The patient would insist their hearing was fine. It was just that other people were mumbling, says Ashby-Scabis, senior director of audiology practices at the American Speech-Language-Hearing Association (ASHA). Most times, she says, the test would show hearing loss. 

If you’ve noticed other people talking too softly, found yourself annoyed by people speaking to you from other rooms, or found that your usual television or radio volume is creeping steadily upward, you might have hearing loss too. And if you do, you’re in good company.  

According to the National Institutes of Health (NIH), 15 percent of all adults have trouble hearing—a number that increases to 33 percent for people between ages 65 and 74 and nearly 50 percent for people over 75. 

Hearing experts say it isn’t surprising that most people don’t know they’re having trouble hearing, since hearing loss usually happens gradually over time. But missing or ignoring the signs can have profound consequences for your relationships, work, health, and safety. 

How and Why Hearing Loss Happens 

Age-related hearing loss is largely a matter of wear and tear on the inner ear and the nerves between our ears and brains, says Ashby-Scabis.  

Your genes, and health conditions like diabetes and high blood pressure, can raise your risk of hearing loss, says Patricia Gaffney, a professor at Nova Southeastern University in Fort Lauderdale, Florida, and president-elect of the American Academy of Audiology. 

Noise exposure also matters. Too many loud concerts or a noisy job without ear protection can damage your hearing over time. “But most people don’t really notice the damage on a day-to-day basis because it’s such a gradual change,” says Gaffney.  

“The first thing people might notice is that, when they enter a noisy environment, it’s much harder to have a conversation,” she says. “They may also start to find other people’s speech less clear, especially the voices of women and children, because hearing at higher pitches declines fastest.” When people start to lose their ability to hear high pitches, they’ll hear mostly low pitches instead. These sound like mumbling, hence the common complaint. 

Turning up the TV and asking others to speak up won’t fix the problem, says Gaffney. “If you have a faulty inner ear, no matter how loud we make it, it’s still not going to make things any clearer.”  

Other warning signs, according to the NIH, include trouble understanding people over the phone, often asking people to repeat themselves, and struggling to understand a conversation when two or more people are talking. Tinnitus, or ringing in the ears, is another possible sign. 

How Hearing Loss Impacts Your Life 

This text box explains how to get a hearing test.

ASHA reports that adults who know they have hearing loss are unlikely to do anything about it unless it gets severe. It’s not unusual for people to wait 10 years or longer to consider hearing aids, the primary form of treatment. “Over those years, you’re missing out on so much,” says Gaffney. 

Studies have linked untreated hearing loss to depression, anxiety, and social isolation, says Laura Coco, an assistant professor of audiology at San Diego State University. “As communication gets harder, people just slowly drop out from their communities and their families.” 

Working adults can lose confidence in their ability to do good work, she says. Untreated hearing loss is linked with lost income and a higher rate of unemployment, according to the nonprofit Hearing Health Foundation. 

It’s even linked to a higher risk of falling, perhaps because poor hearing creates a “sense of disorientation,” says Ashby-Scabis. 

In the past few years, researchers have also found an increasingly strong connection between hearing loss and cognitive decline. First, researchers at Johns Hopkins University found that people with mild hearing loss were twice as likely to develop dementia as those with normal hearing and that those with moderate to severe hearing loss were at even higher risk.  

More recently, the same researchers found that getting hearing aids led to a 50 percent drop in the rate of cognitive decline in older adults who had both hearing loss and an elevated risk for dementia. 

It is important to note that the studies don’t prove that hearing loss leads to dementia because correlation is not causation. “One thought is that there’s a common cause that leads to both dementia and hearing loss,” says Coco.  

If untreated hearing loss does increase the risk, isolation could be the link, she says. We’re social creatures, and when we lose connection, our brains suffer. 

Another consideration is that untreated hearing loss can make someone seem like they have memory problems when they don’t. “When you don’t hear what people are saying, you can’t remember it,” says Ashby-Scabis. “That’s another reason to get answers and get help.”

Article by Kim Painter

It’s easy to believe that wealthy people don’t have to worry about their finances. But the reality is that they often face their own unhealthy consumer habits, fueled by access to money, societal pressures, and a culture that encourages consumption.

Unhealthy Habits

“We all know Americans struggle with their day-to-day finances,” says Chris Whitlow, head of CAPTRUST at Work. “But it isn’t only lower- and middle-income people who face challenges.”

According to a recent “Mind over Money” survey from Capital One and The Decision Lab, two-thirds of Americans feel anxious about their financial situations, and more than half have difficulty controlling their money-related worries. They’re most worried about their financial futures, including not having enough money to retire, keeping up with the cost of living, and managing debt.

“Having wealth solves some of your money issues, but it doesn’t make you immune to financial stress,” says Whitlow. “Wealthy people just suffer from a different set of worries.” Often, these worries are related to spending behaviors.

Problems of Abundance

While some of these issues might rightly be called high-class problems—or problems of abundance—they are, nonetheless, problems, and they can leave a significant mark on a family’s finances. Some spending behaviors can have negative financial consequences.

As wealth increases, so does the ability to spend, and the impact of these behaviors can be significant. Combine a couple impulse purchases, a dash of lifestyle creep, and a touch of keeping up with the Joneses, and you may find you’re not making any real progress toward your long-term financial goals.

A Few Helpful Tips

“We live in a consumer-driven society,” says Altfeder. “We’re bombarded by commercials telling us we should spend our money on cars, trips, and things for our homes. And, of course, these ads are targeted at people with the means to buy. It’s no wonder so many Americans suffer from overspending and too much debt.”

There’s nothing inherently bad about spending, and it’s normal to spend more as income and wealth rise. What’s important is that you make intentional choices about your spending rather than falling prey to ad messaging and dysfunctional spending behaviors. Here’s how.

