Tag Archives: Ryan ALM

09.22.25
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ARPA Update as of 9/19/25

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

Good morning and welcome to the first full day of Fall. Autumn has always been my favorite season. How about you?

Regarding the implementation of ARPA’s pension legislation by the PBGC, we are now about 3 1/2 months away from the deadline to have all initial applications seeking Special Financial Assistance (SFA) submitted. Unfortunately, there are still dozens of multiemployer pension plans sitting on the PBGC’s waitlist.

Last week witnessed a slower pace of activity, as the PBGC is only reporting the submission of three applications and the repayment of excess SFA by one fund. There were no applications approved, denied, or withdrawn during the previous week. Furthermore, there were no pension funds seeking to be added to the waitlist and none of the plans currently sitting on that list locked-in the valuation date. We may not see any new plans being added to the list given the rapidly approaching deadline for initial application submission. As a reminder, those plans that submit an application before 12/31/25 can submit a revised application until 12/31/26 – the legislation’s deadline.

Pleased to report that Pension Trust Fund Agreement of St. Louis Motion Picture Machine Operators, Teamsters Local 837 Pension Plan, and Iron Workers’ Pension Trust Fund for Colorado each submitted an initial application seeking SFA. These non-Priority Group members are hoping to secure >$30 million for the nearly 3,200 plan participants. As a reminder, the PBGC has 120-days to act on these applications.

Finally, there was one plan asked to rebate a portion of the SFA based on a census error. Western Pennsylvania Teamsters and Employers Pension Fund, a recipient of $994.6 million has agreed to rebate $8.8 million or 0.89% of the grant. To date, 61 multiemployer pension funds have repaid $260.7 million in excess SFA on grants totaling $53.4 billion or 0.49%.

We hope that you have a great week. Check back in next Monday for the next ARPA legislation update.

09.19.25
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Houston, We Have A Problem!

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

That famous phrase from the movie Apollo 13, is actually modified from the original comment spoken by Jack Swigert, the command module pilot, who said, “Okay, Houston…we’ve had a problem here”. In any case, I am not referencing our space program, the City of Houston or for that matter, any other municipality. However, I am acknowledging that we continue to have an issue with how the debt of companies, municipalities, and other government entities get rated and how those rating agencies get compensated.

There was a comment in New Jersey Spotlight News (a daily email newsletter) that stated “New Jersey is facing uncertain economic times, to say the least, but its state government got a vote of confidence from Wall Street this week.” Of course, I was intrigued to understand what this vote of confidence might be especially given my knowledge of the current economic reality facing my lifelong state of residence. It turns out that Moody’s has elevated NJ’s debt rating. Huh?

Moody’s action in raising the rating to Aa3 follows a similar path that S&P took several months ago. Yes, NJ was able to recently close its budget gap by $600 million through tax increases but given that the state has one of the greatest tax burdens of any U.S. state, the ability to further raise taxes is likely significantly curtailed unless they want to witness a mass exodus of residents, including the author of this post!

According to Steve Church, Piscataqua Research, a highly experienced and thoughtful actuary, “New Jersey’s public employees, teachers, police and fire systems are $96B underfunded by reference to their actuaries’ contribution liability calculations and $154B underfunded using their actuaries’ LDROM calculations!” Ouch! Furthermore, they offer an OPEB that is funded at <10%. In addition, New Jersey, like many states, will be negatively impacted by the cuts in Medicaid and other social safety net programs. These cuts are likely to put significant pressure on the state’s budget, which has already risen significantly in just the last 5 years from $38.3 billion in fiscal year 2020 to nearly $60 billion today.

So, how is it possible that NJ could see a ratings increase given the significant burden that it continues to face in meeting future pension and OPEB funding, while also protecting the social safety net that so many Jersey residents are depending on. Well, here’s the rub. Rating agencies are paid under the practice called “issuer-pays”. This process has often been criticized, especially during the GFC when a host of credit ratings were called into question. Unfortunately, few alternatives have been put into practice today. How likely will a municipality or corporate entity pay an agency for a rating that puts the sponsor in a poor light? We’ve been extremely fortunate to have mostly weathered recent economic storms, but as history has shown, there is likely another just around the corner. How will these bonds hold up during the next crisis?

