Tag Archives: Ryan ALM

02.18.25
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Terrific Issue Brief from the American Academy of Actuaries

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

An acquaintance of mine shared an issue brief that was produced by the American Academy of Actuaries last April. They Academy describe their organization and role, as follows. “The American Academy of Actuaries is a 20,000-member professional association whose mission is to serve the public and the U.S. actuarial profession. For more than 50 years, the Academy has assisted public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States.”

The brief addressed surplus management for public pension systems. What does it mean and what should be done when a plan is in “surplus”. It is important to understand that a surplus calculation (plan assets – plan liabilities) is a single point in time. Our capital markets (assets) and U.S. interest rates (discounting of liabilities) are constantly changing. A plan that is deemed to be in surplus today could easily fall below 100% the very next day.

The go go decade of the 1990s witnessed public pension’s producing fairly consistent double-digit returns. Instead of locking in these gains through sound surplus management, benefits were often enhanced, contributions trimmed, or both. As a result, once the decade of the ’00s hit and we suffered through two major recessions, the enhancements to the benefits which were contractually protected and the lowered contributions proved tough to reverse.

According to Milliman, they estimate the average public funded ratio at 81.2% (top 100 plans) as of November 30, 2024. This is up substantially from September 30, 2022 when the average funded ratio was roughly 69.8%. But it highlights how much work is still needed to be done. I agree that it is wise to have a surplus management plan should these critically important funds once again achieve a “surplus”. I would hope that the plan is centered on de-risking their traditional asset allocations by using more bonds in a cash flow matching (CFM) strategy to reduce the big swings in funding. Furthermore, it is critically important to secure what has already been promised than to weaken the funded status by enhancing benefits or cutting contributions prematurely.

I’d recommend to everyone involved in pension management that they spend a little time with this report. The demise of DB pension plans in the private sector has created a very uncertain retirement for many of our private sector workforce. Let’s not engage in practices that lead to the collapse of public sector DB plans.

02.18.25
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ARPA Update as of February 14, 2025

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

Credit to the PBGC for not letting Valentine’s Day get in the way of a productive week, as they continue to implement the ARPA legislation, which is quickly approaching its fourth anniversary!

The eFiling portal has been sporadically open since the beginning of the year. Last week they turned the spigot on a little more, as three non-priority group plans submitted applications, including Teamsters Local 277 Pension Fund, Teamsters Local 210 Affiliated Pension Plan and Cement Masons Local No. 524 Pension Plan. In the case of Local 277, this was the initial filing, while the other two submitted revised applications. In total, these three pension plans are seeking $153.2 million in SFA for the nearly 10k participants.

In other news, the checks are no longer in the mail, as Laborers’ Local No. 265 Pension Plan, Local 734 Pension Plan, Upstate New York Engineers Pension Fund, and The Legacy Plan of the UNITE HERE Retirement Fund received the approved SFA plus interest and FA loan repayments. The $800 million gorilla within this group was Unite Here receiving $868.8 million from a total distribution of $1.1 billion. I suspect that the 103,118 members of these plans slept pretty well this weekend knowing that the promised benefits had been secured.

I’m pleased to report that no applications were denied during the past week. In addition, there were no plans required to repay excess SFA on account of census issues. Lastly, there were no new funds seeking inclusion on the waitlist. The chart below highlights where we are in the process. Despite the significant progress to date, there remains quite a bit of work for the PBGC.

Don’t forget, the legislation requires pension funds receiving SFA to rebalance the allocation between fixed income and equities back to 67%/33% one day every 12-months. Given the significant outperformance of equities vis-a-vis bonds plus the monthly benefit payments most likely coming from the fixed income program, there should be some significant rebalancing needs. It seems like a good time to reduce risk and take some profits.

02.13.25
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Nothing Here! Really?