Make a not-a-budget budget. “While you may not need a detailed monthly budget, doing a little math to understand what you’re spending can be revealing,” says Altfeder. Even small purchases add up over time, and that once-in-a-while splurge that happens a little too often can take a toll.

This is an illustration of gold coins calling into a pink piggy bank.

Get the full picture. Often, the cost of luxury purchases extends beyond the initial outlay. For example, buying a vintage car, a second home, or a plane include significant maintenance and upkeep costs that may generate financial stress. Creating a full estimate of those expenses can inform the decision-making process and reduce the likelihood of surprises down the road.

Don’t neglect long-term planning. Focusing on the here and now can lead to neglecting retirement savings, estate planning, and other long-term financial goals. A good financial plan will get you excited about the future and may cause you to rethink your current spending. Further, just because things are comfortable today doesn’t mean they’ll stay that way forever. A plan will help identify likely outcomes and biggest risks.

Avoid bad debt. Easy access to credit and the ability to afford the payments on it can lead to accept more than a healthy amount of debt. “Good debt like mortgages, student loans, and business loans can help enable long-term goals,” says Whitlow. “Bad debt—like credit cards and any loan used to buy a depreciating asset—steers you away from your goals. Moderation is key, and even good debt, when overused, can turn bad.”

Acknowledge the impulse. It can be difficult to notice when you’re falling into the trap of FOMO or an impulsive purchase. That’s why these behaviors are so problematic. But it’s possible to cultivate mindfulness about spending in order to dampen the impulse.

A few simple rules may also help. For example, implement a timeout rule that requires you to sleep on spending decisions more than a certain amount, or delay that new car, boat, guitar, or cruise purchase by 30 days and see if you still need it. You may find you do not, and over time, you’ll become more engaged when big spending decisions arise.

Spending with Intention

While wealthier Americans may not suffer from the make-or-break financial issues and stresses that average Americans face, they do experience their own breed of money-related stress. The allure of consumerism is strong and carries real financial consequences. But it doesn’t have to be that way. With a more intentional approach to managing spending, wealthy Americans can enjoy the fruits of their wealth while also attaining their long-term financial goals with less stress and worry.

“I have these conversations with clients—not all the time, but often—and they’re always surprised by how much they spend and what they spend on,” says Altfeder. “A lot of the time, they don’t see a lot of value in what they’re paying for, which makes it easy for them to dial back. They feel like they’re making a positive difference in their finances and are more in control of their lives in general.”

Article by John Curry

A: The Department of Labor (DOL) recently issued the Retirement Security Rule, also known as the fiduciary rule. This rule defines the term investment advice fiduciary for purposes of the Employee Retirement Income Security Act. The new rule is the culmination of a long process, through which the DOL has attempted to better clarify what a fiduciary is and what constitutes fiduciary advice for retirement accounts like 401(k)s and individual retirement accounts. This may be one of the reasons you’ve heard the term a lot lately, but the concept of the fiduciary is not new. In fact, it dates to ancient Roman law.  

In the context of personal finance and investments, registered investment advisors (RIAs) must adhere to a fiduciary standard of care. In other words, RIAs are legally bound to always act in your best interest. 

This means that the investment advisor must always put your interest ahead of their own and must disclose any real or potential conflicts of interest. In other words, RIAs are required to provide advice and recommendations that are best for you, even if it means earning less for themselves or their firms. The fiduciary standard is the highest ethical standard in the financial services industry. 

Another thing to know is that, in recent years, the U.S. Securities & Exchange Commission issued a separate rule called regulation best interest, which raised the standard applying to stockbrokers. 

However, the primary difference between RIAs and brokerage firms still exists. Brokerage firms sell securities in exchange for commissions. This is a transaction-based business model. RIAs render investment advice in exchange for a fee that is not contingent on transactions. In general, investment advice from an RIA is rendered on an ongoing basis, so that the RIA’s fiduciary obligation does not end after a transaction takes place. 

While regulation best interest imposed a new standard on brokerage firms, the incentive still exists for brokers to recommend products that generate higher commissions.  

While these distinctions may seem subtle, understanding the difference can help you make better-informed decisions when seeking financial advice. When working with a financial professional, it’s crucial to understand the standard under which they operate for the specific services you’re seeking. 

CAPTRUST is a fiduciary, first and foremost. We believe in the value of objective investment advice given solely in the best interests of our clients. The company has gone to great lengths to eliminate the kinds of conflicts of interest that are common in other parts of the financial services industry. 

After all, no one knows how long they’re going to live. So how do they know they won’t run out of money? 

“We recommend people do their financial planning with the assumption that they’re going to live a long time because of better preventive medicine and better treatments,” says Gray, who’s based in Raleigh, North Carolina. 

Many retirees today need sufficient liquid investments to last 20 to 40 years. Otherwise, they face a longevity risk, which means they might survive longer than expected and outlive their resources. 

“You may not live to 100,” says Gray. “But what if you live to 97, and you only planned for your money to last until you were 90? Then you’ll spend the last seven years broke. You don’t want to be down to your last nickel.”  

That’s a scary thought, but it can happen, says Gray. “I’m currently working with a client whose mother is 93 and has had dementia for seven years. She has survived COVID-19 three times. Now she’s living in an expensive long-term-care facility, and he’s watching her burn through her assets.”   

His client doesn’t want to be in the same situation.  

Recent surveys reinforce the wisdom of long-term financial planning. In America, the average retirement age is 62 to 65 years old. A 65-year-old man can expect to live to age 82.5 (about 17.5 years in retirement), and a 65-year-old woman can expect to live to age 85 (about 20 years in retirement), according to the Centers for Disease Control and Prevention. 

Although a small percentage of people currently make it to 100, a 2024 report from the Pew Research Center says there will be many more centenarians in the coming decades. 