09.19.25
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Dear Plan Sponsor: Please ask Yourself the Following Questions

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

Do you believe that your pension plan exists to meet (secure) a promise (benefit) that was given to the plan’s participants?

Are you factoring in that benefit promise when it comes to asset allocation?

Do you presently have exposure to core fixed income, and do you know where U.S. interest rates will be in the next day, month, year, 5-years?

Has liquidity to meet benefits and expenses become more challenging with the significant movement to alternatives – real estate, private equity, private debt, infrastructure, etc.?

Do you believe that providing investment strategies more time is prudent?

So, if you believe that securing benefits, driving asset allocation through a liability lens, improving liquidity, eliminating interest rate risk, and buying-time are important goals when managing a defined benefit plan, how are you accomplishing those objectives today?

Cash Flow Matching (CFM) achieves every one of those goals! By strategically matching asset cash flows of interest and principal from investment-grade bonds against the liability cash flows of benefits and expenses, the DB pension plan’s asset allocation becomes liability focused, liquidity is improved from next month as far out as the allocation covers, interest rate risk is mitigated for the CFM portfolio, the investing horizon is extended for the remaining assets improving the odds of a successful outcome, and most importantly, the promises made to your participants are SECURED!

How much should I invest into a CFM program? The allocation to CFM should be a function of the plan’s funded ratio/status, the ability to contribute, and the level of negative cash flow (contributions falling short of benefits and expenses being paid out). Since all pension plans need liquidity, every DB pension plan should have some exposure to CFM, which provides the necessary liquidity each month of the assignment. There is no forced liquidation of assets in markets that might not provide natural liquidity.

Again, please review these questions. If they resonate with you, call me. We’ll provide you with a good understanding of how much risk you can remove from your current structure before the next market crash hits us.

09.12.25
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Actuaries of DB Pension Plans Prefer Higher Interest Rates

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

I produced a post yesterday, titled “U.S. Rates Likely to Fall – Here’s the Good and Bad”. In that blog post I wrote, “I’d recommend that you not celebrate a potential decline in rates if you are a plan sponsor or asset consultant, unless you are personally looking for a loan.” Falling rates have historically benefited plan assets, and not just bonds, but risk assets, too. But lower rates cause the present value (PV) of liabilities to grow. A 50 bp decline in rates would cause the PV of liabilities to grow by 6% assuming a duration of 12-years. NOT GOOD!

Not being a trained actuary, although I spend a great deal of time communicating with them and working with actuarial output, I was hesitant to make that broad assessment. But subsequent research has provided me with the insights to now make that claim. Yes, unlike plan sponsors and asset consultants that are likely counting down the minutes to a rate cut next week, actuaries do indeed prefer higher interest rates.

Actuaries of DB pension plans, all else being equal, generally prefer higher interest rates when it comes to funding calculations and the plan’s financial position.

Impact of Higher Interest Rates

  • Lower Liabilities: When interest rates (used as the discount rate for future benefit payments) increase, the (PV) of the plan’s obligations may sharply decrease depending on the magnitude of the rate change, making the plan look better funded.
  • Lower Required Contributions: Higher discount rates mean lower calculated required annual contributions for plan sponsors and often lead to lower ongoing pension costs, such as PBGC costs per participant.
  • Potential for Surplus: Sustained periods of higher rates can create or increase pension plan surpluses, improving the financial health of the DB plan and providing flexibility for sponsors.

Why This Preference Exists

  • Discount Rate Role: Actuaries discount future benefit payments using an assumed interest rate tied to high-grade bond yields. The higher this rate, the less money is needed on hand today to meet future obligations.
  • Plan Health: Lower required contributions and lower projected liabilities mean sponsors are less likely to face funding shortfalls or regulatory intervention. Plans become much more sustainable and plan participants can sleep better knowing that the plan is financially healthy.
  • Plan Sponsor Perspective: While actuaries may remain neutral in advising on appropriate economic assumptions (appropriate ROA), almost all calculations and required reports look stronger with higher interest rates. What plan sponsor wouldn’t welcome that reality.

