Tag Archives: Interest Rates

03.09.26
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It’s Not Just the Price of Gasoline!

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

Folks (the investment community) seem to be focused on the rising price of oil for its effect on gasoline prices, but the impact of rising oil prices has far greater implications for the broader U.S. economy. Evidence indicates that a vast majority of manufactured goods and industrial processes use petroleum products that are feedstocks to make plastics, synthetic fibers, solvents, and many chemicals, which then become inputs into consumer goods, packaging, vehicles, electronics, building materials, and more.

Because plastics, synthetic fibers, and petrochemical-derived materials pervade sectors from automotive to consumer goods to packaging, a large majority of U.S. manufactured products (“most”) depend on oil products somewhere in their supply chain, either as material or as critical process input.

An extended increase in the price oil could have a dramatic impact on inflation, U.S. interest rates, the labor force, and overall economic activity. Have pension plans done enough to secure the necessary liquidity to meet the promised benefits and the expenses incurred to meet those monthly payments? Has the significant migration of pension assets to alternatives significantly reduced the available liquidity? Do plans understand that in crisis most asset classes tend to find correlations closer to 1 than 0, making the forced sale of assets to meet benefits challenging and more expensive.

Dividing a pension plans asset allocation into two buckets – liquidity and growth – as opposed to having the plan’s assets focused on the return on asset (ROA) assumption can mitigate liquidity risk. Use a cash flow matching (CFM) strategy to ensure that the necessary liquidity (asset cash flows of interest and maturing principal from bonds) is available to meet the liability cash flows of benefits and expenses monthly. While the CFM strategy is SECURING the promised benefits, the remainder of the assets can just grow unencumbered – no forced selling.

Who knows how long this conflict in the Middle East will last. Pension plans may be “long-term” investors, but they have short-term cash needs that must be met. There is no kicking the can down the road. Adopt this bi-furcated asset allocation and enjoy the benefits that come from the knowledge that your promises have been secured.

03.02.26
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Eliminate the Uncertainty

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

There are many benefits to using Cash Flow Matching (CFM) for your pension plan, endowment or foundation. The obvious benefit is the liquidity that is created to meet ongoing expenditures, whether benefit payments or grants. That liquidity comes at a premium today for many entities that have migrated significant financial resources to alternative investments, which are having a difficult time providing their investors with capital distributions.

The other significant benefit is the certainty that comes from using CFM. I’ve appreciated the opportunity to speak at NCPERS, IFEBP, LATEC, and OPAL in the last few months and in each case, I asked the audience if there was any investment strategy within their fund that brought certainty? Not a single hand was raised. They could have mentioned cash reserves as an example, but that is an expensive long-term strategy because of the low short-term yields available today.

The cloud of uncertainty under which we live is not comfortable! Yes, both pension funds and E&Fs are long-term investors, but the riding of markets up and down often leads to a significant increase in the contributions necessary to maintain their funding. That activity is not helpful to anyone. Who knows what will transpire as our country navigates through several potential geopolitical landmines. Combine that reality with uncertain economic growth, weaker labor markets, sticky inflation, and equity valuations that seem stretched, and markets could be in for a rocky period.

Wouldn’t it be a blessing to have CFM in place that not only provides the necessary liquidity so that assets aren’t forced to be sold at less than opportune times, but a strategy (service) that provides certainty since your obligations (liability cash flows) are matched with asset cash flows of bond principal and interest income for as far out as the bond and cash allocation will provide. It isn’t often that we are presented with an investment strategy that is truly a sleep-well-at-night offering for the long term. 

As a reminder, humans hate uncertainty, as it impacts us in both psychological and physiological ways. Yet, in the management of pensions and E&Fs, sponsors have wholeheartedly embraced uncertainty. The disconnect is quite surprising. Again, I don’t know what will transpire in markets today, tomorrow, or next year. I don’t know how the Iran situation will impact shipping lanes and the price of oil and inflation or worse, destabilize the entire region by bringing into the conflict Iran’s friends, such as Russia and China. I’m not a gambler and I don’t believe that managers of pension assets should be either.

I think it is critically important to SECURE the promises given to your plan’s participants and to achieve that objective with low cost and prudent risk. Riding the asset allocation rollercoaster accomplishes neither objective. Now’s the time to act. Not after markets have been rocked.

03.02.26
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ARPA Update as of February 27, 2026

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

Welcome to March and all the “madness” that comes with it!

Regarding ARPA and the PBGC’s implementation of this critical pension legislation, last week proved to be fairly quiet, and I imagine it will continue to be so, as the PBGC works through the remaining applications currently under review (14) and those that will likely be resubmitted (25). Quiet, unless some action is taken on the 80 plans sitting on the waitlist that were terminated by mass withdrawal prior to 2020.

