401(k) Update: Q4 2019


7 Days Left to File Your Form 5500!
For calendar-year plans currently on extension, Tuesday, October 15, 2019 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 able 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 2019, 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.


Applicable Plans

Distribution Due Date

Qualified Default Investment Alternative Notice

Plans with an assigned QDIA

December 1, 2019

2020 Safe Harbor Notice

Plans with a Safe Harbor provision

December 1, 2019

Automatic Enrollment Notice

Plans with an automatic contribution arrangement (automatic enrollment) feature

December 1, 2019

2018 Summary Annual Report

 ALL retirement plans (note: this is the extended due date for plans that filed a Form 5558)

December 15, 2019

View our Compliance Calendar to see what other important dates are approaching.

Market Update

Asset markets were largely range-bound in the third quarter of 2019.  Any positive economic news was quickly overshadowed by continuing uncertainty over trade and economic policy.  The S&P 500 Index ended the quarter up 1.18%, by far the slowest quarter year-to-date (“YTD”), while overseas, the MSCI EAFE Index lost 0.67% after having shown positive returns in the first two quarters.  The best performing sector was US fixed income, where the US Aggregate bond Index rose 2.22% due to the expectation of continued easing by the Fed. 

Revised US GDP growth figures for 2018 showed that US economic growth may have peaked in Q2 2018 at 3.1% YOY, falling to 2.0% YOY in Q2 2019.  US GDP growth is expected to be moderate for the rest of the year and into 2020 at or slightly below a 2.0% YOY pace.  It is primarily the US consumer that is providing this growth in the US economy.  Consumer spending rose 4.7% in Q2 and is expected to post a 2.5% gain in Q3.  The growth in consumer spending has more than offset the decline in business spending.  Business capacity and infrastructure spending has fallen for all of 2019: down 0.3% in Q1, 2.0% in Q2.  While the trade war may be hurting overseas economies more directly than the US economy, the uncertainty around trade and its impact at home and abroad would seem to be a large contributing factor in the decline in US business spending and the pallor over overseas economies.

As US and overseas GDP growth slows, Central Banks at home and abroad have moved to lower interest rates.  This looks to be a rather knee-jerk reaction as the current low, and even negative, interest rate environment has not been an impediment to economic growth either in the US or overseas.  Contributing factors in the Fed’s actions in lowering US interest rates may be in part a desire to spark inflation as a way of maintaining economic growth and an attempt to maintain its independence by acceding to political pressure from the Executive Branch.  In either case, there seems precious little that these actions will do to stimulate economic growth until and unless there is more certainty around global trade and economic policy (such as Brexit).

The real danger to the US economy is that the consumer stops spending and business stops hiring.  Research has shown that that business freezing hiring is a much stronger leading indicator of a possible recession than layoffs.  US unemployment is holding steady at 3.7%; wage growth is running at a 3.2% YOY pace, still well below the historical average of 4.1%.  These two figures and the residual impact of recent tax cuts may be contributing to consumer confidence.  What will be important to watch are the non-farm payroll numbers, currently running at between 120,000 to 150,000 per month.  A significant decrease in non-farm payrolls may well be the trigger that eventually causes the US consumer to stop spending and the American economy to decline from current levels and even turn negative.        

Until that time, asset markets seem likely to see continued volatility but without a sustained sell off.  US equities are trading at historic P/E ratios (approximately 16x earnings) and corporate earnings are expected to continue to grow at mid- to low-single digits into 2020 (S&P 500 earnings per share currently 4.9% YOY).  Bond prices are rising due to Central Bank easing, but yields are poor - the 10 yr US Treasury is at 1.5% - or non-existent - 10 yr German Bunds at -0.70%.  In times like these, it is important to remain focused on the long term and invest through any short-term uncertainty. 

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