Consequences of Lower Interest Rates

  • Increase in Liabilities: Contrary to the impact of higher rates, lower rates drive up the PV of projected payments, potentially causing underfunded positions and/or the need for larger contributions.
  • Challenge for Plan Continuation: Persistently low interest rates have made DB plans less attractive or sustainable and contributed to a trend of plan terminations, freezes, or conversions to defined contribution or hybrid structures. The sustained U.S. interest rate decline, which spanned nearly four decades (1982-2021), crushed pension funding and led to the dramatic reduction in the use of traditional pension plans.

In summary, actuaries valuing DB pension plans almost always prefer higher interest rates because they result in lower reported liabilities, lower costs, and less financial pressure on employers. Given that 100% of the plan’s liabilities are impacted by movements in rates, everyone associated with DB pensions should be hoping that current interest rate levels are maintained, providing plan sponsors with the opportunity to secure the funded ratio/status through de-risking strategies. A DB pension plan is the gold standard of retirement vehicles and maintaining them is critical in combating the current retirement crisis.

09.11.25
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U.S. Rates Likely to Fall – Here’s the Good and Bad

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

Unfortunately, there exists weakness in the U.S. labor force, as a notable deterioration in job creation, initial jobless claims, and job openings is taking place at this time. This weakness will likely lead the Federal Reserve to lower U.S. interest rates at the next FOMC, which takes place next week with an announcement on the 18th. The current consensus is for a 0.25% reduction in the Fed Fund’s Rate to 4.0%-4.25%. There is also a rising expectation that the “cut” could be larger. That might be more hope than reality at this time, given the CPI’s 0.4% posting today.

So, if rates were to be lowered, who benefits and who gets hurt? Well, individuals seeking loans – mortgages, cars, student loans – certainly benefit. But individuals hoping to generate some income from savings and retirement assets get hurt, especially since these rates tend to be shorter maturity instruments. Who else is impacted? Fixed income asset managers will benefit if they are holding coupon bonds, as falling rates drive bond prices upward. However, those holding bonds with adjustable yields won’t benefit as much.

How about DB pension funds? Yes, those pension funds invested in U.S. fixed income will likely see asset appreciation. However, both public and multiemployer plans have dramatically reduced their average exposure to this asset class. According to P&I’s annual survey, multiemployer plans have 18.2% in U.S. domestic fixed income, while public plans have roughly 18.7% of plan assets dedicated to U.S. fixed income. As a point of reference, corporate plans have nearly half of the plan’s assets dedicate to fixed income (45.4%). As rates fall, these plans will see some appreciation providing a boost in their quest to achieve the desired ROA. Great!

However, let us not forget that pension liabilities will be negatively impacted by falling rates, as they are bond-like in nature and the present value of those liabilities will grow. This is what crushed DB pensions during the massive decline in interest rates from 1982 until 2021. A move down in rates will directly benefit less than 50% of the assets, if we are talking about a corporate plan, and <20% of the assets for multiemployer and public funds. However, 100% of the liabilities will be impacted! Doesn’t seem like a good trade-off. As a result, funded ratios will decline and funded status shortfalls will grow, leading to greater contributions.

Given the mismatch identified above, I’d recommend that you not celebrate a potential decline in rates if you are a plan sponsor or asset consultant, unless you are personally looking for a loan. I would also recommend that you align your plan’s asset cash flows (principal and income from bonds) with your liability cash flows (benefits and expenses) while rates remain moderately high. As I’ve stated many times in this blog, Pension America had a great opportunity to de-risk DB pensions in 1999 but failed to act. Please don’t let this opportunity slip by without appropriate action.

09.09.25
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A Peer Group?

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

Got an email today that got my heart rate up a little. The gist of the article was related to a particular public pension fund that eclipsed its “benchmark” return for the fiscal year ended June 30, 2025. Good job! However, the article went on to state that they failed to match or exceed the median return of 10.2% for the 108 public pension funds with asset >$1 billion. What a silly concept.

Just as there are no two snowflakes alike, there are no two public pension systems that are the same, even within the same state or city. Each entity has a different set of characteristics including its labor force, plan design, risk tolerance, benefit structure, ability to contribute, and much more. The idea that any plan should be compared to another is not right. Again, it is just silly!

As we’ve discussed hundreds of times, the only thing that should matter for any DB pension plan is that plan’s specific liabilities. The fund has made a promise, and it is that promise that should be the “benchmark” not some made up return on asset (ROA) assumption. How did this fund do versus their liabilities? Well, that relationship was not disclosed – what a shocker!

