401(k) Update: Q4 2020

Year-End Participant Notifications

As we wrap up 2020, 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:

Qualified Default Investment Alternative Notice

  • Applicable Plans: Plans with an assigned QDIA
  • Distribution Date: December 1, 2020

2021 Safe Harbor Notice

  • Applicable Plans: Plans with a Safe Harbor provision
  • Distribution Due Date: December 1, 2020

Automatic Enrollment Notice

  • Applicable Plans: Plans with an automatic contribution arrangement (automatic enrollment) feature
  • Distribution Due Date: December 1, 2020

2019 Summary Annual Report

  • Applicable Plans: ALL retirement plans (note: this is the extended due date for plans that filed a Form 5558)
  • Distribution Due Date: December 15, 2020

Download our Compliance Calendar to see what other important dates may be approaching.



Market Update1

Markets in the third quarter of 2020 maintained and extended the sharp rebound experienced in the second quarter. The S&P 500 rose another 10% in Q3, taking the index up 8.9% year-to-date (“YTD”). US bond markets held onto the gains from the beginning of the year with the BarCap US Aggregate Bond Index up another 0.6% in Q3, resulting in a YTD rise of 6.79%. Overseas, the MSCI All Country World ex US index clawed back another 6.25% in Q3, leaving the index down 5.44% YTD. Progress from here will be much harder to come by. Q2 market movements will need to be validated by positive economic figures to continue these gains in Q4 2020.


The rally in equity markets seems to have been driven largely by a slowdown in COVID cases and the continued monetary and fiscal support provided both in the US and abroad. The number of cases and the rate of fatality are diminishing, though we will most probably continue to bounce back and forth between social easing and restriction for some time. The passage of an extension of the CARES Act seems to have been delayed by the elections in the US. However, most commentators still expect passage of an extension of economic support in the lame duck session of Congress, no matter which party wins. The bond market rally is supported largely by the expectation that the Fed will keep rates low through 2021. Fed Chairman Powell has given no indication otherwise.


At some point, economic fundamentals will need to catch up with market valuations if we are to maintain YTD market gains. The US GDP registered a 31.4% decline in Q2 and estimates are for a rebound of as much as 35% in Q3 and another small (2-5%) rise in Q4. Early expectations for full-year 2020 GDP growth are coming in at around a decline of 10%, which would make this the second most severe recession since the Great Depression. Most economists are predicting positive and sustained year-on-year economic growth in the US from Q1 or Q2 of 2021. About half of jobs lost in Q1 and Q2 of 2020 have come back, and unemployment rate has come off its peak of 14.7% in April to 7.9% at the end of September. While these trends support the hope for a short-lived recession, we are unlikely to see a sustained rebound in GDP or jobs growth until a vaccine and a cure for COVID-19 is found and deployed.

These difficult economic conditions have naturally had an adverse impact on corporate earnings. Corporate earnings in 2020 are expected to be down as much as 43% from last year, though these will be spread unevenly among sectors. Certain sectors –technology, communications, and consumer staples – may see positive earnings growth this year, but earnings for the economy as a whole are not forecast to rebound until 2021 at the earliest. S&P 500 forward Price/Earnings ratio rose to 21.4x at the end of September, more than one standard deviation above its 25-year average of 16.46x. While this is on a par with valuations seen during the “Tech Wreck” of the early 2000’s, lower interest rates today should make these levels somewhat more sustainable.    


The market rebound in Q2 and Q3 2020 has been heartening. However, the possibility of an uptick in COVID-19 cases, politicking around the extension of economic support, and the rhetoric of a presidential election campaign means we are likely to see continued market volatility for the rest of 2020.



This commentary is provided for informational purposes only and does not pertain to any security product or service and is not an offer or solicitation of an offer to buy or sell any product or service. Nothing in this commentary constitutes investment, legal, accounting or tax advice or a representation that any investment strategy or service is suitable or appropriate to your individual circumstances.


1Source data: JPMorgan Asset Management, Guide to the Markets – U.S. Economic and Market Update, 4Q 2020 September 30, 2020.

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