During the past week there were no applications approved or denied, no pension plans were asked to repay a portion of their SFA and no pension funds asked to be added to the waitlist.

In other news, there was one revised application filed. Bricklayers Local No. 55 Pension Plan, a non-priority group member, is seeking $6.4 million for its 483 members. The PBGC has 120-days to review and approve the application before it is automatically accepted. The only other news of note related to two pension funds that withdrew applications. Non-priority group member, Retail Bakers’ Pension Trust Fund of St. Louis, withdrew its initial application. They’d been seeking $5.7 million for 566 plan members. Warehouse Employees Union Local 169 and Employers Joint Pension Plan, another non-priority group member, withdrew an already revised application in which they were hoping to secure $77.8 million for 3,609 plan participants.

The uncertainty related to action in Iran has U.S. Treasury yields rising across the Treasury yield curve as inflation concerns once again come into focus. Rising rates are challenging for bond investors unless a cash flow matching (CFM) strategy has been used. As a reminder, CFM will secure the promised benefits (and expenses, if desired) for as long as the SFA allocation lasts. As a reminder, those B&E are future values which are not interest rate sensitive. Importantly, higher interest rates will create more cost savings related to those future promises for pension plans still waiting to receive their SFA.

02.27.26
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Oh, Canada!

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

There were significant trade developments announced yesterday between the U.S. and Canada, which don’t seem to be getting the attention that they deserve. I wish that these developments were driven by Canada in retaliation for both the women’s and men’s gold medal performances in Italy, but it seems as if the U.S. is being a sore winner in this situation.

So, what happened yesterday? U.S. under President Trump has reclassified Canada from a Tier 1 allied trading partner to a Tier 3 restricted commerce nation through an executive order.​ Oh, boy, that sounds onerous. It seems as if this escalation follows tensions brought about by new U.S. tariffs on Canadian goods such as steel, lumber, and energy products prompting Canada to diversify partnerships with China, Mexico, and others. Previously, Canada ranked as the U.S.’s top export market and second-largest trading partner overall, with highly integrated supply chains in autos and energy. The move to tier 3 immediately increases tariffs to 35% on ALL Canadian goods – ouch! Furthermore, this classification places Canada in the same trading bucket as countries such as Belarus and Venezuela.

Not surprisingly, Canada, led by Prime Minister Mark Carney, is countering by pursuing deeper relations with China, Ecuador, Indonesia, and India to reduce U.S. reliance, which still accounts for nearly 70% of its exports. According to various press reports, the White House announced the order approximately two hours before it became public, automatically imposing a 35% tariff on all Canadian goods, financial restrictions, and a freeze on joint military contracts. Canadian Prime Minister Mark Carney responded within 90 minutes by announcing countermeasures in Parliament, including export controls on critical minerals, such as potash, and withdrawal from NORAD data sharing.​

This move is highly disruptive to integrated North American supply chains. The decision followed escalating U.S. tariffs and was defended in Trump’s recent State of the Union address.​​ Canada now faces sharp export declines to its largest market, potentially worsening its trade balance and likely depreciating the Canadian $. Business investment drops due to higher costs for US machinery, leading to layoffs, reduced GDP growth, and sustained inflation from tariff pass-throughs. The potential for retaliatory measures like export controls on minerals will further strain relations between these two long-term allies.

Please don’t think that this development only strikes at Canada’s economy. US consumers and industries will see higher input costs such as steel, which estimates suggest could be as high as $7.5B+, leading to inflation and eroding competitiveness in batteries, clean energy, and defense. Canadian retaliation reduces US exports, impacts GDP, and exacerbates supply chain vulnerabilities with no quick domestic substitutes.

Higher inflation will impact interest rates, leading to higher costs of borrowing, and depending on the significance of these developments could lead to a bear market environment and an economic slowdown concurrent with existing labor force concerns. So, why isn’t this getting more attention?

02.10.26
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ARPA Update as of February 6, 2026

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

It looks like those of us in the Northeast will finally get some respite from the bitter cold, as temps will moderate this week and actually hit the 30s. However, those multiemployer pension plans currently sitting on the waitlist and classified as a Plan Terminated by Mass Withdrawal before 2020 Plan Year, continue to be frozen in place. According to the PBGC’s latest update, there are 80 plans that fall under the Mass Withdrawal classification. I’ll share more info on this subject later in this post.

