Bonds as Performance Drivers? No, Sir!

U.S. fixed income benefitted tremendously from the nearly 4-decade decline in interest rates. From 1981 through 2021, the U.S. enjoyed a significant collapse in bond yields helping to fuel an unprecedented rally in risk assets. However, as Bob Dylan said, “the times they are a changin”!

The U.S. Federal Reserve’s FOMC announced on March 16, 2022, that the new Fed Fund’s target would be 0.25%-0.5% beginning on St. Patrick’s day 2022. This action marked the beginning of a rate regime change resulting from Covid-19 implications, including abundant stimulus creating massive demand for goods and services that couldn’t be met as production/manufacturing activities were disrupted.

The U.S. Fed Fund’s rate would eventually rise to 5.25%-5.50% in July 2023 (following 11 rate increases). Today, the Fed Fund’s rate stands at 3.5%-3.75%. For context, the average Fed Fund’s rate since 1971 is 5.39%, which includes a peak of nearly 20% in December 1980, and ultimately 0% in December 2008, in reaction to the GFC. It would once again hit 0% during Covid.

As a result, bond investors, such as pension plans, have ridden a rollercoaster of performance. Performance looked terrific for much of the nearly 40-year bull market but has been challenging since the Fed’s initial action in 2022. In fact, the Aggregate Index (Lehman, Barclays, Bloomberg, etc.) has produced only a 3.3% return for 20-years through March 2026. It is worse if you look at shorter timeframes, as the Index was up only 1.7% for 10-years, 0.3% for 5-years, and -0.1% YTD (all through March 31, 2026).

For pension plan sponsors and their advisors who are reluctant to utilize cash flow matching (CFM) as it might harm the pension plan’s ability to achieve the ROA, those performance #s above should be a wake-up call! As a reminder, the YTM of a CFM portfolio is a good proxy for what the fund will achieve for the period that liabilities are defeased. Given that Ryan ALM, Inc. is currently generating a YTM of 5.02% for a client with a 30-year defeasement and a 4.6% YTM for another with a 10-year CFM mandate, which result do you think is more harmful to the pension plan?

Furthermore, the CFM portfolio’s return is not predicated on the direction of interest rates, as it very much is with active core fixed income strategies. Importantly, CFM provides all the liquidity needed to meet the monthly benefit payments without having to sell assets, perhaps at inappropriate times. By cash flow matching bond principal and interest income with the plan’s liability cash flows (benefits and expenses), CFM secures the pension promises and reduces the FV cost (with certainty) of those obligations in the process. For the client with the 30-year CFM mandate, we are reducing future funding costs by -31.1% and for the 10-year CFM program, we have reduced funding cost by -28.0%.

Where are we today? After a brief respite, U.S interest rates are once again trending higher, as greater inflation takes hold. Who knows where inflation and interest rates will eventually land, but a pension plan (or E&F) could benefit tremendously in this environment by engaging Ryan ALM, Inc. and our CFM capability. The 30-year Treasury bond yield history below highlights the rising rate environment. As a reminder, Ryan ALM builds CFM portfolios using investment-grade corporate that have yields substantially higher than comparable Treasury maturities.

So, I ask: Why sit with active fixed income and subject your plan’s bond allocation to the whims of an unknown interest rate environment when you can SECURE the pension promise with near certainty (absent any defaults)? Wouldn’t it be wonderful to know that your liquidity needs are all set for some prescribed period? Wouldn’t your plan participants want to know that the promises given have been secured? Now is the time to bring an element of certainty to the management of pension assets that doesn’t currently exist. Given the geopolitical uncertainty and the potential impact on inflation, rates, and other markets, creating funding certainty should be priority #1. Why isn’t it?

Pension Plan Sponsor: "I Wish that I could..."

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

In October, I will celebrate my 45th year in the pension/investment industry. I've been truly blessed, but also frustrated by activities that I deem detrimental to the successful management of DB pension plans.

First and foremost, I believe that a majority of folks think that achieving the return on asset assumption (ROA) is the primary objective in managing a DB pension plan. This is an incorrect assumption! Creating an asset allocation targeted at a return only guarantees annual volatility, and NOT success.

Second, meeting monthly liquidity through the sweeping of interest, dividends, capital distributions, and worse, the selling of investments harms the long-term return of your fund.

Third, using core fixed income as a return generator is not a sound strategy, as bonds are highly interest rate sensitive, and who knows the future direction of rates.

That being said, if I were a pension plan sponsor, I'd wish that I could find an investment strategy that provided: All of the plan's liquidity needs, certainty for a portion of that plan, and a longer investment horizon for my alpha generating assets (non-bonds) so that I enhance the probability of achieving the desired outcome.

