Trivia pro and quizmaster Paul Paquet, author of The Brain Boosting Trivia Book for Adults, is one of those people. 

“I’ve always had an absolute love of learning,” says Paquet, 58, of Ottawa, Ontario. 

Over the past 25 years, Paquet has written more than 135,000 trivia questions across a variety of media: TV shows, books, apps, the board game Trivial Pursuit, and his website, triviahalloffame.com. He also qualified to appear on Jeopardy! 

“I find it interesting to sit down and memorize things like the Chinese dynasties,” says Paquet. “Some people have different memory skills. My brain is wired to memorize facts.” 

He’s quick to add that he’s not good at everything. “I’m terrible at fixing things around the house,” he says. “I often joke that if the apocalypse comes, I know who is going to be needed to rebuild society and who is going to be zombie food. I am going to be zombie food.” 

Still, there are advantages to knowing a lot of trivia. It’s a conversation starter, stimulates your mind, and provides hours of free entertainment at social events, parties, and family gatherings. 

Paquet says his wealth of knowledge comes in handy. Once, when entering the U.S., he told the customs agent he was going to attend a trivia event, and the officer quickly asked, “What are the four state capital cities named after U.S. presidents?” 

At first, Paquet thought the agent doubted the purpose of his trip, so he quickly rattled off: Jackson, Mississippi; Lincoln, Nebraska; Jefferson City, Missouri; Madison, Wisconsin. “I realized after I got the four of them correct that he didn’t care. He was just making conversation.” 

Developing an Enquiring Mind 

Paquet began sharpening his trivia skills at a young age. “I was the weird kid who would read the World Book Encyclopedia,” he says. 

In grade school, he would sometimes hang out with the recess monitors. “I would quiz them on what I had read,” he says. “At first, they thought I was just a curious kid. Then they realized I was quizzing them on the encyclopedia.” 

In 1982, he appeared with his high school team on Reach for the Top, a Canadian quiz program. His team won twice. 

When he was in his 30s, he started taking the qualifying test for Jeopardy! “I did well enough to make the live auditions three or four times, but I wasn’t ever picked,” he says. “My wife, Laura, who also loves trivia, was on the show in 2004.” 

Creating the Best Questions 

Over time, Paquet turned his interest into a career. In 1998, he started the Ottawa Trivia League, running events at local pubs. Bars pay him to write questions and provide hosts for trivia nights around the city. 

One heartwarming outcome of his work: Several couples have met at his trivia events and fallen in love. “It’s a real rush to know there are human beings who wouldn’t be here if their parents hadn’t met answering questions about Taylor Swift.” 

He launched his website in 1998. People can order questions in bulk for apps or pub trivia leagues. The pub nights and website “both took off and grew in their own directions,” he says. “It became a full-time job and still is.” 

Paquet, who writes about 15 questions a day, is always searching for new material. “I wander around Wikipedia and read The Economist a lot,” he says. 

Writing good questions is important to his business. “The content of the question is also the marketing of the business,” he says. “If people show up for trivia night and feel dumb and left out, that’s my failure.” 

“My goal is for the questions to be entertaining,” says Paquet. “I throw clues in so that people can figure out what the answers are.” He wants to bring out the best in his audience so that participants will say to themselves, Oh, I had that board game when I was six, or I loved that song when I was 20. 

Many of the people who attend Paquet’s trivia events are 20 to 30 years younger than he is. “It would be easy for me to ask questions about Talking Heads or All in the Family, but now I get to learn about Doja Cat and all the new video games out there,” he says. “People respond to that well.” 

Players tend to be best at trivia when answering questions about subjects they care about. “Sports trivia people are the very best because they have so much fun with it,” says Paquet. 

He advises trivia players not to take each question so seriously. “When you make a mistake, forget about it and move on,” he says.  

“It doesn’t matter how good you are. There are times when something you know well hides in your brain and will not come out,” Paquet says. “You could stump Ken Jennings [the host of Jeopardy! and the highest-earning American game show contestant ever] if you ask him the right question.” 

Continuing to Learn 

Paquet still works to get better at remembering facts, and he says others can do the same. 

The secret to his success is based on concepts from the Ebbinghaus forgetting curve, named after German psychologist Hermann Ebbinghaus. The curve is a graphic representation of the forgetting process, illustrating how information is lost over time when there is no attempt to retain it. 

“The idea is, the more often you see a fact over time, the longer you’ll remember it,” says Paquet. “If you see a fact once, you may remember it for a short time. If you see it again, you will remember it longer. If you see it again, you will remember it for even longer still.” Some studies suggest a person needs to revisit the same fact at least seven times before it becomes permanent. 

To put this into practice, Paquet uses the Leitner system. That is, he studies facts on flashcards kept in an elongated box, similar to a recipe box. He moves the flashcards to different compartments of the box after he reviews them. 

“I’m writing cards every day,” he says. “It’s the reason I’ve gotten better in the areas where I was weak, like the Bible, classical music, and Broadway musicals. It has made a huge difference.” 

Paquet also tried the AnkiApp, a cross-platform mobile and desktop flashcard app designed to help with learning. He says the app works well for lots of people, but he prefers the Leitner box. “I’ve been able to absorb much more than I would otherwise,” he says. “I train, in a sense, and I have fun doing it.” 

When he’s training, Paquet says, “I can practically feel the synapses in my brain lighting up and making connections. I can’t say if I’m staving off dementia, but I do feel sharper now than I did 25 years ago.” 

Research from the National Institute on Aging says Paquet could be onto something. There is evidence suggesting cognitive training might help delay or slow age-related cognitive decline. Cognitive training involves structured activities designed to enhance memory, reasoning, and speed of processing. 

“If the 58-year-old me and 26-year-old me were doing a head-to-head contest, I’m pretty sure the 58-year-old would win,” he says. “I might not be as fast at remembering facts, but I do feel like I know more than I did.” 

Written By Nanci Hellmich

But, Maier says, one of the best things about dance is the way it challenges her brain. “There’s always more to learn,” she says. “There’s always room to grow.”  

Maier’s experience aligns with what researchers have learned about dance over the past few decades. It’s more than just a pastime or another form of exercise. From waltzes and tangos to hip-hop and country line dancing, dance has superpowers. In short, the Bee Gees were probably right: “You should be dancing.” 

Why Dance?  

“The secret sauce about dance is that it’s a complex activity,” says Joseph Verghese, a professor of neurology and medicine at the Albert Einstein College of Medicine in New York.  

“The three main ingredients are that it has a mental component, it has a physical component, and it has a social component,” he says. Each of these, individually, has been shown to have profound effects on cognition.” Additionally, research suggests the combination of these ingredients may be greater than the sum of its parts. 

Body Benefits 

Like other forms of physical activity, dance builds muscle and bone, slows aging, enhances heart health, lowers blood pressure, and nudges cholesterol numbers in the right direction, according to the Harvard School of Public Health.  