Interestingly, the ROA wasn’t highlighted either. What was mentioned was the fact that the plan’s returns for 3-, 5-, and 10-years were only 6.2%, 6.6%, and 5.4%, respectively (these are net #s), and conveniently, they just happened to beat their policy benchmark in each period.

I’d be interested to know how the funded ratio/status changed? Did contribution expenses rise or fall? Did they secure any of the promised benefits? Did they have to create another tier for new entrants? Were current participants asked to contribute more, work longer, and perhaps get less?

I am a huge supporter of defined benefit plans provided they are managed appropriately. That starts with knowing the true pension objective and then managing to that goal. Nearly all reporting on public pension plans focuses on returns, returns, returns. When not focusing on returns the reporting will highlight asset allocation shifts. The management of a DB pension plan with a focus on returns only guarantees volatility and not success. I suspect that the 3-, 5-, and 10-year return above failed to meet the expected ROA. As a result, contributions likely escalated. Oh, and this fund uses leverage (???) that gives them a 125% notional exposure on their total assets. I hope that leverage can be removed quickly and in time for the next correction.

09.05.25
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I’m Concerned! Are You?

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

I’ve been concerned about the U.S. retirement industry for many years, with a particular focus on traditional pensions. The demise of DB pensions is a major social and economic issue for a significant majority of American workers, who fear that their golden years will be greatly tarnished without the support of a traditional DB pension plan coupled with their inability to fund a supplemental retirement vehicle, such as a defined contribution plan.

I recently had hope that the rising U.S. interest rate environment would bring about a sea change in the use of DB pensions, but I haven’t seen the tidal wave yet. That said, the higher rate environment did (could still) provide plan sponsors with the ability to take some risk off the table, but outside of private pensions, I’ve witnessed little movement away from a traditional asset allocation framework. You see, the higher rate environment reduces the present value cost of those future benefit payments improving both the funded ratio and funded status of DB pensions, while possibly reducing ongoing contributions. Securing those benefits, even for just 10-years dramatically reduces risk.

But, again, I’ve witnessed too few plans engaging in alternative asset allocation strategies. That’s not the same as engaging in alternative strategies, which unfortunately continues to be all the rage despite the significant flows into these products, which will likely diminish future returns, and the lack of distributions from them, too. An alternative asset allocation strategy that Ryan ALM supports and recommends is the bifurcation of assets into two buckets – liquidity and growth – as opposed to having all of the plan’s assets focused on the return on asset (ROA) assumption.

By dividing the assets into two buckets, one can achieve multiple goals simultaneously. The liquidity bucket, constituting investment grade bonds, will be used to defease the liability cash flows of benefits and expenses, while the growth or alpha assets can grow unencumbered with the goal of being used to defease future liabilities (current active lives). One of the most important investment tenets is time. As mentioned above, defeasing pension liabilities for even 10-years dramatically enhances the probability of the alpha assets achieving the desired outcome.

So why am I concerned? The lack of risk mitigation is of great concern. I’m tired of watching pensions ride the rollercoaster of returns up and down until something breaks, which usually means contributions go up and benefits go down! Given the great uncertainty related to both the economy and the labor force, why would anyone embrace the status quo resulting in many sleepless nights? Do something, and not just for the sake of doing something. Really do something! Embrace the asset allocation framework that we espouse. Migrate your current core bond allocation to a defeased bond allocation known as cash flow matching (CFM) to bring an element of certainty to the management of your plan.

Listen, if rates fall as a result of a deteriorating labor force and economy, the present value of pension liabilities will rise. Given that scenario, it is highly likely that asset prices will fall, too. That is a lethal combination, and not unique given how many times I’ve seen that play out during my 44-year career. Reach out to us if you aren’t sure how to start the process. We’d be pleased to take you through a series of scenarios so that you can determine what is possible. Perhaps you’ll sleep like a baby after we talk.

09.05.25
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Today is National 401(k) Day. Where is National DB Pension Plan Day?

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

I suspect that most of us have no idea that today, September 5, 2025, is National 401(k) Day. This day is recognized every year on the Friday following Labor Day. The day is supposed to be an opportunity for retirement savings education and for companies to inform their employees about their ability to invest in company sponsored 401(k)s. Did you get your update today? Unfortunately, like many small company employees, I don’t have access to one or a DB plan.