Calculating Expenses   

Several factors go into fiscal planning for a century-long life, from expenses and asset allocation to inflation and market volatility. As a financial planner, Nick DeCenso, CAPTRUST senior director of wealth solutions, says estimating how much retirees will spend is the hardest part of developing a plan. 

“We know our clients’ assets,” says DeCenso. “We know what their income looks like. We know their Social Security benefits. We know their liabilities. But anticipating spending is tough.” 

This sidebar includes text that explains suggestions for how to get a handle on spending.

“For the first three to five years of retirement, we often see a spike in spending,” he says. “A lot of folks are taking trips they’ve put off, leaning into their lifelong hobbies, or buying big-ticket items they’ve always wanted. They tend to spend less later in retirement.” 

Figuring out expenses is important, says Briana Smith, a CAPTRUST financial advisor in Raleigh, North Carolina. Smith helps clients develop plans for a life expectancy of 95.  

“We want to get as accurate a number as possible,” she says. “For instance, we need to know if you’re spending $15,000 a year on groceries and $30,000 a year on travel.”  

What might seem like a small difference on paper can have a significant impact when you grow these expenses with inflation over long periods. Smith says some people like to create a detailed budget. Others just want a general understanding of how much they spend. 

Adding Costly Items 

Beyond regular living expenses, each person’s long-term financial plan needs to incorporate occasional large expenditures, such as buying a second home or helping adult children purchase property, paying for weddings or grandchildren’s educations, or some combination of those things.   

These expenses are important because they have big potential to move the needle, jeopardizing the chance you’ll achieve your financial goals. “You may end up paying for a wedding that’s so expensive it impacts your retirement lifestyle,” Gray says. 

Today, more clients are making big gifts to their children, grandchildren, and charities during their lifetimes, says DeCenso. “If I live to 100, for example, that means my two daughters are going to be 70 before they get an inheritance. If I’m able to give them financial gifts while I’m still alive, then I get to see some of the fruits of those gifts.”   

Some parents opt to give each child or grandchild the maximum annual amount that you can give without reporting it to the Internal Revenue Service. In 2024, that amount is $18,000 from one parent or $36,000 from both. “That’s fine as long as it doesn’t put the parents’ retirement plan in jeopardy,” Smith says.    

Gray suggests taking care of yourself first. “Make sure you’re comfortable with your resources and planning so you can have the lifestyle you want and eliminate—or at least mitigate—your risk of creating a financial shortfall.”  

Models and Scenarios 

Advisors use financial planning software to give clients a reasonably reliable look into the future.  

The software considers factors such as age, assets, living expenses, charitable donations, automobile expenses, education costs, and gifting to family. Once all your expenses and sources of income are in the system, it can calculate different long-term financial scenarios, adjusting for inflation, market volatility, increased healthcare costs, and other factors.  

The goal is to model multiple versions of the future so you can prepare accordingly. “From there, we can determine how growth-focused each client needs to be, how much money they’ll need available at key moments in their life, and how much of their total portfolio should be allocated to different types of investments,” Gray says.  

For a lot of people, modeling creates peace of mind. 

“We’ve worked with people who were absolutely petrified about the future, and after using these software tools, they were comfortable living a lifestyle that was considerably nicer than they thought they could ever afford,” says Gray. 

Customizing Investments 

Despite what many online calculators might say, when it comes to investments during retirement, there is no one-size-fits-all strategy. “The best mix depends on each person’s unique assets and liabilities,” says DeCenso. “Now more than ever, people are retiring with multiple assets beyond their homes and employer-sponsored retirement accounts.”  

Besides Social Security and, in some cases, pensions, retirees might have other income streams, such as rental properties, business partnerships, or severance from a company. They might also be consulting or working full or part time.  

“All of this factors into how we decide on the right mix of equities and fixed income in investments,” says DeCenso.  

Sometimes, retirees go too far in one direction. “I see folks who are at each of the extremes,” he says. “They think, I’m retired, so I’m going to be as conservative as possible with my investments.” 

“Other folks are too aggressive,” he says. “They keep too high of a percentage of their assets in equities after retirement, which can create substantial risk.” 

There’s a lot to consider when making investment decisions. Someone who’s getting Social Security and has a pension and other sources of income might need to withdraw less from their portfolio. This person can afford to take more risks. But a retiree who receives smaller Social Security benefits and has no pension can’t afford to take as much risk. 

Dividing Investments into Buckets 

Smith suggests thinking about investments as buckets:  

The Cash-Flow Bucket: Keep one to three years of your retirement withdrawal needs in cash or cash-equivalent accounts, such as a money market fund or—in today’s interest rate environment—an exchange-traded fund (ETF) that tracks a three-month Treasury bill. “This can help retirees avoid selling stocks if there’s a dip in the market,” Smith says. 

The Income Bucket: This is money for the intermediate term. “We recommend having roughly seven years’ worth of withdrawal needs in a more income-focused bucket, something that includes a balanced asset allocation with a mix of stocks and bonds,” she says. “It could even include some private credit alternatives to boost yield.” This asset allocation is dependent on the retiree’s risk tolerance. “You have a nice waterfall effect with dividends and interest flowing from the income bucket to the cash-flow bucket,” Smith says.  

The Growth Bucket: The first two buckets should fund the first 10 years of retirement. “This creates peace of mind and allows clients to be more growth oriented with their longer-term assets in the third bucket,”  
she says. 

Avoiding a Financial Shortfall 

The 4 percent rule is a guideline that says if retirees withdraw 4 percent annually from their portfolios, they won’t exhaust their savings. “In general, this is a good budgeting strategy,” Gray says. “However, it’s prudent to check your withdrawal percentage regularly. If your rate starts to creep up, then 4 percent might not be sustainable.” 

