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Water Cooler Wisdom: Third Quarter 2016

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By Mack Bekeza

The Presidential Election and What to Know

Despite the pleasant performance in the stock market for 2016, investors are becoming more doubtful about the global economy as a whole in regards to how “pleasant” future growth will be. On top of that, The U.S is having one of the most interesting presidential elections in history. With both of the leading candidates making big promises to the public, how will these proposed actions affect the economy as a whole? But perhaps the biggest question and misconception that U.S investors have is “How does the President affect the economy?”

For our response, we want to point out 3 big myths about how the President affects the economy

            1. Capital Markets perform better when Republicans are in the White House:  

Although many consider the Republican party as the “pro-business” party, if you look at the returns of the Dow Jones Industrial Average since 1897, the markets do not give a hoot about who is president.

2. Major pieces of legislation get passed once the new President assumes office:

With the exceptions of the Affordable Care Act and Dodd-Frank, The United States rarely makes major policy changes in one major swoop, rather in small increments.

3. The President has as much of an impact on the economy as consumers and businesses:

     Although the media places major scrutiny on the President over the U.S Economy, government spending only accounts for 17.7% of total GDP, while the remaining 82.4% comes from consumer spending, private investments, and foreign trade.

So… will this presidential election completely change the way we invest? More than likely no. However, it is important to note the U.S GDP is expected grow between 1.5 to 2% over the next decade. This is primarily due the recent and projected dismal growth in the U.S labor force along with over $30 trillion in private wealth being transferred to younger generations. In other words, it is more crucial to observe how Millennials begin to take charge of the U.S Economy rather than who becomes president.

Attached are slides that provide more detail regarding presidential elections and major leading economic indicators.

©2016 Castle Rock Investment Company. All rights reserved. Please share your insights and comments with us at Mack@CastleRockInvesting.com.

 

Yet Another Fee Disclosure Extension

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Greetings!

Please feel free to launch a video review of this month’s topic or continue to read on below.

As you’ve probably heard already, the DOL’s final rule on the fiduciary-level and participant-level fee disclosures pushed the deadlines even further than what they proposed last month.

Remember that the fiduciary-level disclosures, which are the breakdown of fees charged by your service providers to you and your plan, were originally required to be provided to you by July 16th (last week), then the DOL proposed to push the deadline to January 1st, 2012, and now they are due to you by April 1st, 2012.  Ironic that it happens to be April Fool’s Day.

The DOL has been mindful that you need a breakdown of the fees before being required to provide that information to your participants so for calendar year plans your new deadlines are:

May 31st, 2012 for the initial disclosures with a narrative explanation of the fees that may be deducted from an employee’s account and
August 14th, 2012 for the quarterly notice which reflects the actual expenses drawn from their accounts.
You will continue to hear more about this as those dates draw closer.

Also, last month I had the opportunity to participate on a panel at the PLANSPONSOR national conference in Chicago.  The panel discussed the issues plans with less than $10 MM typically struggle with and some ideas on how to handle them.

The biggest issue discussed was brokers that advise plans without acknowledging fiduciary status but you already know to avoid that situation.  Another issue discussed was plan amendments.  There have been several over the last few years and they seem to keep rolling in.  You’ve probably had an amendment regarding the suspension of the RMD requirement in 2009 recently roll across your desk.  The bad news is that you have to stay on top of those.

One tip I recommended is the IRS 401(k) Fix-It Guide  found on their website.  It lists eleven common mistakes the IRS finds in their audits, how to fix them, and how to avoid them.  Not adopting plan amendments in a timely manner is one of the common mistakes listed.

Click here to listen to the audio from PSNC:  “Small Plans, Big Challenges”.

Well, that’s all for this month.  I’ll be seeing most of you within the next few weeks and we’ll keep working together on helping you fulfill your fiduciary duties and helping your employees retire successfully.

Best Regards,

 

Michele L. Suriano TGPC, QPFC, AIF President

What is a BrightScope Rating?

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They began by developing an algorithm, the BrightScope Ratings™, to assess the quality of a retirement plan on the company level.  It takes into account 200+ unique data inputs per plan to calculate a single numerical score to define 401k plan quality.    The algorithm runs simulations for each plan in order to determine how quickly each 401k plan will get the average 401k participant to retirement.  Factors include company contributions, fees, investment menu quality, vesting schedules, and eligibility periods.
As a plan sponsor you can subscribe to their Plan Management Dashboard which was launched in July 2009 in order to view the underlying BrightScope data and calculations and do a thorough fee analysis that benchmarks each fee you are paying.  In September 2009 BrightScope also launched Advisor Central as a prospecting tool for brokers and advisers to purchase data on a subscription basis to target retirement plans with low rankings.