Tag Archives: stocks

03.25.26
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What is My Funded Ratio? Who Cares!

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

The funded ratio of a DB pension plan gets a lot of attention, especially if it is perceived to be weak. But does the funded ratio truly tell you the whole story as to the financial health of a DB pension plan? We, at Ryan ALM, Inc. don’t think so.

So, how is the funded ratio calculated:

Funded ratio = MV of plan assets / plan liabilities earned to date X 100

The market value of assets is a present value (PV) calculation. The market value of liabilities is the future value of liabilities earned to date discounted back to a PV calculation based on a discount rate. For public and multiemployer plans the discount rate tends to be the fund’s return on asset assumption (ROA), while it is an AA corporate blended rate for private pensions. In today’s interest rate environment, the discount rate for private plans will be roughly 1.5% less than the discount rate based on the average ROA. That means that liabilities for private funds will have a greater current value than the value of liabilities calculated based on the discount rate using the ROA. Oh, okay, so the choice of a discount rate can change my funded ratio. That’s interesting. So that tells me that if I wanted to improve my funded ratio, all I’d have to do is increase my discount rate to lower the PV of my liabilities. That’s very interesting.

So, it appears that the funded ratio calculation can be manipulated to some extent. As we think about the formula above, is there anything missing? Yes, where are the future contributions, which can be significant. Why are future payment liabilities in the calculation, but projected contributions, which are future assets of the fund, not included? Common thinking suggests that those future contributions aren’t guaranteed, which is why they aren’t factored into the funded ratio calculation. However, is that a correct assumption? In doing some research, it appears >80% of DB pension funds receive 100% of the annual required contribution (ARC). Even NJ’s public pension system is making the ARC and then some.

We recently had a conversation with a large plan sponsor who thought that their fund was <50% funded based on the formula above. Not surprisingly, they were very focused on this ratio and looking for investment strategies that could potentially enhance it. As an FYI, this plan’s future contributions as forecasted by their actuary were significant. In fact, future contributions were so large that they were equal to 73% of the forecasted liabilities! Yes, without including the pension fund’s current assets, this plan was 73% funded, provided those projected contributions were met which they have been for more than a decade.

So, given these forecasted contributions is that pension fund really <50% funded?

In another example, the same fund that thought that they were poorly funded, could defease net pension liabilities for the next 33-years. How is it possible that a plan that believes it is <50% funded able to significantly reduce risk, enhance liquidity, and SECURE pension promises for 33-years? Furthermore, this fund was going to establish a $4.4 billion surplus on the day that those benefits and expenses were defeased for 33-years. If it just earned the projected ROA, that $4.4 billion would grow to $34.2 billion during that 33-year period. Wow! 

So, I ask once more, does that sound like a plan in financial distress, which a funded ratio of <50% might suggest? NO!

The funded ratio is but one measure of a pension plan’s health. Unfortunately, many in our industry would look at that # and say that more risk needs to be taken to achieve “full funding” down the road, when in fact reducing risk through a cash flow matching (CFM) strategy is the appropriate approach. It is past the time to get off the scary asset allocation rollercoaster. 

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.

02.12.26
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It Should Be Relative and NOT Absolute

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

I was participating on a panel at the Opal/LATEC conference yesterday. The moderator asked a question about the importance of process. In my response, I mentioned a number of process elements that are critical to the successful management of pension plans. Here is one point that I made that doesn’t get the attention that it deserves. Many, if not most, defined benefit pension plans have created an investment policy statement (IPS) that specifically restricts certain investments and their respective weights within the pension fund. The plan sponsor and their consultant likely allow investments in public equities and certain styles of equity management (i.e. value and growth, large and small cap, etc.). However, in many cases they restrict the exposure to any one security by an absolute amount such as 5%. This is the wrong approach.

Limiting exposures does reduce the risk that any one stock could have an outsized impact on the pension plan’s return, but by doing so, the plan sponsor is potentially negatively impacting the investment manager. Not all U.S. equity benchmarks are the same and treating them as such is potentially damaging to the manager and fund.

If a large cap growth manager has been retained and they are asked to manage a portfolio relative to the Russell 1000 Growth Index, limiting exposure in a stock to 5% would mean forcing that manager to make a negative bet against any stock in the index that has a weight greater than 5%. As of today, there are three stocks – Nvidia (12.9%), Apple (11.6%), and Microsoft (8.8%) – that the manager couldn’t own at benchmark weight, let alone own them above the index weight. This index is cap weighted, and as the stocks perform well their weight in the index grows. Not being able to own the stock at its index weight is harmful.

