Staying the Course – Coronavirus and Past Market Epidemics

As of February 28, 2019, global stock markets have entered “correction” territory, defined as a 10% decline from the index high. This is in large
part due to the uncertainty surrounding the new coronavirus, first detected in Wuhan City, China, but now detected in 37 locations internationally, including the United States. There certainly will be an economic impact, as growth slows due to quarantines, less consumer traffic and lower factory output, but it is still to be determined its final result on global growth. Stock markets, however, do not like uncertainty. As uncertainty has grown around this new coronavirus, the resulting fear has led to a quick and notable downward movement in the market. Epidemics in the past have also led to sharp pull-backs in the markets. Over the long-term, however, the stock market has weathered past epidemics. The below chart looks at the historical returns of the S&P 500 Index during multiple epidemics over the last 40 years. Over the 6 and 12 month periods following an epidemic, the S&P 500 performance has, on average, been positive.


During times of uncertainty and market volatility, while it is prudent for plan participants to “stay the course”, it is also prudent for them to review their investment strategies (e.g., “What is my risk tolerance? When will I retire? When will I need this money?”) to ensure they are on the most appropriate path. A new course of action is only warranted if it is more appropriate than the current path. Evaluating one’s own situation—having the most appropriate asset allocation or glide path and high enough contribution rates—can lead to the most positive actions a participant may take in saving for retirement. Bailing out of the markets and a retirement plan is typically an imprudent action, often detrimental to reaching future long-term retirement goals. Data indicates that individuals attempting to time the market generally proves futile. Current market conditions rarely provide a clear direction as to the future performance of the markets. The U.S. market in particular has been dynamic and resilient in moving on from crisis after crisis throughout history. The recent market volatility should remind plan participants to focus on what they should be doing on a regular basis: Be mindful of the situation, but diligent about your investment strategy. Participants need to act in their own best interests while the stock market reacts to the current coronavirus and the uncertainty it brings: another bout of expected short-term market volatility.




Chart Source: First Trust (Bloomberg, as of 2/24/20. Month end numbers were used for the 6- and 12-month % change. *12-month data is not available for the June 2019 measles. Past performance is no guarantee of future results. The S&P 500 Index is an unmanaged index of 500 stocks used to measure large-cap U.S. stock market performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges. Returns are based on price only and do not include dividends. This chart is for illustrative purposes only and not indicative of any actual investment. These returns were the result of certain market factors and events which may not be repeated in the future. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.)

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services are offered through Global Retirement Partners, an SEC Registered Investment Advisor. Global Retirement Partners and Strategic Retirement Partners (SRP) are separate entities from LPL Financial.

Global Retirement Partners employs (or contracts with) individuals who may be (1) registered representatives of LPL Financial and investment adviser representatives of Global Retirement Partners; or (2) solely investment adviser representatives of Global Retirement Partners. Although all personnel operate their businesses under the name Strategic Retirement Partners (SRP), they are each possibly subject to differing obligations and limitations and may be able to provide differing products or services.


Market Update – February 25, 2020

Monday was a tough day in the stock market, with the S&P 500 Index down more than 3% as the number of coronavirus cases reported outside of China jumped. Monday’s losses reversed all of this year’s gains so far for the S&P 500 Index and the Dow Jones Industrial Averages. The Nasdaq Composite Index appeared to be holding onto a small year-to-date gain through Monday’s close. After several months of relative calm in the markets, Monday’s volatility probably felt worse than it might have otherwise, but a 3% one-day decline never feels good.

Every virus outbreak is different, but looking back at other major global outbreaks over the last three decades (SARS, bird flu, swine flu, Zika, etc.), we can see that the impact to the U.S. and global economies and stock market has tended to be short-lived. It’s possible the current outbreak has the potential to follow a similar path, although there is still significant uncertainty. The coronavirus has spread more quickly than SARS, the most comparable outbreak, but the policy response also has been more aggressive, and the survival rate has been higher.

To put Monday’s decline into perspective, even in positive years for stocks, the S&P 500 historically has experienced an average peak-to-trough intra-year decline of about 11%. In other words, the S&P 500 has fallen 11% at some point during most years before ending higher. This latest pullback that we’re experiencing has barely reached 5%, and it is still well within the normal range of market volatility. On average, the S&P 500 has experienced three to four pullbacks of around 5–10% per year.