Great news - there is such a strategy. Cash Flow Matching (CFM) is designed to use investment-grade bonds for their cash flows of interest and principal (upon maturity) to match liability cash flows of benefits and expenses for as far out as the allocation goes. Furthermore, it extends the investing horizon for the non-bond assets so that they can wade successfully through choppy markets without being a source of liquidity. Finally, there is an element of certainty (minus that rare occurrence of an IG bond default) absent in the management of DB pension plans outside of a pension risk transfer (PRT) or an annuity.

I believe that the primary objective in managing a DB pension plan is to SECURE the pension promise at low cost and with prudent risk. Does focusing on the ROA secure benefits - no. The "sweeping" of dividends, interest, and capital distributions to meet ongoing liquidity needs can negatively impact the plan's long-term return. Guinness Global (U.K. investment shop) produced a study that said sweeping dividends and not reinvesting them reduced the return to the S&P 500 by 47% over 10-year periods back to 1940 and 57% for 20-year periods.

Finally, bonds are highly interest rate sensitive. After a nearly 40-year decline in U.S. interest rates which drove bond prices up and yields down, we have seen rates rise to more average levels where they are holding leading to very weak fixed income returns for recent performance periods. Matching asset cash flows with liability cash flows eliminates interest rate risk for that portion of the portfolio, as benefits and expenses are future values that are not interest rate sensitive. Furthermore, Ryan ALM's approach is to use 100% IG corporate bonds to build the CFM portfolio. A 100% IG portfolio will outperform a core active fixed income portfolio by the yield differential given the core portfolio's exposure to agencies and Treasuries.

Question: If you had the opportunity to bring some certainty to the management of pensions, why wouldn't you do it? If not, please share with us why not.

Ryan ALM, Inc. - Q1'26 Newsletter

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

We are pleased to share with you our insights and perspectives on the relationship of pension assets to pension liabilities (benefits and expenses) through the Q1'26 Newsletter. As you will read, the first quarter was challenging for pension plans as asset growth fell short of liability growth to start the year. As a result, funded ratios are slightly lower at quarter-end from year-end 2025.

As always, we encourage you to reach out to us with any questions or observations. Thank you for taking the time to read our thoughts.

ARPA Update as of April 10, 2026

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

Another week, another update, but for the first time since I began providing weekly updates about 4-years ago, there has been no activity to report.

I'm fairly confident that the entire agency didn't go on Spring break together, but according to their regular update there were no applications received through the portal, which remains temporarily closed, no applications approved or denied, and none withdrawn. As has been the case recently, there were no recipients of Special Financial Assistance (SFA) asked to repay a portion of the grant due to census issues. Lastly, there were no multiemployer plans seeking to be added to the waitlist.

There continues to be only one plan sitting on the waitlist that isn't identified as a "Plan Terminated by Mass Withdrawal before 2020 Plan Year" that hasn't been given the opportunity to submit its application. We continue to seek information related to the 80 pension plans (from a potential universe of roughly 130) that remain on the waitlist as Mass Withdrawal casualties.

Between plans currently under review, those that have withdrawn an application, and those that have yet to file from earlier Priority Groups, the PBGC still has about 40 pension plans to review and approve before all that is left are the mass withdrawal waitlist members.

The PBGC is 79% of the way through the ARPA candidates when excluding the mass withdrawal applicants. It has been quite an arduous process since July 2021, but one that has reaped amazing results! As I recently mentioned, to date $77.9 billion has been granted to 159 plans that will preserve the promised benefits for >2.02 million plan participants. Wow. Congratulations to John Murphy and his Butch Lewis Act team that made this happen.

A Ryan ALM, Inc. Client Portfolio Review

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

We are blessed to work with a wonderful array of clients, both pension and E&F. They have chosen to bring an element of certainty to the management of their fund. We commend them for that decision and thank them for the confidence that they've shown in us and our cash flow matching (CFM) strategy/capability.

Our client relationships begin with the acquisition of important inputs including projections of benefits/grants, expenses, and contributions as far into the future as possible. Most often these are provided by the fund's actuary. The next step in building a portfolio is to create a Custom Liability Index (CLI), that will establish the framework for monthly distributions.

Upon completion of the CLI, we will work with the client and their advisors to determine the appropriate allocation to CFM. We often suggest converting the current core fixed income allocation since bonds should only be used for their cash flows. Once that has been determined, we will build a high quality bond portfolio (most often 100% IG corporate bonds) that carefully matches asset cash flows of interest and principal with the liability cash flows (benefits and expenses (B&E)).