It also provides additional physical benefits that other forms of exercise can’t. For example, Verghese’s research shows that dance has a positive impact on stability in older adults. Other researchers have found that tango lessons specifically improve gait and balance in people with Parkinson’s disease—so much so that many people with the condition now make it a core part of their therapy.  

By improving gait, stability, and balance, dance may also reduce the risk of falling. Falls are the number one cause of injury for adults 65 and older, and statistics from the Centers for Disease Control and Prevention (CDC) say that falling accounts for roughly half of all accidental deaths in this age group. 

Social Connections  

Dance can strengthen a person’s sense of social connection, which can lower the risk of heart disease, stroke, dementia, and depression, according to the CDC.  

“You generally don’t dance alone,” says Verghese. And dancing with other people adds something special. When you move in rhythm with others, you form an “active and dynamic bond,” he says.  

Having the chance to connect with others is one of the reasons why dance is so fun. It also provides accountability—making dance easier than other exercise methods to consistently show up for. “Finding something enjoyable is key,” says David Marquez, a professor of kinesiology at the University of Illinois at Chicago. And the best exercise is one you will keep doing.  

Emotional Rewards  

Need a mood booster? Start dancing. In some studies, dance has generated good feelings more effectively and consistently than either yoga or team sports. It has also been shown to boost energy and confidence. When we dance, our brains get dosed with endorphins—the so-called happy chemicals that reduce anxiety, depression, and pain.  

Science also confirms something Maier has observed. When she’s dancing, other cares slip away. “I don’t have time to think about problems at work or anything at all,” says Maier, who runs a fireplace business with her husband. “It takes all my mental and physical attention.” When she’s dancing, Maier can be present in the moment.  

An Anti-Aging Superpower  

If dancing was only good for your heart, muscles, mood, and social life, it would still be a very healthy activity. But dance may also offer something more: a way to fight age-related cognitive decline. 

One of the first studies to prove this connection came from Verghese and his colleagues in the 1990s. It showed that people over age 75 who engaged in certain leisure activities were less likely than their peers to develop dementia. On the list were reading, playing board games, playing musical instruments—and dancing. In fact, dancing was the only physical activity associated with a lower overall risk of dementia. (It should be noted that some other studies show brain benefits from all forms of exercise, but findings remain mixed.)  

In the two decades since this study, researchers have worked to confirm the special power of dance and have found promising results. For example, Marquez investigated brain health in middle-aged and older Latinos who take Latin dance classes, learning salsa, merengue, and other steps. “The most frequent benefits we see are for memory,” he says. 

Marquez and Verghese also found that dancing seems to improve executive functioning, or the skills people need to plan and meet goals. In addition, in one recent pilot study of 16 people with early signs of memory loss, Verghese found less shrinkage in one key memory-related brain area in those who had been dancing for six months compared with those assigned to treadmill walking. 

What these studies don’t show is why dancing has these possible brain effects. That the movement also involved music may be a contributing factor, but Verghese points out that his treadmill walkers listened to music too. 

It does seem that “dancing requires more cognitive work” than other physical activities, Marquez says. “You have to move your body to the music and remember which steps come next. And when you’re dancing with a partner, you have to be aware and reacting and keep moving with your partner.”  

People who take formal dance classes also keep learning new and more difficult steps and routines. “The brain is constantly challenged by change,” Verghese says. Maier agrees. She’s advanced through several levels of competitive dancing and intends to keep aiming higher. She’s inspired, she says, by fellow dancers in their 70s, 80s, and 90s. For her, she says, dancing “is a journey that is going to last forever because you can just keep learning.”

Written By Kim Painter

Guaranteed Investment Contract Investors Sue for Losses

Former employees of Bed Bath & Beyond (BB&B) lost approximately 10 percent of their guaranteed investment contract (GIC) investments when their 401(k) plan liquidated after the company’s bankruptcy. 401(k) plans typically offer at least one capital preservation option in their investment lineups—a GIC, a stable value fund, or a money market option.

BB&B’s plan offered participants a GIC that invested in intermediate- to long-term bonds. As interest rates rose in 2022 and 2023, the market value of the underlying bonds in the BB&B GIC fell below the book value. Usually, participants’ GIC accounts do not reflect market losses or gains and participants transact at book value (principal plus accrued interest). When there are market losses, the GIC’s guaranteed rate of return is adjusted downward over time to make up for the losses.

However, when BB&B declared bankruptcy, the GIC contract automatically terminated, so the investment was liquidated and paid to plan participants at the current market value. Because of the market decline, GIC investors were paid only about 90 percent of their accounts’ book value as reported before the plan termination.

Disappointed plan participants sued the plan’s fiduciaries and BB&B’s Chief Financial Officer. The GIC contract terms around plan termination are common and are not challenged in the lawsuit. What is challenged is the plan fiduciaries’ failure to take reasonable steps to mitigate potential GIC losses as BB&B’s fortunes dimmed.

According to the complaint, although the bankruptcy filing was made in April 2023, the company’s business struggles were publicly apparent as early as 2018 and 2019 when BB&B attempted a turnaround from declining performance. Had the plan fiduciaries been monitoring the potential investment impacts of a bankruptcy, they could have moved out of the GIC and into an investment that would not have been subject to such losses. It is not clear whether the plan fiduciaries would have made such a change. Until 2022, interest rates had been at historic lows for an extended period. If BB&B’s bankruptcy had not coincided with a rapid rise in interest rates, this would not have been such an issue.

This case is a good reminder that the guarantee in GICs, which are also sometimes referred to as guaranteed interest agreements or just guaranteed funds, applies only to the interest rate to be credited, not to the principal. It is also a reminder for plan fiduciaries to be aware of the potential consequences of broader corporate events on retirement plan investments. Harvey v. Bed Bath & Beyond 401(k) Savings Plan Committee (D. N.J. filed 9-14-23).

Fiduciary Potpourri

The following are real-life illustrations of ERISA’s fiduciary rules.

Not Following a Fiduciary’s Directions Is an Exercise of Discretion, Making the Directed Person a Fiduciary: A plan recordkeeper failed to follow directions in a timely manner to move investments in a 401(k) plan. The plan fiduciaries sued, alleging that the recordkeeper had breached its fiduciary duty to the plan. The recordkeeper denied liability, claiming that it exercised no discretion over plan assets and had no fiduciary liability. The recordkeeper asked for the case to be dismissed, but the judge refused. The judge observed that failing to follow directions of the plan fiduciaries was itself an exercise of discretion over plan assets, which resulted in the recordkeeper being a fiduciary to the plan. The case will move forward. Martone Construction Management, Inc. v. Thomas A. Barrett, Inc. (D. Md. 2023).

Retirement Plan’s Terms Cannot Circumvent ERISA’s Fiduciary Requirements: Janus Henderson, the investment firm, sponsors a 401(k) plan for its employees. The plan documents include a requirement that all proprietary Janus Henderson funds be offered for participants to invest their plan accounts. Non-Janus-Henderson funds could also be offered. The plan documents also provide that the plan fiduciary committee has no discretionary authority over the Janus Henderson funds. Rather, they could be removed only through a plan amendment by the plan sponsor.