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

Yesterday’s financial news delivered an inflation surprise (0.5% vs. 0.3%), at least to me and the bond market, if not to the U.S. equity market. The Federal reserve had recently announced a likely pause in their rate reduction activity given their concerns about the lack of pace in the inflation march back to its 2% target. This came on the heels of “Street” expectations after the first 0.5% cut in the FFR that there were “likely” to be eight (8!) interest rate cuts by the summer of 2025. Oh, well, the two cuts that we’ve witnessed since that first move last September may be all we get for a while. “Ho hum” replied the U.S. stock market.

The discounting of yesterday’s inflation release is pretty astounding. Like you, I’ve read the financial press and the many emails that have addressed the CPI data 52 ways to Sunday. Much of the commentary proclaims this data point as a one-off event. For instance, the impact of egg price increases (13.8% last month alone) is temporary, as bird flu will be contained shortly. Seasonal factors impacting “sticky-priced” products tend to be announced in January. I guess those increases shouldn’t matter since they only impact the consumer in January. As a reminder, Core inflation (minus food and energy) rose from 3.1% to 3.3% last month. That seems fairly significant, but we are told that the other three core readings were down slightly, so no big deal. Again, really? Each of those core measures are >3% or more than 1% greater than the Fed’s target.

Then there are those that say, “what is significant about the Fed’s 2% inflation objective anyway”? It is an arbitrary target. Well, that may be the case, but for the millions of Americans that are marginally getting by, the difference between 2% and 3% inflation is fairly substantial, especially when we come up with all of these measures that exclude food, energy, housing (shelter), etc. Are you kidding?

As mentioned previously, expectations for a massive cut in interest rates due to the perception that inflation was well contained have shifted dramatically. Just look at the graph above (thanks, Bloomberg). Following the Fed’s first FFR cut of 50 bps, inflation expectations plummeted to below 1.5% for the two-year breakeven. Today those same expectations reveal a nearly 3.5% expectation. Rising inflation will certainly keep the Fed in check at this time.

As mentioned earlier in this post, U.S. equities shrugged off the news as if the impact of higher inflation and interest rates have no impact on publicly traded companies. Given current valuations for U.S. stocks, particularly large cap companies, any inflation shock should send a shiver down the spines of the investing community. Should interest rates rise, bonds will surely become a more exciting investment opportunity, especially for pension plans seeking a ROA in the high 6% area. How crazy are equity valuations? Look at the graph below.

The current CAPE reading has only been greater during the late 1990s and we know what happened as we entered 2000. The bursting of the Technology bubble wasn’t just painful for the Information Technology sector. All stocks took a beating. Should U.S. interest rates rise as a result of the current inflationary environment, there is a reasonable (if not good) chance that equities will get spanked. Why live with this uncertainty? It is time to get out of the game of forecasting economic activity. Why place a bet on the direction of rates? Why let your equity “winnings” run? As a reminder, managing a DB pension plan should be all about SECURING the promised benefits at a reasonable cost and with prudent risk. Is maintaining the status quo prudent?

02.11.25
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Corporate Pension Funding Improves Once Again – Milliman

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

Milliman has provided its monthly update on the health of corporate America’s largest 100 pension plans with the release of the Milliman 100 Pension Funding Index (PFI). The good news continues, as the funded ratio for the PFI plans advanced last month from December’s 104.8% to 105.8% as of January 31, 2025. The improved funded ratio reflected both asset growth of $9 billion as a result of a 1.19% return for the index, while a minimal increase of 1 basis point in the discount rate (now 5.6%) reduced plan liabilities to $1.237 trillion. According to the Zorast Wadia, author of the Milliman PFI, the improved funded ratio marks a 27-month high.

Zorast went on to say, “With Fed rate cuts still a possibility this year, prudent asset-liability management remains a key directive for plan sponsors to preserve the funded status gains achieved thus far.” We don’t make interest rate forecasts at Ryan ALM, but we wholeheartedly agree with Zorast regarding the prudence of preserving the impressive funding gains realized during the last couple of years. Given the stretched equity valuations, taking risk of the table and securing the promised benefits through a cash flow matching strategy makes great sense.