Once this portfolio is built, we have created an element of certainty for the plan sponsor, as asset cash flow will march in harmony with the liability cash flows barring a bond default, which occurs <0.2% annually (40-year study by S&P). It is only upon changes in the actuaries forecast that lead us to adjust the portfolio, and those annual changes tend to be quite insignificant.

Now the fun part: We are often asked to provide quarterly updates on our portfolio, which couldn't be any easier. My last portfolio review lasted about 37 seconds. I stated that the projected cash flows that had been shared with us were matched by the asset cash flows, and that there have been no instances in which monthly cash flow needs were not met in their entirety. Furthermore, there have been no defaults in our portfolio ensuring that future cash flow needs will also be met as required. Any questions?

As you can see, there is no need to fret about the direction of U.S. interest rates. No worry about what the "Fed" may do today, tomorrow, or next year. No forecasting of the economic environment, inflation, and/or the geopolitical landscape. Once the CFM portfolio is constructed, the cost savings (cost to fund future B&E) is known and locked in. How many investment managers can tell you how the portfolio will perform over the duration of the program?

Why wouldn't you want to bring an element of certainty to your fund? Wouldn't a "sleep-well-at-night" strategy bring comfort to you and those that you serve? If the true objective in managing a defined benefit fund is to SECURE the promised benefits at low cost and with prudent risk, is there another investment strategy that can match the positive attributes of CFM? If we've grabbed your attention, reach out. We provide a free analysis of how CFM can make your fund less volatile and uncertain.

Not Quite Ripken-like, but it is over!

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

Like clockwork, Milliman has released its monthly Milliman 100 Pension Funding Index (PFI), that analyzes the 100 largest U.S. corporate pension plans, and for the first time in 11-months, the collective funded ratio for this cohort failed to advance.

Investment returns for the constituents in this index fell -3.33% causing assets for PFI members to collectively fall to $1.3 trillion. Unfortunately, a 32-basis-point increasein the discount rate was not enough to offset asset depreciation. The discount rate at 5.65% caused the present value of liabilities to fall to $1.2 trillion. As a result, the funded ratio marginally declined from 109.3% as of February 28, to 108.9%, as of March 31, 2026.

Despite the recent setback, the index showed a 0.7% improvement in the funded ratio which began 2026 at 108.2%. The 0.7% improvement resulted in a $6 billion funding improvement for the first quarter, as a 19-basis-point rise in the discount rate offset quarterly returns for the index constituents of -0.21%.

“March was the first month of funding level declines in almost a year,” said Zorast Wadia, PFI author. “While funding levels improved overall during the first quarter, it is uncertain how long these gains will last, given current volatility. Surplus management strategies focused on both sides of the balance sheet continue to be prudent.” We, at Ryan ALM, Inc., couldn't agree more. A cash flow matching (CFM) strategy, designed to carefully match asset cash flows (bond interest and principal) with liability cash flows (benefits and expenses) would bring an element of certainty to the management of defined benefit plans. CFM provides all the liquidity to meet ongoing monthly obligations, while extending the investing horizon for the non-bonds. It also eliminates interest rate risk for that portion of the portfolio using CFM.

View this month's complete Pension Funding Index.

ARPA Update as of April 3, 2026

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

Good morning. We hope that you had a good holiday weekend.

ARPA is now more than 5-years old (March 11, 2021), and the PBGC continues to plug along implementing this critical pension legislation. We are still waiting to hear how the 80 multiemployer plans on the waitlist that were terminated by Mass Withdrawal before 2020 Plan Year will be treated.

As far as those that are currently going through the process, this week saw one plan added to the waitlist, one plan receive approval for their revised application, and three funds that withdrew initial applications.

Pension Plan of the Automotive Machinists Pension Trust, a non-Priority Group member, is seeking $139 million in SFA through a revised application for their nearly 7,500 plan participants. While the Machinists wait for an answer on their application, the members of the UFCW - Northern California Employers Joint Pension Plan are celebrating the announcement that its revised application has been approved. They will receive nearly $2.6 billion in SFA and interest for their >138k members.

Lastly, Bricklayers and Stonemasons Local Union #2 Pension Plan, Communications Workers Local 1109 Pension Plan, and Local 1430 I.B.E.W. Pension Plan have each withdrawn an initial application seeking SFA. Collectively they are trying to secure $50.2 million for 1,690 pensioners.

Since the PBGC began implementing the ARPA pension legislation in July 2021, more than 18% of the roughly 11 million participants in multiemployer plans have had their promised pension benefits secured. Of the nearly 1,350 multiemployer plans, more than 20% have or will go through the application process to help fund those pension promises. It has been an extraordinary legislative effort.