In some cases, clients aren’t worried about running out of money. They’re more concerned with preserving investments to pass on to their heirs or favorite charities.  

Smith suggests clients might want to live off dividends and interest to preserve the current buying power of their portfolio. She says financial advisors often coordinate with a client’s estate planning attorney. 

“Sometimes, we need to help strategize the most tax-efficient estate plan,” Smith says. “This could include setting up and funding certain types of trusts or simply considering which assets should be directed toward heirs versus charities.”  

In some cases, people choose to leave homes to their children. Other retirees downsize during their golden years and use some home equity to cover expenses.  

“My mother-in-law is retired and conscious about her spending,” says DeCenso. “She lives in a 3,000-square-foot house that is worth $1 million and is almost paid off. If she needs more money, she has a lot of equity to work with.”  

Regular Check-ins 

Retirement planning is not a one-time exercise. “That would be nice, but it’s not realistic,” says DeCenso. “Nothing will go precisely as planned. The markets won’t move in a straight line and may do better or worse than everyone thought. Also, your spending will fluctuate and evolve. There will be times when you spend more or less than expected.”  

Smith says she tells clients to revisit their plans annually or any time they have a major life change, such as moving to another state, having more grandkids, getting divorced, or having a death in the family.  

DeCenso says some have a clear mental picture of the portfolio amount they’re determined to stay at or stay above. “They think: If I dip below my peak savings amount, it feels like I’m trending toward zero,” he says. Sometimes, this type of thinking can cause more harm than good, causing people to underspend and worry unnecessarily.  

“You saved for your retirement, so enjoy it,” he says. “This is what those long years of saving were meant for.”   

This picture includes a QR code that links to a CAPTRUST video called "Secure Your Retirement Savings: The Three-Bucket Strategy for Individuals." It is also available at https://www.captrust.com/resources/secure-retirement-three-bucket-strategy/

Article by Nanci Hellmich

A: Investing in gold may provide some benefits as a portfolio diversifier and potentially as a hedge against inflation, but there are several issues to consider when contemplating an investment in this or other precious metals. Here are a few: 

Investors should also be mindful of the additional costs of investing in physical gold, including storage, insurance, and transaction fees, which can erode potential gains. Exchange-traded funds (ETFs) that include gold may be a cost-effective alternative but do not offer the same features as investing in physical gold. 

If you do choose to invest in gold, it should be as part of a well-diversified investment strategy and should not be considered a stand-alone solution to combat inflation. As always, consult with your financial advisor to determine what makes sense for you based on your investment goals, risk tolerance, and overall financial situation. interest that are common in other parts of the financial services industry. 

A: While it’s true that elections can drive market volatility and shifts in investor sentiment in the short term, history shows that, over the long run, fundamentals like economic growth and corporate earnings tend to be far more important drivers of stock returns. 

That said, there are some interesting historical trends around stock market performance during election years, especially years when an incumbent president is running for reelection.  

According to our analysis, for the last 10 election years in which an incumbent was running, the S&P 500 Index has ended the year in positive territory, with an average return of 17.4 percent. That’s well above the average annual return of around 10 percent for all years.  

Why might markets tend to perform better in incumbent reelection years? A big part of the answer likely comes down to the incentives for incumbents to take pro-growth policy actions to boost their reelection prospects. Fiscal and monetary policy may become more stimulative in these years, as incumbent administrations work to keep an economic expansion going.   

We’ve already seen some of this dynamic play out, with large fiscal packages like the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, the Inflation Reduction Act, and the resumption of tax credits like the Employee Retention Credit injecting billions of dollars into the U.S. economy. Despite being an election year, the Federal Reserve has signaled that it will base its rate decisions solely on economic data rather than political calculations. 

However, it’s important not to overstate the impact of elections on markets based on these data points alone. Underlying economic fundamentals like consumer spending, the labor market, earnings growth, and productivity gains tend to be more powerful drivers of stock returns over time. The rollout of artificial intelligence tools and their potential productivity benefits could be a strong tailwind for markets this year, regardless of the presidential election’s outcome. 

Moreover, markets can certainly climb or sell off sharply in election years for reasons wholly separate from elections. For instance, the 2008 financial crisis triggered a major sell-off late in that election year, while the extraordinary stimulus response to the COVID-19 pandemic sent stocks soaring into year-end 2020 after the November election.   

While elections tend to garner outsize attention, they are just one of many inputs for markets. Investors would be wise to look past the political noise and partisan narratives and remain focused on the fundamentals that drive long-term returns. Diversification, discipline, and sticking to your plan should be top priorities, regardless of who occupies the White House.

Q: Some economists are predicting a recession, and I’m in my early 60s. How could this impact my retirement?

The decision to retire is complex and personal, and even more so when the stock market is volatile and the economic climate is so uncertain. But all the planning you’ve done over the years, such as analyzing various scenarios with your financial advisor, will come to good use in these final years of your career.

Even if gloomy forecasts are making you feel anxious, one of the cardinal rules of investing is to stay invested. Remember: Market timing is a fool’s errand. You’d need to have access to a magic crystal ball—not just once, but twice—to be able to know just when to get out of the stock market and when to get back in.

Instead of doing anything drastic, consider taking these financial steps to best position your retirement plan in case of a recession.

Take stock of your financial plan. Revisiting and updating your projected household expenses is paramount. That way, you’ll have a thorough understanding of the income needs from your portfolio.

You should also work with your financial planner to test the resilience of your nest egg against market fluctuations by rerunning projections and layering on several different what-if scenarios.

Calculate your cash cushion. The amount you need is based on personal preference. Building your portfolio buckets may help you become comfortable with the amount of cash you should hold. We recommend keeping about a year’s worth of expenses in cash as an emergency reserve. As you approach retirement, it can make sense to increase this amount, depending on your other sources of retirement income.