Fiduciaries of the plan were sued for breaching their duties under ERISA by offering and not monitoring the Janus Henderson funds. Janus Henderson sought to have the case dismissed because they had followed the plan document in offering and not monitoring the Janus Henderson funds. The court refused to dismiss the case, noting that ERISA’s statutory duties to monitor plan investments override the plan document’s mandate to offer—and continue offering—all Janus Henderson funds. Schissler v. Janus Henderson U.S. (Holdings) Inc. (D. Co. 2024).

Duty to Monitor Investments in Limited Window of 300+ Funds: Until 2020, the Shell Oil Company 401(k) plan, with more than $10 billion in assets, offered a fund window with more than 300 actively managed mutual funds, in addition to target-date funds, indexed funds, and a separate self-directed brokerage account option. According to the complaint, the fund window included all actively managed funds offered by Fidelity, plus some other individually selected funds. Fidelity was permitted to add any new funds it released without any screening by the plan fiduciaries. The plan fiduciaries kept the investments in the fund window in place without any ongoing monitoring.

The plan’s fiduciaries were sued for failing to monitor the more than 300 actively managed funds in the fund window and failing to eliminate any that were not prudent. Seeking an early judgment, the plan fiduciaries argued that they met ERISA’s prudence requirements by coming to a reasoned decision that they were not required to monitor each of the funds. This decision was supported by advice from both internal and external counsel. The magistrate judge was unpersuaded, and the case will likely proceed. Harmon v. Shell Oil Company (S.D. Tx. 2023).

It is generally agreed that fiduciaries are not obligated to review the investments in a self-directed brokerage account option, or similar plan arrangement like a fund window, but only if the available investments are not too limited. For instance, is it not uncommon for a self-directed brokerage window to permit investment in all mutual funds, all mutual funds and exchange-traded funds, or all investments available through the self-directed brokerage provider.

In 2022, there were approximately 6,650 actively managed mutual funds in the U.S. Fiduciaries are not required to monitor more than 6,000 mutual funds if their self-directed brokerage account option includes all mutual funds. However, an issue arises when the available investments in the window are significantly limited. In that situation, plan fiduciaries may be responsible for ongoing monitoring of the investments—the core issue of this case involving 300+ investments.

Long-Term Incentive Plan Not Covered by ERISA—Usually: An employee was fired before she could accrue enough service to receive the maximum benefit under her employer’s long-term incentive program (LTIP). She sued, alleging a violation of the ERISA prohibition of plan sponsors from taking action to prevent plan participants from receiving benefits. The judge concluded that the LTIP was not covered by ERISA, so the case was dismissed. However, he observed that a bonus-type program, like the LTIP, would be covered by ERISA if payments under the program are systematically delayed to the termination of covered employment or beyond, or if payments are designed to provide retirement income. Faris v. Southern Ute Indian Tribe (D. Co. 2023).

Fiduciary Duty to Pay Only Reasonable Fees Includes Recordkeeper’s Indirect Fees from Managed Account Providers: In a groundbreaking decision, a Federal Court of Appeals has held that plan fiduciaries must evaluate the reasonableness of all fees received by their plan recordkeepers in connection with services to a plan, not just the fees paid directly to the recordkeeper. AT&T amended its 401(k) plan service agreement with Fidelity to add managed account services, which resulted in Fidelity receiving indirect compensation from the managed account provider, Financial Engines.

Under ERISA, it is a prohibited transaction to use plan assets to pay more than reasonable fees for services. Plan participants sued AT&T, alleging that the plan’s fiduciaries did not evaluate the reasonableness of the fees received by Fidelity after adding the managed account service. The district court sided with the plan fiduciaries.

However, the 9th Circuit Court of Appeals reversed this decision, holding that all compensation received by the plan recordkeeper must be evaluated by plan fiduciaries. Bugielski v. AT&T Services, Inc. (9th Cir. 2023). This decision is at odds with decisions from the 3rd and 7th Circuit Courts of Appeals, setting up a likely appearance of the issue before the U.S. Supreme Court.

Flow of 401(k) and 403(b) Fee Cases Continues

The flow of cases alleging fiduciary breaches through the overpayment of fees and the retention of underperforming investments in 401(k) and 403(b) plans continues. Here are a few updates from the last quarter:

• Several cases were dismissed because they did not include sufficient allegations of fiduciary breaches. Others survived motions to dismiss and will proceed.
• One case involving a $1 billion plan was settled for $1.45 million. After attorney’s fees, the average participant will receive approximately $100.
• Another case involving a plan with approximately $1.3 billion in assets was settled for $6.75 million. After attorney’s fees, the average participant will receive approximately $265.

The low amounts awarded to plan participants in these settlements are the norm for litigation of this type. In contrast, the plaintiffs’ lawyers usually receive roughly one-third of the settlement amount.

DOL Focusing on Cybersecurity in Plan Audits

Recent plan audits by the U.S. Department of Labor (DOL) include several information requests focused on cybersecurity. One recent request includes the following among a long list of additional items:

• Third-party audits of information technology systems, such as SOC 1 or SOC 2 reports
• The plan’s cybersecurity program, policy statements, and procedures
• Efforts to consider, address, develop, implement, or negotiate cybersecurity problems, procedures, or protections
• The plan’s cybersecurity breach response plan
• Cybersecurity awareness training
• Cybersecurity events, cybersecurity breaches, unauthorized access, or suspicious activity, and potential losses of plan assets because of these cybersecurity events

The above request may be part of an audit project to assess the current state of affairs in this area among plan sponsors. Regardless, plan fiduciaries should take reasonable steps to assess their vendors’ cybersecurity programs and document their assessments. The DOL’s “Cybersecurity Program Best Practices” document is a good starting point.

NOTE: Information on this page has been updated as of August 2024.

When it comes to fee benchmarking, most advisors and plan sponsors tend to think first about recordkeeping and other vendor costs. But investment fees are another important component of retirement plan fees. Retirement plan sponsors need to benchmark their plans’ investment fees to meet their fiduciary obligations. However, evaluating investment costs is complicated, and sponsors may encounter a series of common pitfalls. Here are a few to be aware of.

Benchmarking only the total expense ratio of the fund: A fund’s total expense ratio may not take into consideration all the components that comprise that fund’s true cost. This is particularly true for funds with revenue sharing.

Revenue sharing consists of fees built into the expense ratios of the plan investments. These fees are often used to offset plan expenses, like recordkeeping and administration. The amount of revenue sharing present within a fund’s expense ratio is a function of how the plan sponsor opts to pay for plan expenses. It is not directly tied to how much an asset manager charges to manage the fund. Recordkeeping and administrative fees are typically benchmarked separately by the plan sponsor.

