September 2004   

Asset / Liability Scoreboard

YTD 2004
  Liabilities :
     Market  (Treasury STRIPS)
     Pension Bill (Corporates)
     ROA      (8% constant rate)

   7.74 %
  Assets :
     Ryan Cash
     Lehman Aggregate
     S&P 500
     MSCI EAFE Intíl

     Asset Allocation Model

   0.78 %

  Assets Ė Liabilities
     Pension Bill

   -5.53 %

The year 2004 is another tough year for Pensions no matter which pricing methodology is used for liabilities. Through August, assets have underperformed liabilities by -5.53% using market valuations (i.e. STRIPS); by -7.02% using the new Pension Bill valuation (moving average of three corporate indexes); and by -3.79% using the ASOP 27 methodology of a constant ROA. Using market valuations, the cumulative Asset/Liability deficit since December 1999 is now at -49.28% suggesting funding ratios below 60% for most pensions.

Total Returns
     2000       2001       2002       2003       2004   
  Pension Assets
  Pension Liabilities  
- 8.48

The New Pension Bill
The New Pension Funding Equity Act of 2004 (Notice 2004-34) is off to a dubious start as it shows liability growth of 9.23% already for the first nine months of 2004. We have openly attacked this new methodology as being wrong from 12 different considerations (see our August newsletter). Smoothing over 48 months is an unrealistic methodology since it skews the discount rate to old data. If interest rates rise about 100 basis points, long Treasuries will outyield this amalgation of rates and defeat the purpose of this new rule. Using a single discount rate (weighted average over 48 months) is an erroneous mathematical calculation and should never be used as it is impossible to match or defease such a calculation especially since coupon corporate bonds have a maximum duration of about 16 years and liabilities go out 30 to 50 years.

In The News ... (please go to press for complete story)
09/07   City of San Diego in danger of bankruptcy due to unfunded pensions.
09/14   US Air to terminate pension plan to survive.
09/15   PBGC seeks more power to place liens on assets.
09/15   GM estimates healthcare costs at $63 billion...@ 3x its net worth.
09/15   7,500 pension plans terminated since 2000.
09/15   Congress fed up with pension defaults.
09/16   Pension Reform Committee warns that 25% of taxes will go to pay SD pension.
09/20   UAL = largest pension termination at $6.4 billion, US Air = 3rd largest at $2.1.
09/21   First outside analysis of PBGC sees it running out of money by 2020.
09/21   S&P suspends Credit Rating of City of San Diego.
09/22   Lucent to cut retiree benefits.
09/22   Wharton Study on Corporate bankruptcy strategy as a death knell for pensions
09/22   IBM to settle Cash Balance lawsuit.
09/29   Blair promises action on England's pension problems... a political time bomb.

New Ryan ALM Address !
We have moved into an elegant midtown office at 46th street and Fifth Avenue. Our office was designed by the Italian decorator Rafael Saporiti. Please come see us at :

565 Fifth Avenue, 15th Floor, New York, NY 10017.

Ryan ALM, Inc.
565 Fifth Ave.   15th Floor   New York, NY 10017     888-Ryan-ALM


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