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

I recently attended the Opal Public Fund Forum in Arizona. I’ve always appreciated the opportunity to attend and speak at Opal’s pension conferences. This latest version was no exception. However, I found it interesting that there were two thoughts being expressed over and over again. First, many presenters talked about uncertainty. The other idea centered on the current economic environment, which was frequently described as being K-shaped.

Regarding uncertainty, we often write about the onerous impact of uncertainty on individuals, both from a psychological as well as a physiological standpoint. Yet the pension community continues to embrace uncertainty through implementation of traditional asset allocation approaches, which are potentially subject to significant market events. Why? I’m not going to dwell on this topic today as I’d rather focus some attention of the current economic environment, and I’ve covered many times how Ryan ALM can bring certainty, and a sleep-well-at-night approach, to pension management.

As the title above questions, is defining the current economic environment as a K appropriate? When I look at the letter K, it says to me that 50% of something is advancing while another 50% is declining. Is that what is happening in today’s economy? Are 50% of American workers showing strong economic gains, while 50% struggle? I would say, “NO”! No matter what metrics one reviews, indications are that a far greater percentage of the American workforce is struggling to meet basic living needs than a K would suggest. I’m not sure what letter truly represents today’s conditions, but when only 10%-20% of our households are seeing improved conditions that doesn’t conjure up a K in my mind.

The idea of American Exceptionalism is being challenged by today’s economic realities. It is so disappointing given the potential that we possess as a nation. However, our collective wealth continues to be concentrated among a small percentage of American households at the same time that expenses for basic needs – housing, medical coverage, education, childcare, food, insurance, utilities, and retirement – continue to challenge most budgets.

In a recent article by Adam Bonica, titled “The Wall Looks Permanent Until it Falls”, Adam highlights (lowlights perhaps) the significant differences in key metrics relative to a U.S. peer democracy group of 31 developed nations (OECD). For instance, he shows multiple stats in four broad categories, including Economy and Inequality, Family and Livelihood, Survival and Safety, and Institutions and Justice. It is not to say that these peers don’t have these issues – they do. They just experience them at much lower rates. The comparisons that Mr. Bonica focused on were just the averages for the peer group relative to the U.S., and they prove quite stark.

For instance, the peer average for the Top 1% of households by income is 12.8%, while in the U.S. it is 21%! If the Top 1% of earners just took 12.8%, every American household would get an additional $19k/year. If the Top 1% of Household wealth in the U.S. only had 23.2% of the country’s wealth instead of the 30.6% it currently has, every American household would have an additional $96k. A big expenditure every year for American households is healthcare. Our peers average 9.2% of one’s household spending while we average 17.1%. Just matching the rate of spending would reduce our annual expenditure for healthcare by -2.1T/year. Oh, and it isn’t like our “investment” in healthcare is reaping longevity rewards – it isn’t, as we average -4.1 years less than our average peer (78.4 years versus 82.5 years).

We can do a lot better as a society and economy. There are currently 15 million Americans working full-time that earn a level of income that is below the poverty line. Not acceptable. Only about 10% of the American workers are in DB pension plans. As I’ve stated many times, asking untrained individuals to fund, manage, and then disburse a “benefit” without disposable income, no investment acumen, and no crystal ball to help with longevity is just poor policy. Again, we can do better. Ron and I and the Ryan ALM team are focused on protecting and preserving DB pension plans. I wish that we could do more!