Recessions normally don’t last longer than a year. Having a cushion will insulate you from being forced to sell equities in a falling market.

Use tax-loss harvesting. With taxable accounts, it’s always prudent tax planning to be proactive about realizing any capital losses. They can be used to reduce your tax bill by offsetting previously realized gains. Anything you can do to give yourself an edge will help in the long run.

As always, you should speak with your financial and tax advisors about your personal financial situation before you make any decisions. If you don’t have a thorough financial plan that addresses your retirement under various market and economic conditions, now is a good time to consider one.

Indirect Recordkeeper Compensation Coming into Focus

We previously reported on a case from the U.S. Court of Appeals for the 9th Circuit requiring plan fiduciaries to consider all compensation received by plan recordkeepers, including indirect compensation, when evaluating the reasonableness of fees. In that case, the judge said plan fiduciaries were required to consider the revenue the recordkeeper received from managed account services provided to plan participants. Bugielski v. AT&T Services, Inc. (9th Cir. 2023)

This principle has also been endorsed by a federal court in New York. In that case, the plaintiffs claim that TIAA-CREF, a recordkeeper with significant exposure in the higher-education market, undertook an aggressive campaign to increase revenue by selling ancillary services to plan participants. The district court refused to dismiss the case, noting that fiduciaries are required to monitor administrative fees and all compensation that the service provider receives relative to the services delivered. The case will proceed to determine whether plan fiduciaries appropriately considered all compensation received by the recordkeeper. Carfora v. Teachers Insurance Annuity Association of America (S.D. N.Y. 2024)

Use Forfeitures to Offset Employer Contributions? Maybe Not.

We recently reported on several cases challenging the use of plan forfeitures. Forfeitures result from participants leaving employment before being fully vested in their employer contributions. Historically, forfeitures routinely have been used either to offset the employer’s matching contributions or to pay plan expenses. Plan documents often say that forfeitures may be used for either purpose. The argument in these cases is that plan fiduciaries are obligated to do what is in the best interest of plan participants, and, when given a choice in the use of forfeitures, they should first pay plan expenses, which would otherwise be charged against participant accounts. Using forfeitures to first reduce the employer’s matching contributions is allegedly a fiduciary breach.

Ten lawsuits have been filed making these allegations. Initial decisions in these cases conflict. In a case against Qualcomm, the court accepted the basic argument that, given the choice, plan fiduciaries have a duty to use forfeitures in the best interest of plan participants. The defendant’s motion to dismiss was denied. Perez-Cruet v. Qualcomm Incorporated (S.D. Cal. 2024)

In a similar case against HP, the court acknowledged that plan fiduciaries exercise discretion when deciding how to use plan forfeitures. However, the court found it implausible to require that plan forfeitures always be used first to pay plan expenses and then to reduce the employer’s contribution. The case was dismissed with leave to file an amended complaint. Hutchins v. HP Inc. (N.D. Cal. 2024)

Using forfeitures to offset employer contributions is a longstanding and widely accepted practice, permitted under Internal Revenue Service (IRS) regulations and consistent with guidance from the Department of Labor (DOL). In view of the conflicting initial decisions in these cases, plan fiduciaries should review their approaches to plan forfeitures and confirm that they are following their plan documents.

Cybersecurity Nuggets

Recordkeeping and Investment Fees Cases: Process Wins and Courts of Appeals Resurrect Dismissed Cases

The flow of fees cases continues. Several were settled, were dismissed, or lost motions to dismiss and will proceed. In three instances, courts of appeals have reinstated fees cases that had been dismissed by district courts. The district courts found that the cases filed did not include sufficient allegations to state a plausible claim. The courts of appeals found otherwise, so the cases will go back to their district courts for further proceedings. Kruchten v. Ricoh USA Inc. (3rd Cir. 2024), Mator v. Wesco Distribution Inc. (3rd Cir. 2024), Perkins v. United Surgical (5th Cir. 2024)

In one case, after the facts of the case had been developed through depositions and document requests, the plan fiduciaries filed a motion for summary judgment. Based on the fiduciaries’ thorough process and reasonable decision-making, summary judgment was entered in their favor. Silva v. Evonik Corp. (D. N.J. 2024) The judge particularly noted the following:

Pension Nuggets

DOL’s Expanded Fiduciary Rule on Hold

The DOL’s latest rule expanding fiduciary coverage has been put on hold. The DOL sees significant risks to retirement plan participants from brokers and insurance agents as money is withdrawn from retirement plans. To address this issue, the DOL issued a regulation in 2024 expanding ERISA’s fiduciary definition to include those advising on rollovers out of retirement plans, regardless of the frequency of the interaction. The DOL’s prior, similar regulation was struck down in 2018 as exceeding the DOL’s authority. The new regulation has also been challenged, and a federal judge in Texas has put the new rule on hold until the court orders otherwise. In issuing the order, the judge expressed his expectation that the new regulation will ultimately be struck down. American Council of Life Insurers v. U.S. Department of Labor (5th Cir. 2024)

Managed Accounts Challenged as Default Investments

A participant in the Bechtel 401(k) plan has filed a class action lawsuit alleging that it was a breach for plan fiduciaries to use managed accounts as a 401(k) plan’s qualified default investment alternative (QDIA). The complaint alleges that few participants provided personalized information about their financial situations but were still charged managed account fees. The lawsuit claims that, without personal input from plan participants, the managed accounts were essentially very expensive target-date funds and that target-date funds could have been used instead. Hanigan v. Bechtel Global Corporation (E.D. Va., filed May 2024) The DOL’s 2006 regulation establishing QDIAs included the potential use of managed accounts, so it will be interesting to see how this case develops.