Comparing the overall fund expense ratio without isolating the net investment fee component can result in a misinterpretation of benchmark results. Figure One demonstrates this concept.

Figure One: Understanding Total and Net Investment Costs

Source: CAPTRUST Research

IIn this example, the ABC Small-Cap Growth Fund has a higher total expense ratio than the category average and the XYZ Small-Cap Growth Fund. One could, therefore, erroneously conclude that its investment fees are high when compared to both. However, incorporating revenue sharing into the equation results in a net investment cost lower than both the category average and the XYZ Small-Cap Growth Fund.

Not considering investment fees in conjunction with overall investment performance of the fund: It’s important to evaluate investment costs in conjunction with fund performance. The Employee Retirement Income Security Act (ERISA) requirement for plan sponsors to determine that plan fees are reasonable is in consideration of the services received. In the case of a fund, the service received can be considered the fund’s performance relative to standards set by the plan sponsor. That’s why actively managed funds typically charge more than passively managed investments.

When funds are benchmarked, sponsors usually evaluate costs before performance standards.

It is important to remember that the lowest fee is not always the best value. The fund’s investment fees may be reasonable if, net of all fees, the fund is meeting performance standards set by the plan. This is true even if its net investment fee is higher than the appropriate category average. The determination should be made by the plan sponsor.

The takeaway: Benchmarking investment fees can be complicated, and it’s not always clear whether a fee is reasonable. Making an accurate comparison is sometimes harder than it sounds.

Like other plan fees, investment fees should be reviewed on a periodic basis. Plan sponsors should understand how the investment fees for their plan compare to alternatives in the market and in consideration of the services received.

In part three of this series, we dive into the revenue-sharing portion of a fund’s expense ratio and how share class selection can impact the method by which plan sponsors pay for plan expenses.

Legal Notice

This material is intended to be informational only and does not constitute legal, accounting, or tax advice. Please consult the appropriate legal, accounting, or tax advisor if you require such advice. The opinions expressed in this report are subject to change without notice. This material has been prepared or is distributed solely for informational purposes. It may not apply to all investors or all situations and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. The information and statistics in this report are from sources believed to be reliable but are not guaranteed by CAPTRUST Financial Advisors to be accurate or complete. All publication rights reserved. None of the material in this publication may be reproduced in any form without the express written permission of CAPTRUST: 919.870.6822.

As of January 1, 2024, retirement plan sponsors can include such emergency savings accounts inside of their retirement plans. 

The guidance provides important clarification on the administration of these emergency savings accounts, including the following:

1. Employees must be eligible to participate in a plan’s PLESA if they meet any other eligibility requirements of the plan, such as age or service, and if they are not a highly compensated employee. For example, if a plan excludes collectively bargained employees, those employees can be excluded from participating in the PLESA as well. 
2. Automatic enrollment can be used for a PLESA. Also, if there is an auto-enrollment percentage of pay, it must be 3 percent or less.
3. There can be no minimum contribution or balance requirement to open a PLESA. However, a requirement for whole-dollar contributions can be implemented.
4. If the plan requires whole percentages of pay when making other types of plan contributions, that requirement can be applied to PLESAs as well.
5. Contributions cannot be pre-tax. They must be Roth. 
6. Earnings do not need to be included in the $2,500 PLESA account balance limit. However, plan sponsors can opt out of a lower account balance limit or can impose a $2,500 limit that is inclusive of earnings. There is no separate annual contribution limit. 
7. Funds can be replenished up to the $2,500 limit (or a lower limit imposed by the plan) after a withdrawal. 
8. The same remittance timing rules that apply to elective deferrals apply to PLESA contributions. 
9. PLESA participants can withdraw funds for any reason. They do not need to prove an emergency to do so. 
10. Distributions must be permitted once each calendar month.
11. The first four distributions per plan year are fee-free. Plan sponsors are not permitted to charge fees for subsequent withdrawals that would have the effect of making up for missed fees collected on the first four withdrawals. 
12. PLESA investments are limited to cash or cash-like accounts that do not have any liquidity constraints, including surrender charges. 
13. Sponsors must issue disclosures to all participants of a plan that offers a PLESA, including participants who elect not to participate. This disclosure can be combined with other required disclosures in the form of a consolidated notice. There is no model language yet, but the DOL may provide language in the future.
14. Account statements are not required to include PLESA account balances, nor are 404(a)(5) investment disclosures required to reflect PLESAs. However, we expect many recordkeepers will voluntarily provide such information.

This guidance may be helpful to plan sponsors who are deciding whether to offer a PLESA, a standalone emergency savings account outside of the retirement plan, or both.

Still, some significant questions remain unanswered, including whether emergency savings account contributions are subject to annual deferral percentage (ADP) testing and whether non-ERISA plans can maintain PLESAs.

Plan sponsors who have questions about this or other SECURE 2.0 provisions should reach out to their financial advisor or visit CAPTRUST’s dedicated SECURE 2.0 Act web page.

A year ago, a global recession seemed likely for three primary reasons. Spiking energy and food prices dragged on already strained consumers. Central banks were engaged in dramatic monetary policy tightening to combat inflation. And the world witnessed multiple, significant geopolitical flare-ups.

Yet instead of a slowdown or recession, 2023 was better than expected for both the economy and the financial markets. Inflation pressures abated while consumer spending, the labor market, and economic growth conditions remained surprisingly resilient.

Today, the Goldilocks outcome of an economic soft landing has become the consensus prediction for 2024. Investor expectations, as measured by stock and bond prices, clearly reflect this scenario. Equity markets seem to be moving steadily toward record highs, and bond yields have retreated.

But a rosy outcome is far from inevitable. Although the Federal Reserve and other global central banks have so far been effective at bringing down inflation, as any pilot will tell you, landing is dangerous and requires careful orchestration. In 2024, bumps are likely as real-world conditions rarely unfold exactly as expected.

Fourth-Quarter Recap: End-of-Year Rally

The Fed held interest rates steady at its December 13 meeting and gave the clearest signal yet that its rate-hiking cycle has likely concluded, with no additional rate increases forecasted for 2024. Although Fed Chair Jerome Powell made it clear that the central bank was prepared to increase interest rates again if inflation pressures return, he also signaled that the Fed’s focus is shifting to how and when it might cut rates as inflation moves toward its 2 percent target.

Following a mid-year correction and 10 percent decline, the S&P 500 Index closed the year with its longest weekly winning streak since 2004. This included nine consecutive weeks of gains for a total return of almost 12 percent in the fourth quarter and 26 percent for the year—numbers that placed the index just a hair below its all-time high reached in January 2022.

These strong returns occurred despite only modest growth in corporate profits. Instead, higher valuations drove nearly all of 2023’s gains as the S&P 500 price-to-earnings (P/E) ratio climbed from 17.4 to 21.6 times earnings by year-end.