March Proves Challenging for Core Fixed Income

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

March was a difficult month for active core fixed income managers, as the Bloomberg U.S. Aggregate Index fell -1.8%. Uncertainty related to the impact of the Iran War on oil prices and subsequently inflation, pushed rates higher across the Treasury yield curve. The U.S. 10-year Treasury note saw yields rise 38 bps to 4.31%.

Agencies fell -1.7% in line with Treasuries, while the Corporate sector declined -2.0%. Corporate spreads ended March with an option adjusted spread (OAS) of 88.6 bps. The best performing Corporate sector was Financials (-1.7%), while Utilities performed worst at -2.2%.

The greatest risk managing bonds is interest rate risk. Given both geopolitical (Iran, Taiwan, Ukraine) and economic risks (oil, inflation, interest rates), now is the time to significantly reduce risk within your fund, whether that be a DB pension or E&F. Why continue to ride active fixed income through these uncertain markets? One can use a cash flow matching (CFM) strategy to SECURE and fund net liabilities chronologically well into the future. In the process, interest rate risk is eliminated as future benefits and expenses are not interest rate sensitive.

Furthermore, by securing near-term liabilities, the non-bond assets can now grow unencumbered providing more time to wade through these challenging times. I have no idea how long this conflict will last. I also don't know how much damage has occurred and that which might still happen to oil production in the Middle East. Implementing a strategy that doesn't rely on forecasting U.S. interest rates should be a high priority today.

Making the switch is easy. Rotate your current core fixed income assets from an active investment strategy to a CFM portfolio. There isn't a need to revisit the fund's asset allocation. We'll even look for opportunities to take-in-kind some of your existing holdings. You'll appreciate not having to search each month for the liquidity to meet the monthly promises that have been made to your participants, as the CFM strategy will provide all the liquidity that you need. Moreover, the Ryan ALM CFM model is skewed to A/BBB+ corporate bonds which should outyield most generic bond indexes that are skewed to Treasuries (e.g. the AGG).

Trouble Paying the Bills?

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

“The worst thing that can happen,” Andrew Junkin, CIO, Virginia Retirement System says, “is that you’re a forced seller in any market.”

That quote appeared in a Chief Investment Officer article from March 4, 2026. We couldn't agree more with Mr. Junkin. Despite improved funding, public funds are being challenged to find adequate cash flow to meet the monthly benefits and expenses. Two factors are at play: 1) improved funding leads to lower annual contributions, and 2) much heavier allocations to alternatives have dried up liquidity, as expected capital distributions fail to materialize.

According to a report by NIRS, from 2001 to 2023, public pension plans shifted roughly 20% of public equity and fixed income into alternatives such as private equity, real estate, and private credit. These are illiquid investments. Despite the "wisdom" of the pension crowd, illiquidity is a RISK and not an alpha generator. As more assets shifted into these illiquid investments, the trades became ever more crowded reducing liquidity further. That is, unless one was willing to take a significant haircut through the secondary markets.

As a reminder, public pension funds are designed to become cash-flow negative over time. Contributions into these funds exceed benefits in earlier decades, building a corpus to be used to fund retirements down the road. They are designed to have the last $ pay the last promised benefit. There is no inheritance waiting for the last few beneficiaries.

You want to have adequate liquidity that isn't forcing the sale of assets at inopportune times? Develop an asset allocation strategy that bifurcates your assets into two buckets - liquidity and growth - and stop the focus on the ROA as if it were the Holy Grail. It isn't! Use a cash flow matching (CFM) investment strategy to ensure that abundant liquidity is available from next month as far into the future as your allocation goes. The remainder of the assets go into the growth bucket. If you still want to maintain a heavy allocation to alternatives, they can now grow unencumbered as they are no longer a source of liquidity.

The allocation should be driven by the pension plan's funded ratio and ability to contribute. We recently provided a large fund with an analysis that showed a plan with <50% funding could still secure the promised NET benefits for the next 33-years, while creating a substantial surplus that could now be managed as aggressively as members of that Board could withstand. Not only are the promised benefits secure, but so are the participants who can now sleep well at night knowing that myriad risks won't sabotage their golden years.

Up >50%!

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

Crude Oil WTI is up 53.2% (as of 12:57 pm on 3/30) since the outbreak of the war in Iran. As I wrote in the post below, it isn't just the shock at the pump that one should be focused on, but the 1,000s of U.S. manufactured goods and industrial processes that contain and use oil and its many derivatives. The U.S. economy will be dealing with the aftermath of supply disruptions and rapid price increases for quite some time. I can't see a near-term scenario in which U.S. interest rates get cut by the Federal Reserve. Can you?

https://kampconsultingblog.com/2026/03/09/its-not-just-the-price-of-gasoline/