Regarding last week’s activity, the PBGC is reporting that one fund, Operative Plasterers & Cement Masons Local No. 109 Pension Plan, a Troy, MI, construction union, will receive $13.7 million for the 1,439 plan members. In addition to the one approval, there was another fund that withdrew its initial application. Norfolk, VA-based International Association of Bridge, Structural, Ornamental and Reinforcing Ironworkers Local No. 79 Pension Fund was seeking $14.6 million in SFA for 462 participants in the plan.

There were no applications submitted for review. It appears that only one non-mass withdrawal plan, Plasterers Local 79 Pension Plan, remains on the waitlist. Fortunately, there were no plans asked to rebate a portion of the SFA grant due to census errors or any funds deemed no eligible.

Regarding the 80 mass withdrawal funds currently sitting on the waitlist, MEPs terminated by mass withdrawal under ERISA §4041A(a)(2) are explicitly ineligible for SFA under ARP/IRA rules, regardless of application timing. Furthermore:

No “initial application” option exists post-termination date.

Mass withdrawal means that all/substantially all employers completely withdraw leading to a plan termination.

PBGC SFA statute excludes §4041A(a)(2) terminated plans.

For the 80 funds sitting on the waitlist, it seems like a long shot that the APRA legislation will be amended to accommodate these funds seeking SFA. I’ll continue to monitor this situation in future posts.

01.20.26
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ARPA Update as of January 16, 2026

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

We hope that the continuing success of the ARPA pension legislation warms your heart despite ridiculously cold temperatures in New Jersey and elsewhere.

Regarding last week’s activity, pleased to report that two plans received approval for their SFA applications. Pension Trust Fund Agreement of St. Louis Motion Picture Machine Operators and Teamsters Local 837 Pension Plan, both non-priority group members, will receive a combined $19.9 million in SFA and interest for their 1,431 members. These approvals are the first for the PBGC in just under one month.

In other ARPA news, there were no new applications filed, as the e-Filing portal remains temporarily closed. In addition, as we’ve been reporting, the window for initial applications to be submitted was to close on 12/31/25. From this point forward, only revised applications should be received by the PBGC. Despite that impediment, two more funds, NMU Great Lakes Pension Fund and UFCW Pension Fund of Northeastern Pennsylvania, added their names to the extensive waitlist seeking Special Financial Assistance. These plans and the others currently on the list must believe that the current deadline in place will be amended.

There was one application withdrawn during the prior week, as the Dairy Employees Union Local #17 Pension Plan pulled their initial application seeking $3.5 million in SFA for the 633 plan participants. Under the current rules, they have until 12/31/26 to resubmit a revised application.

Lastly, there were no applications denied nor were any of the previous recipients of SFA asked to rebate a portion due to census errors.

The U.S. interest rate environment is reacting to some of the global uncertainty. As a result, longer dated Treasury yields are marching higher. As of 9:51 am, the yield on the 30-year Treasury bond is 4.93%, while the 10-year Treasury note yield is at 4.29%. These yields are quite attractive for plans receiving SFA and wanting to secure benefits and expenses with the proceeds. Don’t miss this opportunity to significantly reduce the cost of those future benefits.

12.15.25
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Bond Math and A Steepening Yield Curve – Perfect Together!

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

We are in the midst of a project for a DB pension plan in which we were asked to model a series of liability cash flows (benefits and expenses) using cash flow matching (CFM) to defease and secure those liabilities. The plan sponsor is looking to allocate 40% of the plan’s assets initially to begin to de-risk the fund.

We first approached the assignment by looking to defease 100% of the liabilities as far into the future as that 40% allocation would cover those benefits and expenses. As it turns out, we can defease the next 11-years of projected B&E beginning 1/1/26 and carrying through to 10/31/37. As we’ve written many times in this blog and in other Ryan ALM research (ryanalm.com), we expect to reduce the cost of future liabilities by about 2% per year in this interest rate environment. Well, as it turns out, we can reduce that future cost today by 23.96% today.

Importantly, not only is the liquidity enhanced through this process and the future expenses covered for the next 11-years, we’ve now extended the investing horizon for the remaining assets (alpha assets) that can now just grow unencumbered without needing to tap them for liquidity purposes – a wonderful win/win!

As impressive as that analysis proved to be, we know that bond math is very straightforward: the longer the maturity and the higher the yield, the greater the potential cost savings. Couple this reality with the fact that the U.S. Treasury yield curve has steepened during the last year, and you have the formula for far greater savings/cost reduction. In fact, the spread between 2-year Treasury notes and 30-year bonds has gone from 0.35% to 1.35% today. That extra yield is the gift that keeps on giving.