Worse, if the investment manager wants to make a positive bet on the stock, they can’t, forcing them to potentially choose weaker companies to round out their portfolio. When a manager is chosen, they are often picked because of their past track record of producing an excess return for a level of risk (tracking error). Restricting exposures to an absolute weight may render those previous return/risk characteristics moot. Furthermore, the exposure to a single stock should be relative to the weight in the index +/- band, which would be very dependent on the amount of tracking error that is comfortable to the plan sponsor.

For instance, a good information ratio (excess return/tracking error) is 0.33%. Meaning that for every 1% excess return, the manager is taking 3% tracking error. If the manager is hoping to add 2% above the benchmark over a cycle, that manager is going to have a tracking error close to 6%. The relative weight of a stock in a portfolio must reflect that level of potential tracking error. Higher tracking error portfolios need more flexibility. In this case, it would make sense to allow the manager to invest in Nvidia at the index weight +/- 2%. For lower risk strategies such as an enhanced index that only has 1% tracking error, perhaps the index weight +/- 0.5% would be appropriate.

Now, the Russell 1000 Growth Index is one of the more concentrated indexes with nearly 60% of the weight of the index in just the top 10 holdings, but it isn’t the only one. Currently, the S&P 500 has the same three stocks (Nvidia, Apple, and Microsoft) at weights greater than 5% and two others, Amazon and Alphabet, at weights >3%. If the manager wants to overweight a holding in the S&P 500 by +/- 2%, they would be restricted with a 5% absolute restriction and no ability to overweight.

I recommend that you review your IPS and make sure that your “risk control” objectives are not restricting your manager’s ability to produce an excess return. Remove any absolute constraint and replace it with a relative weighting based on the tracking error that the manager produces. Again, lower risk enhanced index managers will only need a +/- 0.5% to +/-1% restriction, while higher tracking managers will need greater flexibility.

01.30.26
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“Everybody’s looking under every rock.” Jay Kloepfer

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

Institutional Investor’s James Comtois has recently published an article that quoted several industry members on the near-term (10-years) return forecast for both public and private markets, which according to those asked are looking anemic. No one should be surprised by these forecasts given the incredible strength of public markets during the past three years and the fact that regression to the mean tendencies is not just theory.

An equally, if not greater, challenge is liquidity. As the title above highlights, Jay Kloepfer, Director of Capital Markets Research at Callan, told II that “Liquidity has become a bigger issue,” He went on to say that “Everybody’s looking under every rock.” Not surprising! Given the migration of assets from public markets to private during the last few decades. The rapid decline in U.S. interest rates certainly contributed to this asset movement, but expectations for “outsized” gains from alternatives also fueled enthusiasm and action. The Callan chart below highlights just how far pension plans have migrated.

I’ve written a lot on the subject of liquidity. Of course, the only reason that pension plans exist is to fund a promise that was made to the participants of that fund. Those promises are paid in monthly installments. Not having the necessary liquidity can create significant unintended consequences. No one wants to be a forced seller in a liquidity challenged market. It is critical that pension plans have a liquidity policy in place to deal with this critical issue. Equally important is to have an asset allocation that captures liquidity without having to sell investments.

Cash flow matching (CFM) is such a strategy. It ensures that the necessary liquidity is available each and every month through the careful matching of asset cash flows (interest and principal) with the liability cash flows of benefits and expenses. No forced selling! Furthermore, the use of CFM extends the investing horizon for those growth assets not needed in the CFM program. Those investments can just grow unencumbered. The extended investing horizon also allows the growth assets to wade through choppy markets without the possibility of being sold at less than opportune times.

So, if you are concerned about near-term returns for a variety of assets and with creating the necessary liquidity to meet ongoing pension promises, don’t rely on the status quo approach to asset allocation. Adopt a bifurcated asset allocation that separates plan assets into liquidity and growth buckets. Your plan will be in much better shape to deal with the inevitable market correction.

11.06.25
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You Don’t Say!