02.11.25
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ARPA Update as of February 7, 2025

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

Welcome to February! I am a day late in reporting on the PBGC’s activity from last week, as I was an instructor at the IFEBP’s Advanced Trustee and Administrator’s Conference. Fortunately, it is in Orlando and not New Jersey, where the weather remains cold, snowy, and wet! For one of the first times in my 43-year professional career I’m hoping for a significant flight delay of perhaps three days!

The PBGC’s eFiling portal is now open but defined as limited. During the previous week there was one new application submitted. The Retail Food Employers and United Food and Commercial Workers Local 711 Pension Plan is seeking $64.2 million in Special Financial Assistance (SFA) for their 25,306 plan participants or $2,538.65 per member, which seemed modest, and in fact it is, as the average SFA payout has been $46,385 per beneficiary on applications that have been approved.

In addition to the one new application, two non-priority plans, Laborers’ Local No. 130 Pension Fund and Pension Plan of the Asbestos Workers Philadelphia Pension Fund each withdrew an initial application. Collectively, they are seeking $72.4 million for 2,124 members.

There were no applications denied or approved during the past week. In addition, there were no plans required to repay an overpayment of SFA due to census errors. There hasn’t been a repayment since December 2024. Finally, there were no plans seeking to be added to the waitlist. There are still 49 plans waiting to submit an initial application to the PBGC.

The U.S. interest rate environment remains favorable for plans looking to defease the pension liabilities with the proceeds from the SFA. Investment-grade corporate bond portfolios are currently producing yields above 5% despite very tight spreads between corporates and the comparable maturity Treasury. Given the elevated valuations for domestic equities, particularly large cap stocks, now is the time to use 100% of the SFA to secure the promises.

02.06.25
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Interesting Insights From Ortec Finance

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

PensionAge’s, Paige Perrin, has produced an article that referenced recent research from Ortec Finance. The research, which surveyed senior pension fund executives in the UK, US, the Netherlands, Canada, and the Nordics, found that 77% believe that risk will be elevated, either dramatically or slightly, in 2025. That’s quite the stat. It also follows on reporting from P&I that referenced heightened uncertainty by U.S. plan sponsors. As regular readers of this blog know, I’ve been suggesting to (pleading with) sponsors that they don’t need to live with uncertainty, which is truly uncomfortable.

Among several risks cited were interest rates, inflation, and market volatility. I can’t say that I blame them for their concerns. Who among us are able to adequately forecast rates and inflation? Seems like most fixed income professionals and bond market participants have been forecasting an aggressive move down in rates. Some of these prognosticators were forecasting as many as 7 rate reductions in 2024 and several others in 2025. We didn’t get 2024’s tally. Who knows about 2025 given that inflation has remained fairly sticky.

There is an easy fix for those of you who are concerned about interest rates and inflation. Adopt a cash flow matching (CFM) strategy that will carefully match asset cash flows of interest and principal with liability cash flows (benefits and expenses). Because benefit payments are future values (FVs), they are not interest rate sensitive. Problem solved! Furthermore, the use of CFM extends the investing horizon for the remainder of the fund’s growth assets, so they now have the appropriate time to grow to meet future liabilities.

One other startling stat caught my attention, as “77 per cent of senior pension fund executives believe the increasing number of retirees relative to the number of new hires in defined benefit (DB) plans pose a “significant” or “slight” risk to the DB pensions industry.” That concern is misplaced. I just wrote a post earlier this week on that subject. DB Pension plans are not Ponzi Schemes. They don’t need more depositors than those receiving payments. It is truly frightening that a significant percentage of our senior plan sponsors don’t understand how these plans are actuarial determined and subsequently funded.

Lastly, I nearly jumped out of my chair with excitement when I read the following quotes from Marnix Engels, Ortec Finance’s managing director for global pension risk, who stated the following:

“We believe assessing the risks of both (the bolding is my emphasis) assets and liabilities in combination is crucial to get the full picture on the health of a pension fund,” he said.

“If the impacts of risk drivers are only understood for one side of the funding health equation, then it is possible to misrepresent the overall effect.”

“If a fund is not assessing both assets and liabilities, then it is difficult to conclude the overall impact of interest rate hikes on the plan’s funding ratio.”

