Welcome Scott Strauss, our new Compliance Specialist!
Scott Strauss joined Vita Planning Group this week as our Compliance Specialist. He brings more than 20 years of experience working with a wide range of qualified retirement plans.
His experience covers both defined contribution 401(k) plans and defined benefit pension plans. Scott has worked both as an advisor, with American Benefit Plan Administrators and Wellman & Murray Lawyers, and an administrator, for the City of Portland and Precision Castparts Corp. benefit plans. This gives Scott an unparalleled perspective on retirement plan design as well as experience across the broadest range of compliance and operational issues. Scott is a native Oregonian and proud alumni of the University of Oregon in Public Administration.
10 Days Left to File Your Form 5500!
For calendar-year plans currently on extension, Monday, October 15, 2018 is the deadline to file the Form 5500 and Form 8955-SSA. Please note, the DOL website is subject to high traffic on October 15th so be sure to file as soon as you are available to and avoid the last minute rush! If you are unsure as to the status of your Plan’s Form 5500 or Form 8955-SSA, you are invited to contact our team for assistance.
Year-End Participant Notifications
As we wrap up 2018, we would like to remind you of some important annual notices that may need to be delivered to Plan participants, depending on the provisions of your Plan. Below is an outline of these notices, along with the corresponding due dates, based on a calendar-year Plan.
||Distribution Due Date
|Qualified Default Investment Alternative Notice
||Plans with an assigned QDIA
||December 1, 2018
|2019 Safe Harbor Notice
||Plans with a Safe Harbor provision
||December 1, 2018
|Automatic Enrollment Notice
||Plans with an automatic contribution arrangement (automatic enrollment) feature
||December 1, 2018
|2017 Summary Annual Report
||ALL retirement plans (note: this is the extended due date for plans that filed a Form 5558)
||December 15, 2018
View our online Compliance Calendar to see other important administrative tasks.
There is very little ‘new’ to report in this quarter’s market update. The same pattern that we saw in Q2 continued in Q3. The US economy remains strong, the Fed continues to raise interest rates and the trade war looms. The result was another positive quarter for US equity markets, but continued struggles in the US bond and international equity markets. The S+P 500 was up 7.7% in the third quarter, resulting in a year-to-date (“YTD”) rise of 10.6%. The BarCap Aggregate US Bond Index was up ever so slightly: 0.02% in Q3, bringing the YTD result to down 1.60%. Emerging Market equities also improved somewhat in the Q3, helping the MSCI All World Country Index (“AWCI”) ex-US to gain 0.71% in Q3, and paring its loss down to -3.09% YTD. The economic data suggests that Q4 markets will be little different, unless politics get in the way – the mid-term elections or trade rhetoric that turns into a trade war.
US economic fundamentals continue to be very strong. Q2 2018 US GDP growth was revised to 4.2% which translates to 2.3% year-on-year (“YOY”). Q3 growth looks to come in at between 2.5% to 3.0%, which would bring YOY growth to 2.8%. Consumer spending and corporate investment were strong in Q2 and the beginning of Q3, accounting for much of the GDP growth. Much of this is the result of tax cuts and fiscal stimulus enacted at the beginning of 2018, which is expected to underpin economic growth through the beginning of 2019. Unemployment remained low, at 3.9% in August and wage growth remained muted at 2.8% in August. For some perspective on these two figures, the US unemployment rate has averaged 6% over the past 50 years while wage growth averaged 4.2% in the same time.
The low level of wage growth has helped to keep inflation in check, even in the face of rising energy prices. Oil prices have more than doubled in the 18 months since the most recent low in January 2016. West Texas Intermediate was at $73.55 at the end of September 2018, up from $33.62 in January 2016. This has caused “headline” inflation to rise to 2.7% even though core inflation (excluding food and energy) remains at 2.2%. In theory, a trade war does have the potential to cause domestic prices to rise. However, the relative muted tariffs that are being suggested against China are estimated to raise consumer prices by approximately 0.4% if all those costs are passed through to the economy. Against this background of strong economic growth and the muted rise in inflation, the Fed has made it clear that it intends to maintain its policy of raising interest rates. The market is expecting at least three more rate increases between now and June 2019.
Overseas equity and bond markets have been quite hard hit by both the strong US dollar and the impact of rising trade barriers in 2018 but are starting to make a bit of a comeback. The rise in the US dollar that has been a feature of the global economy in the first half of 2018 stalled over the summer. This has brought some respite to emerging markets, which had been quite hard hit all year. Developed markets, Europe in particular, are showing good fundamentals. Eurozone GDP growth is tracking at 2.0% annualized and unemployment continues to fall, recording 8.1% in August. Demand for credit and the Purchase Manager Index in Europe both remain strong. This is supportive of overseas valuations. The ACWI ex-US forward P/E ratio is 12.9x compared with a 20 year average of 14.3x. This compares to the S&P 500 forward P/E ratio of 16.8x vs a 20 year average 15.9x.
Finally, one highly technical change that happened at the end of September is the reclassification of telecoms companies by the Global Industry Classification Standard (GICS). A new “Communications Services” sector has been created to replace “Telecoms”. Going forward, the Communication Services sector will include companies that had previously been in either “Technology” or “Consumer Discretionary”. As is shown in the chart below, this change will create the fourth largest sector in the S&P 500 Index. There is no action you need to take that relates to your 401(k) Plan’s investment array. However, we will most likely see higher volatility in index funds during Q4 2018 as they come to grips with the new classifications.