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

Morgan Stanley has published the results from their Taft-Hartley survey, in which they have to provided “insights into how Taft-Hartley plans are managing priorities and navigating challenges to strengthen their plans”. I sincerely appreciate MS’s effort and the output that they published. According to MS, T-H plans have as their top priority (67% of respondents) delivering promised benefits without increasing employer’s contributions. That seems quite appropriate. What doesn’t seem to jive with that statement is the fact that only 29% that improving or maintaining the plan’s funded status was important. Sorry to burst your bubble plan trustees, but you aren’t going to be able to accomplish your top priority without stabilizing the funded status/ratio by getting off the performance rollercoaster.

Interestingly, T-H trustees were concerned about market volatility (84%) and achieving desired investment performance while managing risk (69%). Well, again, traditional asset allocation structures guarantee volatility and NOT success. If you want to deliver promised benefits without increasing contributions, you must adopt a new approach to asset allocation and risk management. Doing the same old, same old won’t work.

I agree that the primary objective in managing a DB plan, T-H, public, or private, is to SECURE the promised benefits at a reasonable cost and with prudent risk. It is not a return game. Adopting a new asset allocation in which the assets are divided among two buckets – liquidity and growth, will ensure that the promises (monthly benefits) are met every month chronologically as far into the future that the assets will cover delivering the promised benefits. However, just adopting this bifurcated asset allocation won’t get you off the rollercoaster of returns and reduce market volatility. One needs to adopt an asset/liability focus in which asset cash flows (bond interest and principal) will be matched against liability cash flows of benefits and expenses.

This approach will significantly reduce the volatility associated with markets as your pension plan’s assets and liabilities will now move in lockstep for that portion of the portfolio. As the funded status improves, you can port more assets from the growth portfolio to the liquidity bucket. It will also buys time for the remaining growth assets to help wade through choppy markets. According to the study, 47% of respondents that had an allocation to alternatives had between 20% and 40%. This allocation clearly impacts the liquidity available to the plan’s sponsor to meet those promises. If allocations remain at these levels, it is imperative to adopt this allocation framework.

Furthermore, given today’s equity valuations and abundant uncertainty surrounding interest rates, inflation, geopolitical risk, etc., having a portion of the pension assets in a risk mitigating strategy is critically important. Thanks, again, to MS for conducting this survey and for bubbling up these concerns.

07.18.25
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AI Needs An Education Regarding ALM/CFM!

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

I asked an AI tool that I use the following: Asset/Liability Management (ALM) is an effective tool for pensions. What strategies are currently being deployed?

As usual, the response was nearly instantaneous, but was it correct? Here is what I got:

Overview

“Asset/liability management (ALM) remains central to pension fund sustainability, aiming to balance expected pension liabilities with optimal asset growth. In 2025, pension funds deploy a range of strategies to ensure their ability to meet long-term obligations while managing risk efficiently.” No argument there. However, here is a list of the strategies. This is where I have an issue.

Key ALM Strategies Currently in Use

1. Liability-Driven Investing (LDI)

  • Matching Asset Duration to Liabilities: Many corporate pension plans invest in high-quality bonds with durations closely matching those of plan liabilities to mitigate interest rate risk. This ensures that both assets and liabilities react similarly to interest rate changes, stabilizing the funded status from year to year.
  • Glidepath Strategies: Plans gradually shift the asset mix towards more fixed-income securities as funded status improves or as the plan matures, further reducing risk and aligning assets with near-term liabilities.

2. Dynamic Asset Allocation

  • Strategic Shifts in Asset Mix: Pension funds adjust allocations based on changing liabilities, market conditions, and funding status. For instance, U.S. public pension plans have recently shifted asset allocations to maintain return expectations and recover from volatility.
  • Scenario-Based Modeling: Funds use forward-looking models to stress-test outcomes under varying economic scenarios, reviewing assumptions about returns, inflation, and participant demographics.

3. Risk Transfer Solutions

  • Pension Risk Transfer (PRT): Many sponsors employ annuity purchases and lump-sum windows to reduce long-term liability, transferring obligations to insurers. In 2024, settlement payouts (such as annuity buyouts) remained a significant tool for risk management among major pension plans.

4. Liability Modeling Innovations

  • Member-Level Simulation: Advanced models project individual participant cash flows, account for currency exposure, and enable granular liability projections. Such approaches allow more precise matching of assets to future obligations, improving ALM decision-making.
  • Regular Reviews and Assumption Updates: ALM programs, such as those at CalPERS, involve systematic reviews of demographic and financial assumptions (e.g., life expectancy, inflation), with revisions made every four years to incorporate emerging trends.

