’24 Pension Monitor

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

We are pleased to share with you the Ryan ALM, Inc. Q3’24 pension monitor. This quarterly report compares different liability growth rates (based on a 12-year average duration) versus the asset growth rate for public, multiemployer, and corporate funds based on the P&I asset allocation survey of the top 1,000 plans which is updated annually each November.

With regard to Q3’24, Public Pension funds (4.9%) outperformed Corporate Pension plans (3.6%) by 1.3% net of liability growth, as public pension plans had a much greater exposure to US equities (21.9%) versus Corporates (12.6%). The S&P 500 continues to produce exceptionally strong returns in this uncertain environment. From a liability standpoint, the ASC 715 discount rates (+4.6%) marginally trailed liability growth for both public and multiemployer plans that operate under GASB accounting rules using the ROA.

Please don’t hesitate to reach out to us with any questions that you might have regarding this monitor.

04.04.24
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Ryan ALM, Inc. Pension Monitor Q1’24

By: Russ Kamp, Managing Director, Ryan ALM, Inc.

We are pleased to share with you the Ryan ALM, Inc. Q1’24 pension monitor. This quarterly report compares different liability growth rates (based on a 12-year average duration) versus the asset growth rate for public, multiemployer, and corporate funds based on the P&I asset allocation survey of the top 1,000 plans which is updated annually.

With regard to Q1’24, Public pension funds (2.2%) underperformed Corporate Pension plans (3.7%) by 1.5% as ASC 715 discount rates showed a negative growth rate of -1.5% for Q1’24 while the discount rate using the average ROA (GASB accounting) would have appreciated by 1.8%. This outperformance by corporate pension plans was accomplished despite the much greater exposure to US fixed income within corporate pension plans (45.4%) versus both public (18.7%) and multiemployer (18.2%) and the far less exposure to US equities (12.6%) versus publics (21.9%) and multiemployer (22.2%).

Please don’t hesitate to reach out to us with any questions that you might have regarding this monitor.