The Gordon Asset Management Podcast
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The Gordon Asset Management Podcast
#42 - Q423 Retirement Plan Update w/ Todd Zempel
In today's episode, Todd Zempel will recap 2023 market performance, touch on relevant retirement plan regulatory updates and discuss trends shaping up for plan sponsors in 2024.
Welcome to the quarterly retirement plan update with Gordon asset management. In today's episode, Todd Zempel will recap 2023 market performance, touch on relevant retirement plan regulatory updates and discuss trends shaping up for plan sponsors in 2024. Please stay tuned until the end for important disclosures about our firm.
Todd Zempel:This is Todd Zempel, retirement Plan Services, director and Partner at Gordon asset management. Thanks for joining me today. 2023 was yet another very interesting year in the markets. The S&P 500 index, which represents the US's large cap sector, ended the year up just over 24%. What's wild, though, is how we got there. Through October 27th, the market was up a respectable 7.24%. From there, the Santa Claus rally kicked in and sent stocks up over 16% in the last two months of the year. The S&P 500 equal weighted index, which weights all 500 stocks equally, was actually down over 5% through October 27th, but ended the year up just shy of 12%. To me, this illustrates just how tough the year was for the average stock. However, if you stayed invested and maintained a diversified portfolio, you ended up doing pretty well. The story was the same in bonds. The Bloomberg US aggregate bond index was down 2.5% to 3% through late October, but as inflation began to fade, the index closed the year up roughly 5.5%. International and emerging markets also did well, with most indexes ending the year up 15% to 20%. Target data investors also had a great year, with the nearer term Vintages ending the year up 7% to 12%, while the further out, more aggressive Vintages ended up 15% to 20%. So, in short, despite all the turmoil in the world, it was a great year to be invested. If you stayed the course and or used a managed portfolio like a target date or balanced fund, you should be extremely pleased with how your account performed in 2023.
Todd Zempel:Switching gears, I'd like to remind you of the 2024 401k contribution limits. For 2024, the deferral limit was increased to $23,000, up from $22,500. For 2023, the catch-up contribution limit for those age 50 and older stayed at $7,500. The total 401k contribution limit, which includes both employee and employer contributions, increased from $66,000 to $69,000 for 2024. Please don't forget to log into your account to update your contributions to take advantage of these higher limits.
Todd Zempel:Now let's touch on a critical aspect of retirement planning the legal landscape. During 2023, the number of new class action lawsuits involving 401k plans dropped, but settlements in the line of litigation reached a record high. Per investment news, there were at least 48 new cases involving fees or investment performance in defined contribution plans last year, down from 89 in 2022, 60 in 2021, and 101 in 2020. There's also been a trend toward pursuing smaller plans and focusing more closely on record keeping fees versus investments. The motivation here is that plan sponsors may be more inclined to quickly settle such cases, as the cost of defending against the claims is often higher than the settlement Gee. Thanks, how sweet. Another thing we've seen is a trend towards cases going to trial, and the defendants have been winning yet again proof that a sound fiduciary governance process can keep you out of hot water. Broadly speaking, the litigation themes haven't changed much from prior years. Most cases revolved around excessive fees and fiduciary breaches. The takeaway it's crucial to regularly review fund performance, ensure fee clarity and prioritize participants' best interests in investment decisions.
Todd Zempel:Let's close out with where the puck is headed in 2024 and beyond For those astute plan sponsors. You'll notice that I didn't even touch on the Secure 2.0 Act yet. We and our record keeper partners have sent volumes of information on this. I'm not going to go into that today, but there will be more changes to come as the IRS and service providers further digest this comprehensive new law. More broadly. In the coming years, I see the company sponsored 401k plan morphing into a more comprehensive employee financial management ecosystem. Not only will the 401k serve as a wealth accumulation vehicle, it will facilitate the future of the company's retirement income. It will also integrate seamlessly into your day-to-day spending. With technology advancements, in AI, everything will be more personalized Personalized investments, personalized advice. Interactions will be tailored to your preferences and even take into consideration your behavioral biases.
Todd Zempel:Lastly, though non 401k related, I'm closely watching health plan litigation. The recently signed Consolidated Appropriations Act of 2021 now requires a determination of reasonableness of vendor fees and services for health plans. This is virtually identical to the reasonableness determination required by 401k plan sponsors that went into effect in 2012, which subsequently set into motion massive fee compression and a deluge of seemingly endless court cases. Right now, famed retirement plan litigator, jerry Schlickter, who is broadly responsible for pioneering 401k excessive fee litigation, is actively seeking employees at several large companies, including Target and State Farm, to serve as potential plaintiffs for a class action lawsuit. I cannot stress how important this is.
Todd Zempel:I could see health plans following a parallel path that 401k plans took a decade ago, as I was coming of age in the retirement industry, right as fee disclosure took hold. I can tell you from experience this was a total game changer. In the years following fee disclosure, regs fees compressed 40 to 60% across the board. Low cost index investing took off. Brokers being paid on commission essentially went extinct. Proposal activity hit a fever pitch as plan sponsors sought out lower cost providers. To this day, fees remain the focus of litigation and are often a key driver in service provider selection and, frankly, most benefits brokers have no idea what's coming. Buckle up With that. I hope you enjoyed this quarters update. Please do not hesitate to reach out if you have questions or need assistance with your plan.
Intro:Thanks for tuning in. For more information about Gordon Asset Management, please visit our website, wealthqbcom. Gordon Asset Management LLC is a registered investment advisor. The information presented here is for educational and entertainment purposes only and is subject to change without notice. Opinions expressed are those of the speaker and don't necessarily reflect those of Gordon Asset Management. Information presented should not be construed as tax, legal or investment advice or a recommendation or solicitation for the sale of any product or strategy. Investors are encouraged to seek advice from qualified professionals to determine whether any information presented may be suitable for their specific situation. Investments involve risks. Gordon Asset Management shall not be held liable for losses resulting from decisions based on information or viewpoints presented in this material.