It’s also important to remember that the global economy had started to see a pickup in momentum in late 2019/early 2020, before the outbreak. Leading indicators of economic activity were pointing higher. Purchasing managers’ surveys for the United States and Europe had improved. And corporate America delivered solid better-than-expected fourth quarter 2019 earnings results, with many companies saying good things about their 2020 outlooks.

Many view the coronavirus as a delay in—not an end to—the global economic acceleration story that has been unfolding since December’s U.S.-China trade deal. That momentum has put the global economy and corporations in better positions to weather the coronavirus storm. Most likely there will be global economic impact from the coronavirus over the next several months, but investing fundamentals make the case for a rebound in the second half of this year, potentially with some help from government stimulus.

As difficult as it may be to stay the course in the face of recent market volatility, long-term investors may want to consider that approach. Based on history, it is possible that we may see a return to pre-outbreak levels of global economic growth and corporate profits within the next several months—which could continue to power this bull market and economic expansion through 2020 and possibly beyond.




This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of February 24, 2020.

This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

For an NQDC Plan, Being Subject to ERISA May Be A Good Thing

This Sixth Circuit Court of Appeals decision involving a nonqualified deferred compensation plan (NQDC) shows why it can be important for a nonqual plan to comply with Internal Revenue Code Section 409A compliance and the Employee Retirement Income Security Act of 1974 (ERISA) claims procedures.

Fulcrum Partners, a national executive benefits advisory, shares these important insights from attorneys Greg Daugherty and Dave Tumen of Porter Wright, first published: July 31, 2019.

Sixth Circuit Nonqualified Deferred Compensation Plan Decision Highlights Importance of Code Section 409A Compliance and ERISA Claims Procedures

We often receive questions about whether different types of bonus plans and nonqualified deferred compensation plans (NQDC plans) are subject to ERISA. We explain that being subject to ERISA may be a good thing for an NQDC plan, particularly with respect to resolving disputes and claims for benefits. Even if it is questionable whether an NQDC plan is subject to ERISA (i.e., because it arguably does not provide retirement benefits or covers only one person), sometimes it might make sense to include ERISA claims procedures and file a top hat letter. A recent case—Wilson v. Safelite Grp., Inc.—in which the Sixth Circuit held that ERISA preempts state contract and tort law claims, illustrates the benefits of being an ERISA plan.

This case was particularly notable because it also involved violations of Internal Revenue Code Section 409A of the Internal Revenue Code and related guidance (Code Section 409A). While the issue in the case was whether the plan was subject to ERISA, we want to focus on two other important items that may not as easily be noticed. One is the limits of a Code Section 409A “savings clause” in an NQDC plan. The other is the importance of following ERISA claims procedures with respect to NQDC plans.

Code Section 409A Savings Clauses

Most NQDC plans contain what often is called a Code Section 409A “savings clause.” It is a section of the NQDC plan that says that the NQDC plan is intended to comply with Code Section 409A. Code Section 409A imposes penalties on participants in NQDC plans if the NQDC plan document or administration does not comply with strict payment and election timing rules. Those penalties include immediate recognition of deferred income, an additional 20 percent tax on those amounts, and interest equal to the underpayment rate plus one percentage point on the tax deficiency that resulted from not recognizing the deferred income originally. The intended purpose of the savings clause is to make sure that any ambiguity is resolved in favor of a pro- Code Section 409A interpretation.

Ironically, such a “savings” clause will not necessarily save you in the Code Section 409A world. While IRS officials and most practitioners recommend these savings clauses, the IRS still requires that the substantive terms comply with Code Section 409A. If a term a is ambiguous or not clearly defined, a savings clause may tip the balance in favor of a Code Section 409A-compliant interpretation. If, however, a required Code Section 409A term is omitted; a term in the NQDC plan clearly contradicts Code Section 409A; or if the administration of the NQDC plan violates Code Section 409A (regardless of whether the document is compliant), a savings clause (in the IRS’s view) will not override those violations. The IRS likely will still assess penalties, and as mentioned previously, most of those penalties fall on the participant.