So, how does one use only 40% of the plan’s assets to take advantage of both bond math and the steepening yield curve when you’ve already told everyone that a full implementation CFM only covers the next 11-years? You do a vertical slice! A what? A vertical slice of the liabilities in which you use 40% of the assets to cover all of the future liabilities. No, you are not providing all of the liquidity necessary to meet monthly benefits and expenses, but you are providing good coverage while extending the defeasement out 30-years. Incredibly, by using this approach, we are able to reduce the future cost of those benefits not by an impressive 24%, but by an amazing 56.1%. In fact, we are reducing the future cost of those pension promises by a greater sum than the amount of assets used in the strategy.

Importantly, this savings or cost reduction is locked-in on day one. Yes, the day that the portfolio is built, that cost savings is created provided that we don’t experience a default. As an FYI, investment-grade corporate bonds have defaulted at a rate of 0.18% or about 2/1,000 bonds for the last 40-years according to S&P.

Can you imagine being able to reduce the cost of your future obligations by that magnitude and with more certainty than through any other strategy currently in your pension plan? What a great gift it is to yourself (sleep-well-at-night) and those plan participants for whom you are responsible. Want to see what a CFM strategy implemented by Ryan ALM can do for you? Just provide us with some basic info (call me at 201/675-8797 to find out what we need) and we’ll provide you with a free analysis. No gimmicks!

12.11.25
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Something Has Got to Give

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

Not surprisingly, the U.S. Federal Reserve’s FOMC lowered rates another 25 bps today. The new target is 3.75%-4.0%, down from 4.5%-4.75% during the last 3 meetings. Currently, the 10-year Treasury yield (4.145% at 3:21 pm EST) is only marginally greater than the median CPI (Latest reading from the Cleveland Fed is 3.5% annually).

Ryan ALM, Inc.’s Head Trader, Steve DeVito put together the following comparison.

Steve is comparing the 10-year Treasury note yield (blue) versus the Median CPI (red) since January 2016. The green line is the “real” yield (10-year Treasury – the median CPI). For this period of time, there has been very little real yield, as U.S. rates were driven to historic lows before inflation spiked due to Covid-19 factors. However, historically (1962-2025), the real yield has average 2%. With rates down and inflation remaining stubbornly steady to increasing slightly, the real yield that investors are willing to take is, and has been, quite modest (0.17% since 2008). Why? Were the historically low rates in reaction to covid-19 an anomaly, or has something changed from an investor standpoint? Given today’s fundamentals, one might assume that investors are anticipating a sudden reversal in inflation, but is that a smart bet?

The WSJ produced the graph in today’s edition highlighting the change in the U.S. Treasury yield curve during the last year. As one can clearly see, the yield curve has gotten much steeper with the 30-year Treasury bond yield 0.4% above last year’s level (at 4.81%). That steepness would indicate to me that there is more risk longer term from inflation potentially rising.

So, it seems as if something has to give. If inflation remains at these levels, the yield on the 10-year Treasury note should be about 1.25% greater than today. If in fact, yields were to rise to that level, active core fixed income managers would see significant principal losses. However, cash flow matching managers and their clients would see the potential for greater cost reduction in the defeasing of pension liabilities, especially for longer-term programs. Bond math is very straight forward. The longer the maturity and the higher the yield, the greater the cost savings.

Managing a pension plan should be all about cash flows. That is asset cash flows versus liability cash flows of benefits and expenses. Higher yields reduce the future value of those promises. Remember, a CFM strategy is unique in that it brings an element of certainty (barring a default) to the management of pensions which live in a world of great uncertainty. Aren’t you ready for a sleep-well-at-night strategy?

12.09.25
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Time to Get Serious!

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

This blog focuses most often on issues related to defined benefit pension plans or other retirement-related programs/issues. However, sometimes an issue (in this case “affordability”) captures my attention leading me to respond. As you may recall, last week the WSJ asked the question: Can “Trump Accounts” for babies change the economics of having a family? I posted a note on LinkedIn.com that seemed to get the attention of many of my connections and others, as well.

My response to that question posed by the WSJ was “are you kidding me?” A one-time $1,000 deposit into a child’s account is not even a rounding error in the annual cost of raising a child. Current estimates have the cost of raising a child at >$27k/year for a two-working-adult household and >$300k by the time that child reaches 18, excluding college!

