Year-End Participant Notifications
As we wrap up 2023, 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.
To be distributed to eligible participants by December 1, 2023:
- Qualified Default Investment Alternative Notice (applicable to Plans that have a QDIA)
- 2024 Safe Harbor Notice (applicable to Plans with a Safe Harbor feature)
- Automatic Enrollment Notice (applicable to Plans using Automatic Enrollment)
To be distributed to eligible participants by December 15, 2023*:
- 2022 Summary Annual Report
(*This is the extended due date for Plans that filed a Form 5558.)
Download our Compliance Calendar online to see what other important dates may be approaching.
Anticipated IRS Retirement Plan Deferral Limits
In September, the IRS released its 2024 employee benefits annual limits for Health Savings Accounts (HSAs), High Deductible Health Plans (HDHPs), and Excepted Benefits Health Reimbursement Arrangements (EBHRAs).
The limits for these benefits were raised in line with the rise in the Consumer Price Index (CPI), and we expect the limits for retirement plans to be raised similarly. See the 2024 Retirement Plan Limits [Released November 1, 2023].
SECURE Act 2.0 Implementation
As we highlighted in our webinar “Navigating SECURE 2.0 – Next Steps for Plan Sponsors” on September 27, 2023, many of the provisions of the SECURE Act 2.0 have still not been put into practice. Further administrative guidance is expected over the coming months as retirement plan recordkeepers endeavor to put processes in place to operationalize all the provisions of the Act.
Please note the following required provisions are already in force:
- Required Minimum Distribution (“RMD”)
- Initial distribution age is 73.
- Excise tax for failure to take RMD has been lowered to 25%.
- Long-term Part-time Employee Eligibility:
- Employers must track hours for part-time employees if they are not already eligible.
- Employees who satisfied at least 500 hours in 2021, 2022, and 2023 would be eligible to participate in 2024.
- Employees who satisfied at least 500 hours in 2022 and 2023 would be eligible to participate in 2025.
Please be on the lookout for communications from your retirement plan recordkeeper as other provisions of SECURE Act 2.0 are put into place or made available in the coming year.
Market Update1
Both equity and bond markets in the US fell in Q3 as investors re-positioned to accommodate two emerging themes: a soft landing for the US economy in 2023 and higher interest rates for longer. The US S&P 500 Index was down -3.27% in the third quarter but remained up 13.1% for the year. Bond markets reversed their previous positive results, with the Bloomberg US Aggregate Bond Index down -3.23% in Q3; this wiped out previous gains, resulting in a YTD loss of -1.21%. International equity markets mirrored the movement of the US S&P 500: the MSCI EAFE was down -3.22% for the quarter but remained up 5.34% for the year. The Bloomberg Commodity Index was up 4.7% in Q3 2023, due primarily to higher oil prices, but remained down -7.1% YTD. The resilient US economy may avoid recession in 2023 but markets still have to deal with the prospect of higher interest rates well into 2024.
The US Bureau of Economic Analysis (“BEA”) announced that the US economy grew at an annual rate of 2.1% in Q2 2023, on par with the growth rate of 2.2% in Q1.2 The Philadelphia Federal Reserve Bank’s survey of forecasters median forecast for Q3 2023 GDP growth is up from 0.6% to 1.9%. The median forecast for the full-year 2023 has risen to 2.1% and for 2024, to 1.3%.3 The labor market continues to be strong, with US unemployment in September 2023 at 3.8% and non-farm payrolls at 336,000, almost double the forecast. The data would indicate that both American consumers and American businesses have been able to maintain consistent economic growth over the first nine months of the year and potentially into 2024, even in the face of continued high interest rates.
Continued positive US economic growth allows the FED more leeway in determining its interest rate policy. The FED is still wary of the short-term impacts on inflation, such as OPEC production reductions that led to the rise of gasoline prices in Q3. The FED has stated that it may raise interest rates one more time before the end of the year but will possibly lower rates in 2024 should the need arise. In addition to the FED’s interest rate policy, markets are increasingly taking into account the funding of the US budget deficit. The US Government budget deficit is expected to be approximately $2.5 trillion for the government’s FY 2023/2024 (October 2023 to September 2024), up from $1.2 trillion in FY2018/2019. We’ve already seen the yield on the 10-year Treasury Note rise to 4.65% at the end of Q3, the highest level in 16 years. Increasingly, debt markets will look for higher returns in the face of this huge demand for capital from the US Government, which should essentially put a floor on how low real interest rates can go regardless of policy initiatives. All of this has led to the expectations of higher interest rates for longer.
While US economic news continued to be favorable in Q3 2023, we will likely see continued divergence between equity and bond prices as markets deal with continued positive economic growth with little prospect of interest rate relief through the end of 2023.
Sources:
- Unless otherwise indicated, data and commentary for the Market Update is sourced from two JPMorgan Asset Management sources: 1) Guide to the Markets – U.S. Economic and Market Update, 4Q 2023, September 30, 2023, and 2) the “4Q 2023 Guide to the Markets Webcast” on October 2, 2023.
- https://www.bea.gov/data/gdp/gross-domestic-product
- https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q3-2023
Disclosures:
This material represents an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Past performance does not guarantee future results.
+The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value weighted index with each stock's weight in the index proportionate to its market value.
++ Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The Bloomberg Barclays US Aggregate Bond Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the US bond market.
The MSCI All Country World Index ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 23 Emerging Markets (EM) countries*. With 6,062 constituents, the index covers approximately 99% of the global equity opportunity set outside the US.
The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.
The MSCI Emerging Markets Index is a float-adjusted market capitalization index that consists of indices in 21 emerging economies: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
The FTSE NAREIT All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of U.S. Equity REITs. Constituents of the Index include all tax-qualified REITs with more than 50 percent of total assets in qualifying real estate assets other than mortgages secured by real property.
The Consumer Price Index (CPI) is a measure of inflation compiled by the US Bureau of Labor Studies.