That raises a question—if an NQDC plan contains a savings clause that suggested that the NQDC plan complied with Code Section 409A, and either the document or plan administration violated Code Section 409A, could an executive sue his or her employer for breach of contract or a tort in that situation to recover the penalties?

NQDC Plans and ERISA

That was the argument that Dan Wilson, Safelite’s former president and CEO, tried to make. He had participated in Safelite’s nonqualified plan for several years, and when he terminated service with Safelite, his account balance was $9,111,384. The IRS audited Safelite’s NQDC plan and found that Mr. Wilson’s elections under the plan had violated Code Section 409A. Mr. Wilson attempted to sue Safelite for breach of contract and mismanagement of the plan because Mr. Wilson was assessed IRS penalties despite the plan’s language that suggested it was compliant with Code Section 409A.

The District Court held that because the NQDC plan at issue was an ERISA pension plan, ERISA preempted these state law claims. The Sixth Circuit affirmed that decision. The Sixth Circuit decision held that an NQDC plan whose default payment timing was retirement but also allowed earlier in-service payments was an ERISA pension plan that potentially provided retirement benefits. The fact that payments could be made before retirement did not qualify the plan for the bonus program exception to ERISA.

Interestingly, many people’s initial reaction when they hear “ERISA” is to try to find an exemption to ERISA. In many cases, that is understandable. ERISA contains complex rules that prohibit highly compensated employees from benefiting disproportionately compared to non-highly compensated employees, funding requirements, fiduciary rules, and vesting requirements. If a plan is a “top-hat” plan, however, being an ERISA pension plan may actually be beneficial for three key reasons.

  • A “top hat” plan—one whose participation is limited to a select group of management or highly compensated employees—is exempt from many ERISA requirements, such as funding, nondiscrimination in coverage and benefits, vesting and fiduciary rules.
  • A top hat plan is still subject to reporting requirements, but the plan sponsor may satisfy these requirements simply by filing a one-time letter with the Department of Labor.
  • A top hat plan is still subject to ERISA’s claims procedures requirements, which requires an internal review and appeals procedure before a participant may take the claim to litigation. Further, discovery generally is limited to the administrative record developed during the review, and courts tend to be deferential to the internal determinations.

The take-away is that being a top hat ERISA pension plan provides another line of defense for plan sponsors. Mr. Wilson may still recover some or all of the penalties he incurred, but the process would have been easier for him in state court than under the ERISA procedures.

Action Items for NQDC Plan Sponsors

As a response to this decision, we recommend that NQDC plan sponsors take the following actions:

  • Review NQDC plans for compliance with Code Section 409A. It is much better for the employer to catch a mistake early and try to correct it than to have the IRS discover the mistake.
  • Make sure that NQDC plans demonstrate compliance with the applicable ERISA requirements. In particular, make sure that a top hat letter has been filed with the DOL (if applicable), and make sure that the plan has the appropriate claims procedures. If a top hat letter has not been filed, the DOL allows delinquent filings at a fairly small charge. Adding claims procedures could help resolve any potential future litigation much more easily than if there were not claims procedures.
  • Include provisions in the NQDC plan that disclaims responsibility for Code Section 409A violations and requires participants to consult with their own tax advisors regarding how Code Section 409A may affect them.


You can find the original publication of this article by Fulcrum Partners here.

Change is Coming if Your Plan Uses a Limited Scope Audit

The American Institute of Certified Public Accountants, Inc. (AICPA) issued a new statement in July changing the requirements for its members that perform retirement plan audits. Previously, if a large plan utilized the limited scope audit option, the auditor effectively could wash their hands of any information that fell outside of that limited scope.

This new statement eliminates the use of the term “limited scope” and will require that AICPA members who complete plan audits will need to state that information on the financial statements not covered by the certification is fairly presented; and that the investment information contained in the financial statements reconciles with or is derived from information in the bank’s certification.

You might be wondering how these accounting rules modify ERISA. Well, technically, they don’t. But if your auditor is a member of the AICPA, then they must follow these new professional requirements. In addition, these new requirements do seem to reinforce prior guidance from the Department of Labor advising that plan administrators have a fiduciary duty, when opting for a limited scope audit, to ensure that the certification process is a sufficient substitute for an audit of the financial information.