Ex-Girlfriend from Decades Ago Awarded $750,000 401(k) Balance

Jeffrey Rolison went to work for Procter & Gamble in 1987. At the time, when enrolling in the Proctor & Gamble 401(k) plan, he listed his girlfriend, Margaret Sjostedt, as his 401(k)-plan beneficiary. Twenty-eight years later, in 2015, Jeffrey died with a 401(k) account balance of just over $750,000. By that time, Jeffrey had not married and did not have children. The original beneficiary designation form naming Margaret was still on file.

Margaret and Jeffrey split up after a couple of years, in 1989, and Margaret went on to get married and have two children. After learning that Margaret was the designated beneficiary on file, Jeffrey’s surviving brothers fought the issue, contending that Margaret was not who Jeffrey wanted as his beneficiary and the money should go to his estate—and eventually to the brothers.

Deciding that the beneficiary designation would be followed, the court noted that, over the intervening years, Jeffrey had from time to time accessed his account and had the opportunity to change his beneficiary. He had also received participant communications referencing beneficiary designations. The only evidence the brothers had was their own, potentially self-serving statements of their prior conversations and their beliefs about what Jeffrey would have wanted. The judge was unpersuaded. Procter & Gambel U.S. Business Services Company v. Estate of Jeffrey Rolison (M.D. Penn. 2024)

ESG Caution: American Airlines ESG Suit Survives Motion for Summary Judgment, Proceeds to Trial

As previously reported here, plan participants sued American Airlines for including funds in their 401(k) plan that advance environmental, social, and governance (ESG) causes, alleging that they are not in the best interests of the plan participants. The judge denied American Airlines’ motion to dismiss, accepting the general propositions that ESG investments underperform their non-ESG peers and that ESG investments are not exclusively focused on financial gain to plan participants. The claim is that these characteristics potentially violate ERISA’s exclusive benefit rule.

Following the same logic, the judge has also denied American Airlines’ motion for summary judgment. Unlike a motion to dismiss, which is filed early in a case, a summary judgment motion is filed after the facts of the case have been developed. Spence v. American Airlines, Inc. (N.D. Tex. 2024)

The bottom line is that ESG investing may continue to be a topic in litigation. Plan fiduciaries should be familiar with the DOL’s rule on this topic, “The Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights” (also known as the ESG rule), which gives direction regarding how to approach selection and monitoring of ESG investments.

Supreme Court’s Elimination of Chevron Deference Already Impacting Retirement Plans

A lawsuit against Chevron in 1984 included a challenge to how individual states were enforcing the Clean Air Act. The Supreme Court held that federal court judges must defer to reasonable agency interpretations of laws, creating the Chevron Deference rule. This ceded interpretation of federal law to the various agencies responsible for issuing regulations and enforcing the law when there was ambiguity. The Chevron Deference rule has been foundational to the decisions in countless cases—including many in the retirement and employee benefits area.

In its previous term, the Supreme Court reconsidered the Chevron Deference rule and abandoned it, finding that federal judges—not agencies—are responsible for interpreting laws. Loper Bright Enterprises v. Department of Commerce (S. Ct. 2024) This is already having a direct impact on cases involving retirement plans.

We also previously reported on an unsuccessful lawsuit by 26 states and other parties to throw out the DOL’s new ESG rule. State of Utah v. Walsh (N.D. Tex. 2023). The district court’s decision was appealed.

During the appeal, the Supreme Court issued its opinion in Loper Bright, throwing out Chevron Deference. Because the district court decision in Utah v. Walsh used Chevron Deference as a basis for its decision, the case was sent back to the Texas district court for it to once again consider the appropriateness of the ESG Rule under ERISA. Utah v. Su (5th Cir. 2024)

Even with elimination of Chevron Deference, in cases where there is statutory ambiguity, judges may still take due consideration of agency views, but they are not obligated to defer to agencies’ interpretations. Eliminating Chevron Deference creates some uncertainty about whether previously settled issues will be reopened, and whether potentially more conflicting court decisions could work their way through the system, ultimately landing at the Supreme Court to be resolved.

A family limited partnership (FLP) is a partnership created and governed by state law and generally comprises two or more family members. As a limited partnership, there are two classes of ownership: the general partner(s) and the limited partner(s). The general partner(s) has control over the day-to-day operations of the business and is personally responsible for the debts that the partnership incurs. The limited partner(s) is not involved in the operation of the business. Also, the liability of the limited partner(s) for partnership debts is limited to the amount of capital contributed.

An FLP can be a powerful estate planning tool that may:

An FLP is often formed by a member(s) of the senior generation who transfers existing business and income-producing assets to the partnership in exchange for both general and limited partnership interests. Some or all of the limited partnership interests are then gifted to the junior generation. The general partner(s) need not own a majority of the partnership interests. In fact, the general partner(s) can own only 1 or 2 percent of the partnership, with the remaining interests owned by the limited partner(s).

There are several potential advantages to organizing your business as an FLP:

Source: Broadridge Investor Communication Solutions, Inc.

Rivers offer another example. Narrow and broad rivers can convey the same amount of water, depending on their depth and flow. One river, which delivers nearly 20 percent of the world’s freshwater to the ocean, varies in width from less than one mile to more than 30 miles across. Its name, relevant to today’s market discussion, is the Amazon.

So far this year, leadership in the U.S. stock market has been extraordinarily narrow, with five mega-cap technology powerhouses—Alphabet, Amazon, Meta, Microsoft, and NVIDIA—delivering a full 60 percent of S&P 500 Index returns. Without this quintet, the index would have shown negative returns for the second quarter.

Most market watchers view such a narrow market as less healthy and resilient than more broad-based participation. Yet this small group of stocks has driven markets relentlessly higher.