For most of the year, the top seven stocks in the index—a group of mega-cap technology stocks sometimes called the magnificent seven—demonstrated significant outperformance relative to the rest of the index, delivering the lion’s share of returns. However, the rally extended to multiple sectors toward the end of the year, with the average stock outperforming the magnificent seven by a comfortable margin in December.

Similarly, small-cap stocks trailed larger companies by double digits for the first three quarters of the year but finished strong in the final quarter, delivering nearly 17 percent growth for the year.

Figure One: Fourth Quarter and Year-to-Date Returns

Source: CAPTRUST Research

International stocks also participated in this year-end rally, with developed market stocks advancing by nearly 19 percent for the year and emerging market stocks by 10 percent. Emerging market returns continue to be weighed down by a sagging Chinese economy. If Chinese stocks were excluded from the results, emerging market stocks would have outperformed developed market stocks for the quarter.

Within fixed income, bond yields fell dramatically in the fourth quarter on the expectation of 2024 rate cuts, causing bond prices to rise. As the 10-year Treasury yield declined from 4.7 percent to 3.9 percent, core U.S. bonds reversed losses from the first three quarters to deliver returns of nearly 5.5 percent for the year. The Bloomberg U.S. Aggregate Bond Index advanced 4.3 percent in November alone, its best monthly percentage gain since 1985. Finally, after treading water for the first three quarters of the year, beleaguered by macroeconomic uncertainty and high interest rates, real estate delivered strong returns for the fourth quarter. The Dow Jones U.S. Real Estate Index finished the quarter up 18 percent, as interest rate-sensitive sectors drew support from declining bond yields and hopes for a continued rebound in economic activity.

Expectation Course Correction

Given the gloomy predictions that kicked off 2023, investors have much to celebrate from the returns delivered last year. The global economy has seen strong disinflation, even as the labor market and growth conditions remain resilient.

However, it is still unclear what will happen next. Despite expectations, economic narratives seldom unfold as expected, and it is highly unlikely that all economic factors will move in favor of markets. Given the strength of the fourth quarter rally, there is little room for error. Any signs that the economy is diverging from its soft-landing flight path could be a recipe for market turbulence.

Such a high degree of consensus is surprising given the significant uncertainties that remain. This includes the potential for lagged effects of monetary policy tightening, the uncertain path of Fed policy and rate cuts, the unpredictable impact of fiscal policy in an election year, and the volatile nature of geopolitics.

Here, we explore a few of the major economic factors that could impact how the year unfolds.

Disinflation Continuation

What Could Go Right: As shown in Figure Two, the latest reading of the Consumer Price Index (CPI) is now at its lowest average level since April 2021. CPI is a measure of the average change in prices paid by consumers for goods and services over a certain period. In November, CPI was just 3.1 percent, which means inflation has moderated to just half a percent above its 20-year average. If this trend continues, inflation could reach near-normal levels in 2024 without broad economic damage, creating an environment for stable prices, continued consumer spending, corporate earnings growth, and lower interest rates.

Figure Two: Consumer Price Index Changes, 2003–2023

Sources: U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average, Federal Reserve Bank of St. Louis, CAPTRUST

What Could Go Wrong: One of the biggest risks facing the U.S. economy is if inflation resurges. This could happen as a result of continued economic strengthening, OPEC oil production cuts, or unexpected geopolitical shocks. Inflation may remain stubbornly high or even reaccelerate. This scenario could force central banks to maintain high interest rates longer than expected, thereby risking a downturn in economic activity, higher unemployment, increased borrowing costs, and a potential recession.

Mortgage Rate Relief

What Could Go Right: In October, the 30-year average fixed mortgage rate approached 8 percent, the highest level in more than two decades, as the benchmark 10-year Treasury yield touched 5 percent for the first time since 2007. But as the inflation picture stabilized and the economic outlook improved, yields fell sharply to close the year, and the average mortgage rate followed suit, falling to 6.6 percent.

Continued declines in mortgage rates would help to thaw a largely frozen housing market. Lower rates would make home purchases more affordable. This could draw new buyers into the market and boost the real estate sector and related industries such as construction, home improvement, and furnishings.

Businesses of all types would benefit from a lower rate environment by improving profitability and financial flexibility and reducing the cost and risk of investing in new projects and technologies. The federal government would also see huge benefits in the form of lower debt servicing costs. Government debt increased dramatically in response to the COVID-19 pandemic, causing the U.S. debt-to-GDP ratio to skyrocket, as shown in Figure Three.

Figure Three: Total Public Debt as a Percent of Gross Domestic Product (GDP)

Sources: U.S. Office of Management and Budget, Federal Reserve Bank of St. Louis

What Could Go Wrong: The greatest risk to the soft-landing consensus is that the economy doesn’t cool as much or as quickly as the Fed would like. If so, it would be unable to follow through with the interest rate cuts the market is expecting.

Recently released minutes from the Fed’s mid-December meeting acknowledge “clear progress” on inflation but also reaffirm that “it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably.” If Fed actions fail to align with market expectations, both borrowers and market sentiment will face challenges. The Fed does not have a good playbook for rate cuts in the absence of recession. But regardless of the future path, there is also the potential for delayed damage from the rate increases enacted so far. Spiking interest rates significantly strained the economy last year.

Consumer Dynamics

What Could Go Right: As we enter 2024, consumer strength will remain a pivotal factor shaping the economic landscape. Consumer spending, historically a driver of economic growth, is influenced by employment rates, wage growth, inflation, and credit availability.

In December, falling energy prices, strong market performance, and declining price pressures combined to lift consumer sentiment, according to the University of Michigan Consumer Sentiment Index, as shown in Figure Four. When consumers are optimistic about the economy’s direction, they are more likely to spend on discretionary items.

Figure Four: Consumer Sentiment Changes, January 2022–December 2023

Sources: University of Michigan Consumer Sentiment Survey, Federal Reserve Bank of St. Louis

What Could Go Wrong: Despite rising sentiment, one major risk in 2024 is the potential for a slowdown in consumer spending. Credit card debt has surpassed $1 trillion for the first time, even as credit card interest rates soar and delinquency rates rise. If the job market softens, or consumers pull back on spending, there could be major economic repercussions.

Early data on the 2023 end-of-year shopping season shows mixed results. However, one report, from Mastercard, shows that retail spending grew by less than half as much in 2023 than in 2022, as more deliberate shoppers sought value and discounts.

The Goldilocks Labor Market

What Could Go Right: The job market plays a key role in maintaining consumer confidence and spending. However, as the U.S. has witnessed since the pandemic, a too-tight job market strains businesses and risks exacerbating inflation pressures. Now, it seems the labor market could be returning to more normal conditions. Hiring activity has eased, and job openings have declined modestly. The quit rate, an important measure of workers’ confidence in finding another job, also fell.

Fed Chair Powell was optimistic throughout 2023 that the Fed could achieve balance within the labor market. “There are no promises in this,” he said at a press conference in May. “But it just seems that to me that it’s possible that we can continue to have a cooling in the labor market without having the big increases in unemployment that have gone with many prior episodes.”