These requirements don’t go into effect until after December 15th of 2020, some plans and auditors will choose to implement them for their next plan audits.

For more information about the new requirements, check out this comprehensive article by The Wagner Law Group.

Back to School… But How Are You Paying for It?

45 million Americans owe $1.48 trillion in student loan debt as of 6/30/19, a +114% increase (up +$790 billion) in just the last 10 years (source: Federal Reserve Bank of New York). We hear from many plan participants that they know they need to save more for their retirement, but they are already stretched to the limit paying for their children’s college tuition.

One way that employers are aiming to help their employees with this challenge is through flexible matching programs. These programs aid employees who have student loan debt or want to create college savings, while still helping them to save for retirement.  One of the best parts is that employers can implement these types of programs without significantly increasing their benefits budget. Employees are simply choosing how to allocate their employer match: to the retirement plan, education expenses, or both.

For more information on flexible matching programs, contact your SRP Managing Director.

SRP October 2019 Plan Sponsor Webinar

Transform Tomorrow: Awakening the Super Saver in Pursuit of Retirement Readiness

Join us on Wednesday, October 19th at 10:00 AM PT/11:00 AM MT/12:00 PM CT/1:00PM ET. Click here to register!

Explore the fundamentals of a society that is grossly under-saving for retirement, the primary forces that are contributing, and the fundamental shift needed to get us back on track. Stig Nybo, will share lessons learned from the writing of “Transform Tomorrow: Awakening the Super Saver in Pursuit of Retirement Readiness;” on how to change saving behavior.

America is facing a monumental “retirement readiness” challenge that can only be overcome by changing the way America thinks about saving for retirement. We will begin by investigating why so many Americans are at risk of outliving their savings and the three critical forces impacting Americans’ preparedness: Longevity; Consumerism; and Leverage. Then move to the solutions that strive to help bring about the changes needed for individuals to reach a secure retirement: New system‐wide contextual drivers; baseline financial literacy: and renewed beliefs around saving vs. spending.

Throughout the presentation, Stig incorporates stories to illustrate key points and uses captivating examples from history to bring the message to life. He borrows from the wisdom of Gandhi, Walt Disney, Mark Twain, Margaret Mead, and even Robin Williams in the Dead Poets Society to make his point. Come enjoy a sobering, yet enjoyable session that aims to change the way you think about planning for retirement.

SRP September 2019 Plan Sponsor Webinar

Equipping Organizations to Win the War for Talent

Join us on September 11, 2019 at 8:30 AM PT / 9:30 AM MT / 10:30 AM CT / 11:30 AM ET. Click here to register.

Tom Chisholm, Managing Director Fulcrum Partners Chicago, and other senior members of the Fulcrum Partners team, will present: “Equipping Organizations to Win the War for Talent.” This insightful overview examines how nonqualified deferred compensation fits into the total rewards strategy of successful organizations.

With 13 offices, coast to coast and over $7 Billion in assets under management, Fulcrum Partners is one of the nation’s largest and leading executive benefits advisories. Wholly member owned, the firm functions independently, flexibly, and responsively. Fulcrum Partners’ clients include medium to large, publicly- and privately-held companies, many that have been clients of the firm’s managing directors for decades. Fulcrum Partners is an Independent Member of the BDO Alliance USA.

What you need to know from the NAPA Fly-In

NAPA’s D.C. Fly-In Forum, was held in July. In its seventh year, the Fly-In is a unique experience for retirement plan focused advisors who are looking to have an impact and engage with key federal policy makers as you advocate for legislative and regulatory policy that affects America’s retirement. Again this year, a number of SRP’s Managing Directors were in attendance.