YES!!

02.04.25
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Not Crunch Time, But the Program is Nearing Its End

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

I frequently get terrific questions following the publishing of one of my blog posts. Today’s question of the day was related to the ARPA pension legislation. I was asked, “Russ when does this legislation expire and when is the final date that a plans application must be submitted?” Terrific question. I’ve been meaning to provide this information as part of one of my weekly ARPA updates. Thanks for the prompt.

According to the final language in the Bill, ‘‘(f) APPLICATION DEADLINE.—Any application by a plan for special financial assistance under this section shall be submitted to the corporation (and, in the case of a plan to which section 432(k)(1)(D) of the Internal Revenue Code of 1986 applies, to the Secretary of the Treasury) no later than December 31, 2025, and any revised application for special financial assistance shall be submitted no later than December 31, 2026.

Furthermore, “The corporation (PBGC) shall not pay any special financial assistance after September 30, 2030.” As an aside, I’m not quite sure how a “revised” application that must be filed by 12/31/26 would not be paid before 2030 is beyond me, especially given the 120-day window to have an application acted on.

As reported in yesterday’s blog post, of the potential 202 applications, 109 have been approved, 21 are currently under review, while another 21 plans have withdrawn the applications. That leaves 51 plans that have yet to file (remember the 12/31/25 deadline) including a Priority Group 1 fund.

So, despite the terrific effort to date, the PBGC clearly has its work cut out for it. Currently, the eFiling portal to submit applications is closed. The PBGC has been opening and closing access to the filing portal based on its ability to meet the 120-day deadline. They may need to accelerate the pace of submissions and approvals in the coming months in order to complete the process by 12/31/26. Obviously, more to come from the PBGC. Also, keep your questions coming!

01.21.25
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ARPA Update as of January 17, 2025

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

I hope that you enjoyed the long holiday weekend. For many of us on the East coast, the holiday’s days and nights were likely spent inside given the frigid temps. Unfortunately, the upcoming week is not going to provide any weather relief.

However, this should warm your heart, as the PBGC continued to be active implementing the ARPA legislation that is nearing its fourth anniversary (3/11/21). To date, the PBGC has approved the Special Financial Assistance (SFA) for 109 multiemployer plans. The grants have totaled $70.9 billion and 1,528,409 American workers/retirees have had the promised pension benefit protected, and in some cases, restored.

During the last week, the PBGC accepted one new application, as Greendale, WI based United Food and Commercial Workers Unions and Employers Pension Plan filed a revised application seeking $54.3 million for its 15,420 plan participants. In other news, two funds, Cement Masons Local No. 524 Pension Plan and Local 1922 Pension Plan each withdrew their initial application. The two funds were seeking just over $20 million for roughly 2k members. Finally, the Legacy Plan of the UNITE HERE Retirement Fund, a Priority Group 6 member, received approval of its revised application. They have been awarded $868.8 million in SFA and interest that will go to protecting the retirements for 91,744 participants. Congrats!

The PBGC’s eFiling portal is temporarily closed. According to the PBGC’s website, “the PBGC will accept as many applications as the agency estimates it can process within the statutory 120-day review period. When the number of applications under review reaches that level, the application e-Filing Portal will temporarily close until PBGC has capacity to receive more applications.” There are still an estimated 93 funds going through the process of filing applications SFA grants. 

01.13.25
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ARPA Update as of January 10, 2025

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

Welcome to the second full week of January. Although the PBGC’s efiling portal remains temporarily closed, there was still some good activity last week, including the approval of another three applications seeking Special Financial Assistance (SFA). Pleased to report that Laborers’ Local No. 265 Pension Plan, Local 734 Pension Plan, and Upstate New York Engineers Pension Fund each a non-priority group member received approval for their revised applications. In total, they will receive $244.6 million in SFA for the 11,374 plan participants. What an exciting way to begin 2025.

In other news, there was one application withdrawn, Warehouse Employees Union Local 169 and Employers Joint Pension Plan, from Elkins Park, PA, withdrew its initial application seeking nearly $90 million in SFA for just over 3,600 members of the plan.