Adding to optimism today is the promise of a new era of productivity, driven by artificial intelligence (AI). Companies of all types are investing in technology to make their workers more productive, but AI could also help address labor shortages and make supply chains more secure.

What Could Go Wrong: A job market that moderates, without declining too much, is an ideal scenario. But if economic growth slows more than expected or the economy slips into recession, businesses may reduce hiring or lay off workers to maintain profit margins.

Election Year Unknowns

What Could Go Right: Historically, presidential election years have been good for market returns. Since 1928, the S&P 500 Index has delivered positive returns in all but four presidential election years. Incumbent administrations have a strong interest in maintaining economic health in the leadup to elections, with market-friendly policies such as tax reform and infrastructure investments, along with supportive actions by the Treasury department.

Following the election, a clear and stable policy environment with less uncertainty can bolster business and consumer confidence, leading to increased spending and investment.

What Could Go Wrong: Heightened political uncertainty, polarization, and contentious policy debates could lead to market volatility and uncertainty among investors and consumers. Potential gridlock or unfavorable policy outcomes might dampen economic growth, complicate fiscal management, and create an uncertain business environment. The Fed could also come under political pressure, threatening its independence.

Making Sense of Sentiment

After several years of heightened uncertainty and market volatility, markets are now priced with significantly lower embedded risk. However, the same optimism buoying the market today might become its Achilles’ heel. History suggests that when investor sentiment soars, investment returns often falter. It’s impossible to know how much good news is already priced into market prices today, but probably, it’s a lot. However, that doesn’t mean stocks can’t go higher. It simply means that future gains must be backed by good fundamentals.

Whatever 2024 has in store, as always, it is wise to maintain a balanced mindset and be aware of the risks of consensus thinking. As Albert Einstein famously cautioned, “Genius abhors consensus because when consensus is reached, thinking stops.”

NOTE: Information on this page has been updated as of August 2024.

According to the Department of Labor (DOL), understanding and evaluating plan fees and the expenses associated with plan investments, investment options, and services are important parts of each plan sponsor’s fiduciary responsibility. Among other duties, fiduciaries have a responsibility to ensure that the costs paid by the plan are reasonable for the services received.

Looking at fees holistically can help retirement plan fiduciaries fulfill their duties. The three types of fees that retirement plan fiduciaries need to understand and evaluate are:

• Investment fees
• Recordkeeping and administrative fees
• Other service provider fees

For plan fiduciaries, it is prudent to document the process for reviewing and managing fees and address items such as:

• Benchmarks used when evaluating fees
• Frequency with which fees will be reviewed
• Method for allocating various fees—For example, will the fees be borne by the employer, the plan, or its participants? How will the costs be distributed?

Investment Fees

It’s a good idea to review investment fees and performance on a regular basis. As part of this review, it is important that investment fees not be evaluated in isolation but in conjunction with performance.

Investment fees can be compared to peers in the same investment category (e.g., large-cap blend) and in conjunction with investment performance compared to category peers and the index (e.g., the S&P 500 Index for a large-cap blend fund). In some instances, the fund may have a custom benchmark defined by the investment manager, which could also be used for comparison purposes. In some cases, a comparable peer group may be hard to identify based on the uniqueness of the investment strategy, but best efforts should be made.

As part of the fiduciary’s responsibility to review investment fees, it is important to evaluate the investment option’s share classes in an effort to understand the net investment fee of each fund (i.e., total fund expenses minus any revenue sharing), which may be different from the stated expense ratio.

There is an alphabet soup of share classes for mutual funds—plus collective investment trusts (CITs), in some cases—available to retirement plan sponsors. This plethora of share classes was developed to provide various pricing mechanisms and expense ratios and allow plan sponsors to use a portion of investment expenses to pay for recordkeeping and administration services.

Recordkeeping and Administrative Fees

Recordkeeping and administrative fees should be reviewed periodically to assess whether fees are reasonable for the quantity and quality of services provided. Typically, best practice is to benchmark these fees and services every one to three years, with a more formal recordkeeper search-and-selection process conducted approximately every five to seven years. However, client-specific circumstances may warrant a shorter or longer period between evaluations.

Recordkeeping and administrative fees should be evaluated and compared to plans of similar size and type that are receiving analogous services. While each plan is unique—making an apples-to-apples comparison imperfect—evaluating fees against similarly situated and similarly sized plans provides a good reference point in helping to determine if plan fees are reasonable.

Other Service Provider Fees

Other service provider fees should also be evaluated on a periodic basis, including audit fees, legal fees, and investment advisory and consulting fees. Similar to recordkeeping and administrative fees, if concerns exist regarding the quality of service being provided or the level of fees being paid, a request for information (RFI) or request for proposal (RFP) should be conducted.

Ultimately, having a sound fiduciary process in place is key. Performing regular reviews, documenting the process and details that lead to decisions, and providing a forum to discuss plan issues and consider alternatives can protect fiduciaries and benefit plan participants.

In part two of our series on retirement plan fees, we take a deeper dive into investment costs to explore what comprises a fund’s expense ratio, how to benchmark different asset classes, and why share class selection is important to a plan sponsor’s overall fee methodology.

Legal Notice

This material is intended to be informational only and does not constitute legal, accounting, or tax advice. Please consult the appropriate legal, accounting, or tax advisor if you require such advice. The opinions expressed in this report are subject to change without notice. This material has been prepared or is distributed solely for informational purposes. It may not apply to all investors or all situations and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. The information and statistics in this report are from sources believed to be reliable but are not guaranteed by CAPTRUST Financial Advisors to be accurate or complete. All publication rights reserved. None of the material in this publication may be reproduced in any form without the express written permission of CAPTRUST: 919.870.6822.

What is even better? She is not alone. Gone are the days of seniors relegated to sitting on porches, swinging life away. There is a major demographic transformation underway, and it is a phenomenon acknowledged by more than just the medical community. 

Unlike several decades ago, seniors living into their 80s has become commonplace. The Internet is replete with lists of influential over-80s who are still going strong: activist Jane Fonda (84), director Clint Eastwood (91), singer Joan Baez (81), and actress Rita Moreno (90). 

In fact, in the past few years, two octogenarians helped lead the country amid the COVID-19 pandemic and the political crisis surrounding the January 6 insurrection: Anthony Fauci, immunologist and director of the National Institute of Allergy and Infectious Diseases, and Nancy Pelosi, speaker of the House of Representatives.

So what is the secret sauce to operating like a 60-year-old when you’re 20 years older? A great deal of it has to do with choice. 

Make Good Choices 

Experts in longevity attest to the fact that staying healthy into one’s 80s depends on making the right dietary choices, exercising, avoiding undue risks, and, of course, having a good genetic base. 

But becoming a fit octogenarian starts way back in a person’s life, says S. Jay Olshansky, a professor at the School of Public Health at the University of Illinois at Chicago who specializes in aging. High school students, for example, acquire bad habits that shorten their lives, such as smoking, excessive drinking, steady drug use, or eating too much and becoming obese. 