For the uninformed, 401(k) plans are defined contribution plans (DC). This plan type was created in the late 1970s (Revenue Act of 1978) as a “supplemental” benefit. Corporate America liked the idea of a DC offering because it helped them recruit middle and senior management types who wouldn’t accrue enough time in the company’s traditional pension plan. Again, the benefit was supplemental to the traditional monthly pension payment and not in lieu of it!

I think that defined contribution plans are fine as long as they remain supplemental to a DB plan. Asking untrained individuals to fund, manage, and then disburse a retirement benefit is a ridiculous exercise, especially given their lack of disposable income, investment acumen, and NO crystal ball to help with longevity issues. In fact, why do we think that 99.9% of Americans have this ability? Regrettably, we have a significant percentage (estimated at 28%) of our population living within 200% of the poverty line. Do you think that they have any discretionary income that would permit them to fund a retirement benefit when housing, health insurance, food, education, childcare, and transportation costs eat up most, if not all, of an individual’s take home pay? Remember, these plans are only “successful” based on what is contributed. Sure, there may be a company match of some kind, but we witnessed what can happen during difficult economic times, when the employer contribution suddenly vanishes.

Defined benefit plans are the gold standard of retirement vehicles. They once covered more than 40% of the private sector workforce, most union employees, and roughly 85% of public sector workers. What happened? Did we lose focus on the primary objective in managing a DB plan which is to SECURE the promised benefits in a cost-effective manner with prudent risk? Did our industry’s focus on the return on asset assumption (ROA) create an untenable environment? Yes, we got more volatility and less liquidity! Did we did we get the commensurate return? Not consistently. It was this volatility of the funded ratio/status that impacted the financial statements and led to the decision to freeze and terminate a significant percentage of private DB plans. It is a tragic outcome!

What we have today is a growing economic divide among the haves and haves-not. This schism continues to grow, and the lack of retirement security is only making matters worse. DB plans can be managed effectively where excess volatility is not tolerated, where the focus is on the promised benefit and not some made up ROA, and where decisions that are made relative to investment structure and asset allocation are predicated on the financial health of the plan: mainly the funded status. We need DB plans more than ever and ONLY a return to pension basics will help us in this quest. Forget about all the newfangled investment products being sold. Replacing one strategy for another is no better than shifting deck chairs on the Titanic. We need improved governance and a renewed focus on why pensions were provided in the first place.

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.

09.02.25
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ARPA Update as of August 29, 2025

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

We are pleased to share with you the last update for August 2025. Welcome to the final third of the calendar year. We wish for you and your children heading back to school a great year! Always an exciting time of year despite some understandable anxiousness. I still have a daughter heading off to her last year of grad school and six of our 11 grandkids going to grammar school.

The PBGC certainly ramped up activity during the prior week. They absolutely earned their Labor Day break. We’ll provide more detail, but in summary there was one revised application received, five applications approved, two applications withdrawn, and two waitlisted plans decided to lock-in their valuation date.

Alaska United Food and Commercial Workers Pension Fund and Local 73 Retirement Plan, both non-Priority Group members withdrew initial applications. However, Alaska United resubmitted a revised application three days later. They are seeking $95.3 million in SFA for 6,106 plan participants. The PBGC has until December 27, 2025, to act on this submission.

I’m not sure that I remember a week in which the PBGC approved five applications, but as we’ve been saying, with 105 applications yet to be approved and in many cases, even submitted, the PBGC’s pace of approval is bound to speed up. Pension funds receiving approval included Local 1102 Retirement Trust, IBEW Eastern States Pension Plan, Local 1922 Pension Plan, Local 888 Pension Fund (Elmwood Park, NJ), and Local 807 Labor-Management Pension Fund. They are seeking a combined $349.6 million for 13,441 members. The PBGC has now approved the SFA application for 137 funds.

Lastly, two plans, Employee Pension Benefit Plan of Local 640 IATSE and Southern Council of Industrial Workers United Brotherhood of Carpenters and Joiners of America AFL-CIO Pension Plan have locked in their valuation date as of May 31, 2025. Given the number of funds still on the waitlist, there should be some doubt as to whether these initial applications will even be submitted before the December 31, 2025 deadline for initial applications.