The 108 funds receiving SFA to date have been awarded grants exceeding $70 billion benefiting the quality of life for more than 1.4 million American workers. There is still much more to do (possibly another 94 funds will get SFA), but the program has already been an incredible success. Finally, US Treasury yields continue to rise, providing pension plans with the wonderful opportunity to further de-risk the SFA assets received and those to come. IG corporate bond yields exceeding 6% are not rare. Let us know how we can help you.

12.20.24
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One of Only Two – Time For Change

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

The United States of America and Denmark share several commonalities. Both countries have democratic political systems. Each country enjoys a high standard of living. Both have a commitment to human rights and environmental concerns, with Denmark being a leader in renewable energy and sustainability, while the U.S. is witnessing a growing movement on those fronts. Both countries value education, enjoying high literacy rates. There is also a shared military alliance through NATO. What you might not realize is that the U.S. and Denmark are the ONLY countries that have a self-imposed statutory debt limit. Sure, there are other countries, such as Switzerland, that have mandatory balanced budget provisions which effectively limit the amount of debt , but they aren’t specified debt limits.

The U.S. first instituted a statutory debt limit with the Second Liberty Bond Act of 1917, setting the aggregate amount of debt that could be accumulated through individual categories like bonds and bills. The purpose in creating this legislation was to finance the country’s involvement in World War 1. The legislation allowed the U.S. to raise $9.5 billion in bonds that would be issued by the U.S. government. These bonds were marketed to the general population and to institutional investors to gain their support for the war. Was there a First Liberty Bond Act? Yes, that act had been passed earlier in 1917 allowing the government to issue $2 billion in bonds in order to support the war.

Importantly, and why we are where we are today with regard to the current deficit, the Second Liberty Bond Act program continued after the war. It set a precedent for public financing of government initiatives through bond sales. Although the debt limit was established in 1917 which allowed the Treasury to issue bonds without specific Congressional approval, the “limit” has been raised more than 100 times since then and roughly 78 times since 1960 alone. As a result, the US debt has risen from around $250 billion during World War II, to about $2.1 trillion during the Reagan years, to $5.6 trillion at the conclusion of the 1990s, and to today’s $36 trillion. So, why do we have a debt limit when it has been elevated so many times previously and to a magnitude certainly not contemplated in 1917?

The political brinkmanship associated with the debt limit debate rarely serves a purpose, often unnecessarily frightening Americans and our capital market participants. As we brace for another “discussion”, is maintaining a debt “limit” at all necessary? NO! Today’s federal deficit is in no way constraining to future generations. I’ve referenced Warren Mosler and his book, “The 7 Deadly Innocent Frauds of Economic Policy” on many occasions. He covers the topic of our government debt and whether we are leaving our debt-burden to our children, grandkids, etc. Mosler states, “the idea of our children being somehow necessarily deprived of real goods and services in the future because of what’s called the national debt is nothing less than ridiculous.”

As Mosler explains, that the financing of deficit spending is of “no consequence”. He further explains that when the “government spends, it just changes numbers up in our bank accounts.” The government doesn’t borrow money, it moves funds from checking accounts at the Fed to savings accounts (Treasury securities) at the Fed. The good news, is that the entire federal deficit ($36 trillion or so) is nothing more than the economy’s total holdings of savings accounts at the Federal Reserve. The private sector now has an asset equivalent to the deficit. How wonderful! Can you imagine if we didn’t have the ability to deficit spend. Think of all the stimulus that would have been removed from our economy that supported jobs, wages, and demand for goods and services.

The major issue with our ability to deficit spend has nothing to do with financing it, but everything to do with providing too much stimulus that creates demand for goods and services that exceeds our economy’s ability to meet such demand. So, I ask again, does having a debt limit (ceiling) make sense? No, unless you enjoy all the grandiose speeches from the halls of Congress based on little knowledge of how our monetary system truly works. Finally, I’d like to give a special nod to Charles DuBois, my former colleague at Invesco, who spent hours educating me on this subject. Thanks, Chuck!