Since February of last year, the S&P 500 has increased by nearly 40 percent without a single daily decline of 2 percent or greater. As shown in Figure One, this represents the fourth longest period without a 2 percent decline since 1990, and the current period has a higher annualized return than the other three.

Figure One: Trading Days Without a 2 Percent or Greater Decline (1990–June 2024)

A chart showing consecutive days without a 2 percent or greater decline between 1990 and June 2024.

Sources: Morningstar Direct, CAPTRUST Research. Percentage returns are annualized.

Market Rewind: Second Quarter 2024

April began on rocky footing as inflation data came in hotter than expected, quelling hopes for a second-quarter Federal Reserve interest rate cut. That same month, markets also digested escalating Middle East tensions after a volley of attacks between Iran and Israel, causing volatility in stock and energy prices.

However, the markets quickly recovered, as these tensions calmed and a string of data releases suggested the U.S. labor market, consumer spending, and overall economic activity were cooling in an orderly fashion, while corporate earnings remained solid.

U.S. large-cap stocks continued their early-year momentum, with the S&P 500 delivering returns of 4.3 percent and finishing the quarter just shy of a new all-time high. Overall results masked more disparate activity beneath the surface, with more than half of the 11 S&P 500 sectors posting negative returns for the period.

In contrast, small-cap stocks struggled to a 3.3 percent loss as larger companies continued to capture the lion’s share of market gains. Despite continued economic strength, smaller companies have lagged under higher interest rates, due to their tendency to carry higher levels of debt.

Figure Two: Second Quarter 2024 Market Recap

A chart showing asset class returns for Q2 2024.

Asset class returns are represented by the following indexes: Bloomberg U.S. Aggregate Bond Index (U.S. bonds), S&P 500 Index (U.S. large-cap stocks), Russell 2000® (U.S. small-cap stocks), MSCI EAFE Index (international developed market stocks), MSCI Emerging Market Index (international emerging market stocks), Dow Jones U.S. Real Estate Index (real estate), and Bloomberg Commodity Index (commodities).

Outside the U.S., performance varied by region. Currency weakness weighed on Japan, and political uncertainty hampered Europe. Emerging market stocks added to their first-quarter gains with a 5.1 percent return in the second quarter. Performance was buoyed by market-friendly actions from Chinese authorities to support the nation’s struggling real estate sector, plus continued strong results from the Taiwanese semiconductor sector.

Interest rate–sensitive segments of the market underperformed, as the yield on the 10-year U.S. Treasury bond climbed from 4.2 to 4.4 percent. Core U.S. bonds sold off in the final week under pressure from rising interest rates, to finish the quarter essentially flat. Credit spreads remained stable for the period. Real estate showed a modest loss of 1.6 percent.

Commodities were volatile as energy prices, particularly oil prices, experienced swings due to geopolitical tensions and production adjustments by major exporters. Precious and industrial metal prices advanced, especially gold, silver, and copper, while agricultural commodities lagged.

Broad Perspectives on Narrow Market Leadership

The narrowness or breadth of various economic and market conditions can provide important clues to their strength or fragility. Today, we see narrow conditions not just within the stock market but also in key areas such as consumer behavior, inflation drivers, and election outcomes. These factors carry important implications for the future direction of the economy and markets.

When a smaller group of companies drives overall index performance, that index can become increasingly top heavy. As shown in Figure Three, the 10 largest companies in the S&P 500 now represent 36 percent of the index—the highest degree of concentration since the 1970s.

Figure Three: Total Weight of the Top 10 Stocks in the S&P 500 Index

A line graph showing the weight of the top 10 stocks in the S&P 500 Index as a percentage of total weight.

Sources: Morningstar Direct, CAPTRUST Research

To put this in perspective, Microsoft—the highest-weighted stock in the S&P 500—currently has a market capitalization of more than $3.4 trillion, which is nearly 100 times larger than that of the median stock. The level of concentration in these top stocks has now reached a multi-decade record, far higher than what the markets witnessed during the height of the dot-com bubble.

Optimists argue that this degree of concentration should not be concerning, because it demonstrates the exceptional growth, durability, and sheer earnings power of these few companies. It also reflects their ability to navigate the high interest rates, inflationary pressures, and geopolitical uncertainty of the past few years better than their peers.

However, others view this degree of concentration as a sign of market vulnerability. The combination of a narrow market and high valuations increases concerns about the potential for a correction (a decline of 10 percent or more from recent highs) if these companies fail to deliver on lofty earnings growth expectations.

Although analysts now expect earnings growth will stretch across a much larger swath of the equity markets in the second half of 2024 and in 2025, any such expansion of market strength is likely to depend on lower interest rates.

Narrowing Consumer Strength

Consumer spending is the single largest component of U.S. economic activity. The consumer’s ability and willingness to spend during and after the COVID-19 pandemic has, in large measure, prevented a significant economic slowdown, despite high inflation and restrictive monetary policy. Now, it seems consumers could be losing steam.

Recent retail sales data suggests cooling spending activity. Inflation-adjusted retail sales for the April to May period fell by 1.2 percent compared to the first quarter of 2024, with spending on goods showing particular weakness. Other discretionary categories such as food services and drinking places have fallen for three of the past five months. Despite positive movement in some areas, such as automotive-related sales, the overall picture points toward more cautious consumer behavior. [1]

Another place where consumer stresses are becoming evident is in credit utilization. Total credit card balances have now eclipsed $1.1 trillion, while the average interest rates for accounts carrying a balance have risen above 22 percent. Nearly one in five credit card users have maxed out their available credit. Delinquency rates for both auto loans and credit cards have surpassed their 2019 levels by 15 percent and 28 percent, respectively. [2]

A likely contributor to credit card stress is the depletion of savings accumulated during the pandemic. One frequently cited pillar of consumer strength over the past four years is the surplus of savings built up throughout the pandemic, partly due to substantial government stimulus payments.