Andrew Steele, a physicist and author of Ageless: The New Science of Getting Older Without Getting Old, agrees. “Not smoking is the single most important thing you can do. Smoking can knock off 10 years of your expectancy,” he says. And then, of course, not eating too much, avoiding obesity, and getting regular exercise all heighten the chances of living longer. 

Keep It Moving 

Olshansky says it is critical to keep the blood flow moving. “Our body is [made up] of components that deteriorate when they’re not being used,” he says. 

If you stop using your muscles, your body won’t waste the energy it needs to take care of them. Instead, your body will start to break your muscles down, which causes them to decrease in size and strength. The amount of time it takes for your muscles to atrophy depends on your age, fitness level, and cause of atrophy. If your muscle atrophy is due to disuse, the process can start within two to three weeks of when you stop using your muscles. 

The good news is that disuse atrophy can be treated with regular exercise and better nutrition. Your healthcare provider may recommend physical therapy or an exercise plan. Even if you can’t actively move certain joints in your body, you can do still exercises wearing a splint or brace. 

The mind also operates more efficiently when it has sufficient blood flow, Olshansky says. “The seniors who forget things are having a difficult time with the blood flow in their brain and making synaptic connections.” 

Steele says more exercise also helps to sustain an active mind. “When you’re running, and your heart is beating in your chest, and you’re improving your cardiovascular muscles, you’re improving your mental health,” says Steele. 

Avoid Isolation 

People in their 80s who are thriving have several things in common, including a lifetime of healthful and nurturing environments, access to medical care, education, meaningful relationships, physical activity, nutrition, and engagement with people, says Linda Fried, dean of the Mailman School of Public Health at the Columbia University Medical Center in New York City. Avoiding isolation is a key ingredient, she says. 

Fried’s research shows that older adults are prone to three specific kinds of loneliness. The first is brought on by a lack of intergenerational contact. “We need all age groups to interact to create meaningful lives,” Fried says. 

Second, aging adults tend to feel lonely when they aren’t able to contribute to society. While others might bond with colleagues or schoolmates, the elderly are not likely to have such outlets. And finally, aging adults are prone to what Fried calls an existential loneliness, or the sense that life lacks meaning or purpose. 

Older adults can take mental stock of the extent to which they feel lonely or socially isolated. Am I feeling left out? To what extent are my relationships supportive? Then, they should consider what underlies any problems. Why don’t I get together with friends? Why have I lost touch with people I once spoke with? 

Find a Passion 

Operating like a person 20 years younger requires finding your passion. People in their 70s are faced with a choice, says Michael Brickey, a psychologist based in Columbus, Ohio, who wrote The 52 Baby Steps to Grow Young. They can sit in front of the TV and stagnate or learn how to play bridge, swim, or line dance or can join Toastmasters and learn to give speeches, he says. 

At age 76, Brickey has started to garden and learn about plants and soil. For him, gardening brings “a sense of purpose and joy and a sense of accomplishment.” Other people might find a passion in music, reading, Bible study, bike riding, making art, or pets. One way you know you’ve hit a passion is when you get so absorbed that you lose track of time and are totally immersed, says Brickey. 

Monitor, Monitor, Monitor 

As they age, people need to start protecting and monitoring their bodies, says Olshansky, who is 68 years old. He stopped running eight years ago and started walking because “knees and hips are hinges that don’t last forever.” 

To stay fit at age 80, Olshansky’s advice is monitor, monitor, monitor. In his personal life, he sees his primary care physician, dermatologist, and eye doctor regularly for checkups that help monitor the body parts that tend to fail between 60 and 80, he says. By analogy, he says automobiles with 60,000 to 80,000 miles must be treated more carefully and brought in for repairs more often than cars with 20,000 miles. 

Social and Economic Changes 

Steele, who lives in Slough, a suburb of London, says that “huge social and economic changes, such as conquering infectious diseases and creation of antibiotics,” contribute to people living longer and staying healthy. 

In the next few years, there will be breakthrough medications and pills that will help intervene in the aging process and help slow the process of aging, Olshansky says. 

According to The Washington Post, leading the list of candidates is metformin, a longtime treatment for type 2 diabetes, and rapamycin, a chemotherapy agent and immunosuppressant. Scientists also are studying a class of compounds known as senolytics, which attack senescent cells in the body that tend to proliferate with age. Senescent cells damage healthy cells around them, contributing to multiple age-related diseases. 

Super Agers 

Olshansky refers to people who are physically active and mentally sharp at age 80 and super agers. “These folks all come from a family history of exceptional longevity,” says Olshansky. “They all look younger for their age.” What you’re seeing is a signal indicating that the biological rate of aging is occurring at a slower rate, he says. “They have, in short, won the genetic lottery.” 

Staying youthful and active into your 80s depends on “a mixture of genetic luck, consciousness, having passions, and developing the belief and coping skills that give you a thoughtful outlook,” says Brickey. 

First Step 

Start saving through your 401(k) or similar retirement plans at work. Such plans typically let you save conveniently and automatically through payroll deduction, and they offer certain tax advantages to encourage your participation. 

Figure One shows a breakdown of the tax advantages that apply to 401(k) plans as well as the other retirement savings vehicles mentioned in this article. 

Figure One: Tax Preferences of Common Savings Vehicles

Start saving as soon as possible. “The first dollars you save for retirement are the most productive,” says CAPTRUST Financial Advisor Steve Morton, a wealth management advisor based in Greensboro, North Carolina. This is because you have the maximum amount of time for those dollars to grow. 

An added bonus: Your employer may encourage you to save by offering to match your contributions. “That’s free money,” Morton says, so be sure to take advantage. 

Consider the following example. 

Suppose that your gross annual pay at work is $100,000, and your employer has a retirement plan, such as a 401(k) plan or a 403(b) plan. Suppose, too, that your employer offers to match 50 cents for every dollar you contribute up to a maximum of 6 percent of your pay. 

In that case, Morton says, if you kick in $6,000 to the plan in a given year, your employer will put in $3,000 as a match, for a combined total of $9,000. 

That’s an immediate 50 percent return on your money, Morton says. “So don’t pass it up. Once you get into the groove of saving, you won’t miss it.” 

There’s a cap on the total amount you can elect to set aside in your 401(k) plan, but the limit can increase each year with inflation, says Patricia A. Thompson, former chair of the Tax Executive Committee of the American Institute of Certified Public Accountants. 

For 2024, for people under age 50, the total employee pre-tax contribution limit is $23,000 and catch-up contributions for those over age 50 are limited to $7,500. Learn more about 2024 retirement plan contribution limits here: IRS Announces 2024 Retirement Plan Limitations.

Roth or Not? 

Your employer may give you the option to save through a designated Roth account, Morton says. It’s technically a separate account in a 401(k) or similar plan to which designated Roth contributions are made. 