5. Use of Custom Benchmarks

  • Liability-Mimicking Portfolios: Funds create tailored portfolios (“benchmark” portfolios) that track the liability profile as closely as possible, often blending nominal bonds, inflation-linked bonds, and equities according to the plan’s specifics (such as maturity and inflation sensitivity).

That’s it? Where is Cash Flow Matching (CFM)? In each of these scenarios, liquidity needed to fund benefits and expenses is missing. Duration strategies minimize interest rate risk, but don’t produce timely liquidity to fully fund B+E. Furthermore, duration strategies that use an “average” duration or a few key rates don’t duration match as well as CFM that duration matches EVERY month of the assignment.

In the second set of products – dynamic asset allocation – what is being secured? Forecasts related to future economic scenarios come with a lot of volatility. If anyone had a crystal ball to accomplish this objective with precision, they’d be minting $ billions!

A PRT or risk transfer solution is fine if you don’t want to sustain the plan for future workers, but it can be very expensive to implement depending on the insurance premium, current market conditions (interest rates), and the plan’s funded status

In the liability modeling category, I guess the first example might be a tip of the hat to cash flow matching, but there is no description of how one actually matches assets to those “granular” liability projections. As for part two, updating projections every four years seems like a LONG TIME. In a Ryan ALM CFM portfolio, we use a dynamic process that reconfigures the portfolio every time the actuary updates their liability projections, which are usually annually.

Lastly, the use of Custom benchmarks as described once again uses instruments that have significant volatility associated with them, especially the reference to equities. What is the price of Amazon going to be in 10-years? Given the fact that no one knows, how do you secure cash flow needs? You can’t! Moreover, inflation-linked bonds are not appropriate since the actuary includes an inflation assumption in their projections which is usually different than the CPI.  

Cash Flow Matching is the only ALM strategy that absolutely SECURES the promised benefits and expenses chronologically from the first month as far out as the allocation will go. It accomplishes this objective through maturing principal and interest income. No forced selling to meet those promises. Furthermore, CFM buys time for the residual assets to grow unencumbered. This is particularly important at this time given the plethora of assets that have been migrated to alternative and definitely less liquid instruments.

As mentioned earlier, CFM is a dynamic process that adapts to changes in the pension plan’s funded status. As the Funded ratio improves, allocate more assets from the growth bucket to the CFM portfolio. In the process, the funded status becomes less volatility and contribution expenses are more manageable.

I’m not sure why CFM isn’t the #1 strategy highlighted by this AI tool given its long and successful history in SECURING the benefits and expenses (B&E). Once known as dedication, CFM is the ONLY strategy that truly matches and fully funds asset cash flows (bonds) with liability cash flows (B&E). Again, it is the ONLY strategy that provides the necessary liquidity without having to sell assets to meet ongoing obligations. It doesn’t use instruments that are highly volatile to accomplish the objective. Given that investment-grade defaults are an extremely rare occurrence (2/1,000 bonds), CFM is the closest thing to a sure bet that you can find in our industry with proven performance since the 1970s.

So, if you are using an AI tool to provide you with some perspective on ALM strategies, know that CFM may not be highlighted, but it is by far the most important risk reducing tool in your ALM toolbox.

07.07.25
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Don’t Engage in a Cash Sweep – Dividends Matter!

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

We’ve already shared with you the importance of dividends to the long-term return of the S&P 500 by referencing studies conducted by Guinness Global Investors.

According to the Guinness study, which was last updated as of April 2020, the contribution to return of the S&P 500 from dividends and dividends reinvested for 10-year periods since 1940 was a robust 47% down insignificantly from 48% a decade ago. Extending the measurement period to 20 years from 1940 forward highlights an incredible 57% contribution to the total return of the S&P 500 from dividends. Importantly, this study is on the entirety of the S&P 500, not just those companies that pay dividends. If the universe only included dividend payers, this analysis would reveal strikingly greater contributions since roughly 100 S&P 500 companies are not currently paying a dividend.

As if this study isn’t enough to convince you of the importance of dividends to the long-term return of stocks, Glen Eagle Trading put out an email today that referenced a recent Wall Street Journal article, titled “Why Investors Are Right to Love Dividends”. The article highlighted the fact that recent studies show S&P 500 dividend-paying stocks returned 9.2% annually over the past 50 years, which is more than double the 4.3% return of non-dividend payers, with lower volatility. Then there is this study by Ned Davis which broke down the contribution of dividends for the 47-years ending December 21, 2019.