Now, this savings cushion is narrowing. As usual, the greatest stress is being felt by those with the lowest incomes, as household budgets are squeezed by rising prices, high interest rates, and climbing rent payments. Levels of consumer sentiment for the lowest third of earners is far below that of middle and high earners. And, as shown in Figure Four, while higher-income households continue to maintain a cushion of excess savings, the level of inflation-adjusted liquid assets for the bottom 20 percent of earners has deteriorated since 2019. [3]

Figure Four: Changes in Real Household Liquid Assets

A chart showing changes in household liquid assets from 2019 to 2024.

Sources: Board of Governors of the Federal Reserve System, U.S. Bureau of Economic Analysis, CAPTRUST Research

Despite these warning signs, the strong labor market remains a powerful tailwind for consumer activity. The ability to find and keep a job that pays wages that grow faster than inflation plays a pivotal role in supporting consumer confidence and activity.

While the unemployment rate rose slightly in June, its level of 4.1 percent is still far below the 40-year average of 5.8 percent. The labor force participation rate among prime-age workers (those between ages 25 and 54) has also risen to a two-decade high, helping offset the surge of early retirements witnessed during the pandemic. And the number of job vacancies per unemployed worker remains at 1.2, matching its pre-pandemic level. [4]

Narrowing Inflation Drivers

Following 2022’s inflation spike, which saw the consumer price index (CPI) rise to a four-decade high of 9 percent, there has been a substantial cooling in price pressures. In May, inflation was lower than expected at 3.3 percent on a year-over-year basis. This was the smallest monthly gain for more than two years. Although there is still some distance to cover before reaching the Fed’s 2 percent inflation target, continuing signs of declining inflation sustain hopes that the Fed could deliver its first rate cut later this year.

Another positive sign is that the number of categories showing more than 2 percent inflation within the basket of goods and services used to calculate CPI continues to narrow. At its peak in 2022, virtually all major categories of goods and services exceeded the Fed’s 2 percent target. As Figure Five shows, the number of categories exceeding this threshold has steadily declined since. Several essential categories, including shelter and medical care, which tend to carry higher weights within the CPI, continue to hold inflation above target. Others, including new and used vehicles and airfares, have fallen considerably. This indicates that inflation in those categories is likely due to specific factors, rather than broad-based price pressures—a positive sign that inflation is not firmly entrenched.

Figure Five: Number of Core CPI Categories with Inflation Greater than 2 Percent (Year Over Year)

Sources: U.S. Bureau of Labor Statistics, CAPTRUST Research

Another positive sign is that the magnitude of price increases has subsided. At the peak, prices of essential items such as dairy were up more than 20 percent from the prior year. Today, the rate of change in this category has fallen to just 1 percent.

A Narrow Election

Historically, presidential election years have seen solid investment returns. This is especially true in years when an incumbent is running for reelection, as administrations are motivated to use government tools to maintain economic strength. Over the past 50 years, election years with a running incumbent have seen S&P 500 returns of more than 17 percent on average.

History also tells us that markets can thrive under any division of government. Markets performed well under both of the current presidential candidates’ previous terms.

However, rarely have the policy differences between candidates been so great—from international relations, tariffs, and deglobalization, to tax, energy, and regulatory policy. It was already shaping up to be a close and unpredictable election, even before the attempted assassination of former President Trump on July 13. This horrific event will change the dynamic of the race in unpredictable ways, and there will likely be many more twists and turns between now and November.

Control of Congress is also paramount for either party to fulfill its agenda. This is important given the significant fiscal policy imperatives on the legislative docket in 2025. The debt ceiling extension passed in June of this year is set to expire on January 1, 2025, which will require Congress to return to the negotiation table. More than $4 trillion of tax provisions are also set to expire next year, without an extension.

Regardless of who wins the presidential election, they will inherit a fraught federal budget when they take office. Due to ballooning government debt in the post-pandemic era, plus the high interest rate environment, the interest expense on federal debt has nearly doubled over the past three years.

Interest expense on government debt now exceeds defense spending as a share of the federal budget. This represents a potential risk to investors if neither candidate or party is able to enact fiscal reform. Continued deterioration of the fiscal situation could translate to higher bond market volatility due to changing supply and demand dynamics for Treasury bonds.

So far, markets have remained calm amid the dramatic events of this early election season. Although presidential election years generate abundant headlines, they typically have a more muted effect on markets. Nevertheless, given the substantive differences between the candidates’ policy priorities, it is likely that election uncertainty will eventually make its way into markets. When or if the odds of the election become clearer, industries that are connected to the policy preferences of the candidates and parties are likely to react, particularly around the energy and financial sectors.

Broad Possibilities

At this halfway point of the year, the financial markets have delivered a broad range of results—from exceptional returns for U.S. large-cap and international equities to disappointing outcomes for more interest rate–sensitive categories such as small-cap stocks, bonds, and real estate. Corporate earnings have been robust among the largest companies, but this growth must broaden to return the market to a more balanced position.

Although investing always involves uncertainty, investors prefer unknowns that they can analyze and discount. The remainder of the year will present challenges that are less fundamental in nature, and therefore perhaps more troubling to markets: the outcome of a narrow election season, the actions of Fed policymakers, the unknown impacts of emerging technology, and significant geopolitical risks.

While investors should be alert to these risks and the potential for changing conditions, they should also recognize that change often creates new opportunities.

[1] “Retail Sales Confirm Continued Consumer Spending Pullback,” The Conference Board

[2] New York Fed Consumer Credit Panel/Equifax, Board of Governors of the Federal Reserve System, CAPTRUST Research

[3] Surveys of Consumers, University of Michigan

[4] Bureau of Labor Statistics, CAPTRUST Research