Here are a few key take-aways from the sessions:

  • State and Local Retirement Policy Update: States like Nevada, New Jersey, and Massachusetts are stepping in to create fiduciary rules, since the DOL rule was vacated.
  • Retirement Plan Lawsuits in 2019: Discussion on the current wave of litigation, such as SDBA, higher education plans, stable value, and rollovers.
  • Tackling the Gig Economy: How to provide benefit coverage for the growing group of those engaged in non-traditional work and the challenges that these benefits may pose for employers.
  • Working with Your Clients and Student Loans: In an era where student loan assistance is one of the most asked about benefits for new employees, this session covered the innovative ideas to help those struggling with student loan and other consumer debt coming from employers, the industry, and Washington, DC.
  • Regulatory Roster: A regulatory agenda update from the DOL covering a wide range of topics such as modernizing participant communications, lifetime income options, missing participants, a forthcoming new proposed fiduciary rule, and plan audits.
  • A Federal Solution to Retirement Access with Rep. Richie Neal (D-MA), Chairman of the House Ways & Means Committee: Rep. Neal shared information on the SECURE act’s progress through capitol hill and how it is proposed to impact retirement savings.

For more information about any of these topics, please contact your SRP Managing Director.

Market Volatility Update

The market has been experiencing some volatility lately, with the DOW recently dropping about 800 points. When this happens, it is disconcerting to investors, both those with a long-time horizon and those with a short one. Particularly to those with a short time horizon.

When it comes to your employee’s retirement plan, it is important that we keep their horizon in mind when discussing any moves that should or should not be made in light of a market correction. Often looking at market moves in this context helps to calm investors down and make fact-based choices vs. emotional ones.

What is causing this current downward move in the market? Certainly, the ramped-up trade war with China has impacted the way the market is looking to the future as well as global unrest, the yield curve and political turmoil here at home. However, corporate earnings and employment remain strong, wages are rising, and the Fed seems to not be over reacting. All of this should help the economy and hopefully soften any correction. With all of this said, the market has had a strong year and corrections are a part of the natural cycle of market growth. Some market pundits believe that volatility and the China trade issues may continue to the next election.

We will continue to monitor your plans investment line up and watch for any signs of trouble. As retirement plan advisors, our goal is to provide you and your employees with the tools and investments to succeed over a long-term, and as such, we search for quality and consistency when providing investment options. By providing a well-diversified line up and the appropriate asset allocation/target date funds, we strive to give you and your employees the tools to save towards a successful future.

Deferred Compensation Agreements Put to the Test …and Holding Strong

Just when everyone thought there was nothing more to be said about the bailout issues of the subprime mortgage crisis (2007-2010), it’s back in the headlines. Some 23 former American International Group Inc (AIG) Financial Products (AIGFP) employees[i] have taken their old employer to court. At stake is more than $100 Million in deferred compensation the employees said was contractually owed and verbally promised. This past Tuesday, British court Judge Andrew Baker added support to their battle, ruling that AIG couldn’t use what the Judge described as “abusive arguments” to block the payments.

Bloomberg Business quoted AIG Financial Products Chief William Dooley as having said in a court filing, “the insurance giant would have ‘been under extreme pressure’ from the U.S., especially from an angry Federal Reserve Chairman Ben Bernanke, to stop the payouts and pursue bankruptcy instead.”

Back when governments, both U.S. and European, were bailing out banks and insurers, the Federal Reserve loaned $85 Billion to AIG, with a stipulation that no funds would be distributed out of AIGFP’s bonus pools as those funds should not be “used to reward executives ahead of taxpayers.”

Aside from an obvious but unaddressed argument that the executives involved were taxpayers themselves, the money owed had been set aside as deferred compensation to the former traders and managers to provide them “a sharing of the risks and rewards of the business.”

According to the, “Even as AIGFP realized losses totaling $40 billion in late 2008, ‘the language (of the deferred comp agreements) required for the restoration of payments.’”

AIG is expected to file an appeal with a higher court, arguing that while the company was still losing money, it didn’t have to pay the Financial Products employees their bonuses.[ii]

The courts, it seems, are not being swayed by AIG’s arguments, but are instead siding with the employees, recognizing that contracts are in place to be honored, even when a company would rather not. Earlier this year, a French court ordered AIG[iii] to pay bonuses of more than $2.3 Million to a former managing director at AIG Management France SA, and last year awarded roughly $7.6 Million to another managing director in France.

Thank you to Fulcrum Partners for this great article, which you can also view here on their website.