Once again, it becomes abundantly clear why investing in companies paying dividends is a terrific long-term strategy. It also begs the question, why do many plan sponsors and their advisors regularly “sweep” income from their equity managers to meet ongoing benefits and expenses? In doing so, instead of structuring the pension plan to have a liquidity bucket to meet those obligations, this activity diminishes the potential long-term contribution to equities from dividends. As longer-term returns are reduced, greater contributions are needed to make up the shortfall compounding the problem.

Please don’t sweep interest and dividend income or capital distributions for that matter, establish an asset allocation that has a dedicated liquidity bucket that uses cash flow matching to secure and fund ongoing benefits and expenses. The remainder of the assets not deployed in the liquidity bucket go into a growth bucket that benefits from the passage of time.

06.10.25
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HF Assets Hit Record – Why?

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

I touched on the subject of hedge funds a few years ago. Unfortunately, results haven’t gotten any better. Yet, P&I is reporting that Hedge Fund assets have reached an all-time high of $5.7 trillion. My simple question – WHY?

I believe that we have overcomplicated the management of DB pension plans and the use of hedge funds is a clear example. If the primary objective is to fund the promised benefits in a cost-efficient manner with prudent risk, why do we continue to waste so much energy buying complicated, opaque products and strategies that often come with ridiculously high fees and little alpha? Furthermore, the management of a DB pension plan has a relative objective – funding the plan’s liabilities of benefits and expenses. It is not an absolute objective which is what a hedge fund strives to produce. It really doesn’t matter if a hedge fund produces a 5% 10-year return if liability growth far exceeds that performance.

Here’s the skinny, the HFRI Composite index reveals that the 10- and 20-year compounded returns are 5.0% and 5.1%, respectively through March 31, 2025. We know that we didn’t get those “robust” returns at either an efficient cost or with prudent risk. What are these products hedging other than returns? Why do we continue to invest in this collection of overpriced and underperforming products? Are they sexy? Does that make them more appealing? Do we think that we are getting a magic elixir that will solve all of our funding issues?

Sadly, the story is even worse when you take a gander at the returns associated with the HFRI Hedge Fund of Funds Composite Index. I shouldn’t have been surprised by the weaker performance given the extra layer of fees. According to HFRI, 10- and 20-year annualized returns fall to 3.5% and 3.3%, respectively. UGH! For those two time frames, the S&P 500 produced returns of 12.5% and 10.2% respectively, and for a few basis points in fees. Furthermore, as U.S. interest rates have risen, bond returns have become competitive with the returns produced by HFs and HF of Funds. In fact, during the 1-year period both T-bills (4.9%) and the BB Aggregate index (5.2%) have outperformed HFs (4.6%), while matching or exceeding the HF of Funds (4.9%) as of March 31, 2025.

While pension systems struggle under growing contribution expenses and plan participants worry about the viability of the pension promise, the hedge fund gurus get to buy sports franchises because of the outrageous fees that are charged and the incredible sums of assets (again, $5.7 trillion!!!) that have been thrown at them? I suspect that the standard fee is no longer 2% plus 20%, but the fees probably haven’t fallen too far from those levels. As Fred Schwed asked with his famous publication in 1952 titled, “Where are the Customers’ Yachts?”, I haven’t been able to find them. Unfortunately, I think that the picture below is more representative of what plan sponsors and the participants have gotten for their investment.

Participant’s yacht – deflated results

Don’t you think that it is time to get back to pension basics? Let’s focus on funding the promised benefits through an enhanced liquidity strategy (cash flow matching) for a portion of the plan’s assets, while allowing the remainder of the portfolio’s assets to enjoy the benefit of time to grow unencumbered (extended investing horizon). This bifurcated approach is superior to the current strategy of placing all of your eggs (assets) into a ROA bucket and hoping that the combination will create a return commensurate with what is needed to meet those current Retired Lives Benefit promises and all future benefits and expenses.

06.09.25
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Capital Distributions From Private Equity Collapse

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

I recently published a blog titled, Problem – Solution: Liquidity, in which I discussed the impact of pension plan sponsors cobbling together interest, dividends, and capital distributions from their roster of managers, and how that practice was not beneficial, especially during periods of stress in the markets. Well, one of those three legs of the “gotta, but how am I gonna, meet my monthly payment of benefits and expenses”, is really falling short at this time.