Why would anyone think that a $1,000 contribution to a small subset of children (those born between 2025 and 2028) is going to make a difference in the affordability of having children today? How is this band-aid going to tackle the economic hardship on middle and lower wage earners? Affordability has deteriorated for most Americans because essential costs—especially housing, healthcare, education, and child care—have grown much faster than typical wages, while interest rates and structural constraints (like housing supply) magnify the squeeze on household budgets. This creates a situation in which a larger share of income is needed to absorb basic living expenses, reducing room for saving (emergency fund, retirement, education, etc.), mobility, and discretionary spending (how dare you dream of a vacation) for the majority of households.

We often read about the impact of escalating housing costs (ownership or rent), but healthcare and higher education have seen some of the most significant long‑run price increases, becoming major affordability stressors for a significant majority of American families. Studies of cost‑of‑living trends highlight that health insurance premiums, out‑of‑pocket medical costs, and public college tuition have grown multiple times faster than general inflation and median earnings, increasing debt loads and the potential for financial risk and hardship.

Other necessities—such as food, transportation (try buying a new car), and utilities—have also risen substantially over the past two decades, with food and other goods and services experiencing cumulative price increases of roughly 85% or more since 2000. While some of this price movement reflects broad inflation issues, the problem for households is that real wage growth has not kept pace, so a larger share of one’s take-home pay goes to basics.

Recent high inflation (2021–2023) raised the prices of everyday items and housing costs faster than nominal wages for many workers, compressing real disposable income. In response, the Federal Reserve raised interest rates sharply, which helped moderate inflation but also increased borrowing costs for mortgages, car loans, and credit card balances.​

Given that many households rely on debt to manage education, vehicles, or unexpected expenses, higher interest rates translate into heavier monthly payments and less capacity to save or invest. For younger households and those without assets, this dynamic can delay milestones like homeownership or starting a family, reinforcing a sense that the “American Dream” is receding, if not collapsing!

Less capacity to save for retirement (DC plans) and education (529 plans) is reflected in the median balances for each. I’ve railed about the failure of the defined contribution model being the primary “retirement” vehicle in many blog posts. Asking untrained individuals to fund, manage, and then disburse a benefit with limited, if no, disposable income, a lack of investment acumen, and no crystal ball to help with longevity issues is just poor policy.

Can we stop with the gimmicks, such as these child accounts, and finally get serious about the lack of affordability in this country for a significant majority of Americans! Rising inequality amplifies affordability problems because gains are concentrated among higher‑income and wealthier households while most others face flat real incomes and volatile expenses. “The Ludwig Institute’s analysis, for example, concludes that a minimal but “dignified” standard of living is now out of reach for the bottom 60 percent of households, even around $100,000 in income in some regions, due to the cumulative effect of costs.” (Truthout)

No economy can function long-term when a small sliver of the population earns most of the income, while also benefiting from lower capital gains treatment and reduced corporate taxes. Recent reports suggest that 47% of income is absorbed by the top 10% of wage earners. Other reports suggest that >60% of Americans couldn’t meet a $400 emergency related to a car repair or medical expense without taking on debt. This situation can’t continue unabated.

​As the father of five and the grandfather to 11, I see these economic burdens play out everyday! It is time to get serious!

10.27.25
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ARPA Update as of October 24, 2025

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

If it is a Monday, it is ARPA/SFA update day. I’m bringing you this update from Fort Lauderdale, FL, where I’m attending and speaking at the NCPERS Fall conference. It looks like a wonderful agenda for the next few days. Regarding ARPA, how did the PBGC do last week? Let’s explore.

Last week saw limited action with only two applications received, including a revised application from a Priority Group 1 member. As you may recall, this was the first group permitted to submit applications all the way back in July 2021! Only 25 of the 30 members of that cohort have received Special Financial Assistance to date. Richmond, VA based Bricklayers Union Local No. 1 Pension Fund of Virginia, submitted a revised application seeking $12.9 million for its 395 participants, while International Association of Bridge, Structural, Ornamental and Reinforcing Ironworkers Local No. 79 Pension Fund, submitted an initial application hoping to secure $14.6 for 462 members. As an aside, the Ironworkers would be golden if the SFA desired was based on the length of the plan’s name.

In other ARPA news, or lack thereof, there were no applications approved, and fortunately, none denied. There were no pension plans forced to withdraw an application and none asked to repay a portion of the SFA received due to census errors. However, there was one more plan added to the burgeoning waitlist. The Soft Drink Industry Pension Fund is the 178th none-priority group fund to add its name to the list.

The next couple of months should be quite exciting for the PBGC as it works through the abundant list of applications for non-priority group members. U.S. interest rates have pulled back recently reducing some of the potential coverage period through a CFM strategy, but rates are still significantly higher than they were in 2021 when ARPA began to be implemented. Please reach out to us if you’d like to get a free analysis on what is possible once the SFA is received.