Dividends are far lower these days than they once were when equities were perceived to be quite risky. In fact, it wasn’t until 1958 that dividend income fell below interest income from bonds. Couple that phenomenon with the fact that capital distributions have plummeted, and plan sponsors are placing far greater emphasis on capturing interest from bonds than ever before. Yes, thankfully interest rates have risen, but the YTM on the BB Aggregate index is still only in the 4.7% range. That is not likely sufficient to meet monthly payouts, which means that bonds will have to be sold, too. The last thing one should want to do in a rising rate environment is to sell securities at a loss.

However, if the plan sponsor engaged a Cash Flow Matching (CFM) manager in lieu of an active core fixed income manager, the necessary liquidity would be made available each and every month of the assignment, as asset cash flows would be carefully matched against liability cash flows. Both interest and maturing principal would be used to meet those benefits and expenses. No forced selling. No scurrying around to “find” liquidity. A far more secure and certain process.

What if my plan isn’t fully funded. Does it make sense to use CFM? Of course, given that benefits and expenses are paid each month whether your plan is fully invested or not, wouldn’t it make more sense to have those flows covered with certainty? Sure, a poorly funded plan may only be able to use CFM for the next 3-5-years, but that’s the beauty of CFM. It is a dynamic process providing a unique solution for each pension plan. No off the shelf products.

04.11.25
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What Was The Purpose?

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

I was introduced to the brilliance of Warren Mosler through my friend and former colleague, Chuck DuBois. It was Chuck who encouraged me to read Mosler’s book, “The 7 Deadly Innocent Frauds of Economic Policy”. I would highly recommend that you take a few hours to dive into what Mosler presents. As I mentioned, I think that his insights are brilliant.

The 7 frauds, innocent or not, cover a variety of subjects including trade, the federal deficit, Social Security, government spending, taxes, etc. Regarding trade and specifically the “deficit”, Mosler would tell you that a trade deficit inures to the benefit of the United States. The general perception is that a trade deficit takes away jobs and reduces output, but Mosler will tell you that imports are “real benefits and exports are real costs”.

Unlike what I was taught as a young Catholic that it is better to give than to receive, Mosler would tell you that in Economics, it is much better to receive than to give. According to Mosler, the “real wealth of a nation is all it produces and keeps for itself, plus all it imports, minus what it exports”. So, with that logic, running a trade deficit enhances the real wealth of the U.S.

Earlier this year, the Atlanta Fed was forecasting GDP annual growth in Q1’25 of 3.9%, today that forecast has plummeted to -2.4%. We had been enjoying near full employment, moderating yields, and inflation. So, what was the purpose of starting a trade war other than the fact that one of Mosler’s innocent frauds was fully embraced by this administration that clearly did not understand the potential ramifications. They should have understood that a tariff is a tax that would add cost to every item imported. Did they not understand that inflation would take a hit? In fact, a recent survey has consumers expecting a 6.7% price jump in goods and services during the next 12-months. This represents the highest level since 1981. Furthermore, Treasury yields, after initially falling in response to a flight to safety, have marched significantly higher.

Again, I ask, what was the purpose? Did they think that jobs would flow back to the U.S.? Sorry, but the folks who suffered job losses as a result of a shift in manufacturing aren’t getting those jobs back. Given the current employment picture, many have been employed in other industries. So, given our full-employment, where would we even get the workers to fill those jobs? Again, we continue to benefit from the trade “imbalance”, as we shipped inflation overseas for decades. Do we now want to import inflation?

It is through fiscal policy (tax cuts and government spending) that we can always sustain our workforce and domestic output. Our spending is not constrained by other countries sending us their goods. In fact, our quality of life is enhanced through this activity.

It is truly unfortunate that the tremendous uncertainty surrounding tariff policy is still impacting markets today. Trillions of $s in wealth have been eroded and long-standing trading alliances broken or severely damaged. All because an “innocent” fraud was allowed to drive a reckless policy initiative. I implore you to stay away from Social Security and Medicare, whose costs can always be met since U.S. federal spending is not constrained by taxes and borrowing. How would you tell the tens of millions of Americans that rely on them to survive that another innocent fraud was allowed to drive economic policy?