The chief difference involves taxes. With a regular 401(k), contributions are made with pre-tax dollars, so you get an immediate tax deduction—a further incentive to save. Withdrawals, however, are subject to tax. 

With a Roth account, contributions are made from your after-tax dollars, but withdrawals are typically tax-free. In other words, with a regular 401(k), the tax break is up front. With a Roth 401(k), it’s on the back end. 

A Roth 401(k) can be “a very nice rainy-day savings account,” says Geoffrey T. Sanzenbacher, a research fellow at the Center for Retirement Research at Boston College. “If your employer offers a traditional and a Roth option, you need not choose between them,” he says. “You can save in both.” 

This move helps investors diversify retirement savings from a tax perspective, winding up at retirement with two pots of money from which to draw, one containing pre-tax dollars, the other after-tax money. 

Which approach you take may also depend on where you stand in the savings cycle, Morton says. 

For example, if you’re just starting out in the workplace, you may only be able to afford to save enough to qualify for the full matching amount from your employer. In that case, you may want to choose the traditional 401(k) account because it’ll give you the maximum up-front tax break. If you’re in your early 50s, however, you may want to put all of your retirement savings at work into the Roth 401(k) account. Of course, your specific tax situation should also be an important part of this analysis and may lead to a different conclusion, Morton says. 

The HSA 

Next in the retirement plan hierarchy is the health savings account, or HSA. Among its advantages: 

• You can claim a federal income tax deduction for HSA contributions even if you use the standard deduction on your federal tax return (instead of itemizing deductions). 
• Growth inside the account is sheltered from tax. 
• Withdrawals (also known as distributions) are free of federal income tax if they are used to pay for certain medical expenses. The list is broad, from acupuncture and ambulance services to wheelchairs and X-rays. Physician, surgeon, and dentist services count too. And because of a change in federal law through the CARES Act, tax-free withdrawals can also be used to cover over-the-counter medicine (whether or not prescribed) and menstrual care products. Withdrawals for other purposes are subject to tax and possible penalty. 
• An HSA is portable. It stays with you if you change employers or leave the workforce. 

Your HSA can be a valuable savings tool with some flexibility, Morton says. One strategy is to use the amount in your account to pay for medical expenses for you and your family and let your remaining HSA balance grow by selecting an appropriate investment mix, shielded from tax, he says. Another strategy is to pay all your medical expenses out of pocket, letting the entire HSA account balance grow. 

Keep in mind that HSAs aren’t for everyone. For one thing, you must have a high-deductible health insurance plan to accompany it. This means that your upfront and out of pocket costs may be higher than with other health insurance plans. 

Back to Work 

Once you’ve put enough in your 401(k) to qualify for the full employer match and you’ve stashed away money in an HSA, consider saving even more in your 401(k). 

“I’d go the full boat,” Thompson says, because any additional amount you save, up to the annual maximum is done on a pre-tax basis, and your earnings grow on a tax-deferred basis. 

Also, Thompson says, a 401(k) or other similar retirement savings plans is portable. Even if you change jobs, you typically have the option to transfer it directly to your new employer’s plan or to consolidate it in an individual retirement account (IRA) while your funds keep growing with no immediate tax consequences. 

A 401(k) is not the only way to save, of course, and there are limits, too. If your plan allows for after-tax contributions, you may be able to save more.

Also, your employer’s plan may impose a lower limit on contributions than the law allows. If you are a manager, owner, or highly compensated employee, the plan might limit your contributions so that it passes certain required tests. 

IRA Option 

Another option is an IRA. With a traditional IRA, you may qualify for an income tax deduction for contributing, your account can grow on a tax-deferred basis, and your withdrawals are subject to income tax (and a penalty if you’re under 59 1/2, unless an exception applies). 

With a Roth IRA, there is no upfront income tax deduction for contributing, your account can grow, shielded from tax, and withdrawals of contributions are tax-free. Withdrawals of earnings may escape federal income tax if you meet certain rules—generally, if you’ve held the account for at least five years and you’re 59 1/2 or older. 

For 2024, the most you can contribute overall to a traditional or Roth IRA is $7,000 for those under 50, or $8,000 for those 50 and older.

However, a potential problem involves income limits. 

If you seek a federal income tax deduction for contributing to a traditional IRA, your federal adjusted gross income (AGI) for 2024 generally must be below $68,000 if you’re single and $109,000 if you’re married and filing a joint return. If you do not have access to an employer plan, then there are different AGI limits that determine deductibility. 

For Roth IRA contributions, your federal AGI for 2024 generally must be below $138,000 if you’re single and $218,000 if you’re married and file a joint return.

These limits may increase in future years with inflation, but you still may not qualify. That’s one reason why a retirement-savings plan at work may be your first and best option. In most cases, you can contribute no matter how high your income, and you may not be eligible to contribute to an IRA anyway, based on your income. 

Backdoor Roth 

To sidestep income limits on regular contributions to an IRA, you may be able to make a nondeductible contribution to a traditional IRA, Thompson says. 

Although you can’t put in more in any given year than the overall contribution limit that applies to traditional and Roth IRAs, your ability to contribute won’t be restricted based on your income, she says. 

Once you’ve made the contribution, you can promptly move the money from the nondeductible IRA to a Roth IRA—a technique known as a backdoor Roth IRA. Assuming you have no other IRAs, tax will be due at that point only on the earnings, if any, in your nondeductible IRA, Thompson says. If you have other IRAs, however, the tax consequences can be more complicated. 

It’s important to note that pending tax law changes may affect some of the options we’ve described. For example, the House Ways and Means Committee has proposed new measures that would prohibit Roth conversions for individuals with taxable income of more than $400,000 and married couples with taxable income of more than $450,000 as of December 1, 2031. Despite the 10-year phaseout, the policy change could immediately affect financial planning for people who have complex estates and generational transfers. 

More Options 

Save in a taxable account. For example, put money directly into a mutual fund or brokerage account. You won’t get a federal tax deduction, but if you invest for growth alone, your account can grow tax efficiently. Taxes are typically due only when you cash out. 

If your employer allows, set aside part of your pre-tax income at work through a nonqualified deferred compensation plan, Thompson says. Tax is deferred on your contributions and earnings. Withdrawals are taxable. But be careful: The money is considered part of the general assets of your employer, subject to creditors’ claims in bankruptcy. 

Weigh whether to pay down any high-interest debt and then your home mortgage. “The [stock] market can go up, the market can go down, but you know what the rate is on your mortgage,” Thompson says, so you know what your rate of return will be in paying it down or paying it off. 

While a retirement savings plan at work is “a great way to save for the long-term goal of retirement,” it can be “a terrible way to save” for other long-term goals, such as college savings, Morton says. 

A key issue involves liquidity, Sanzenbacher says. In exchange for the many tax advantages of a 401(k) or other such plan, you typically have limited access to your funds (until retirement or certain other life changes). 

If you do make withdrawals prior to retirement, you’ll not only face federal income tax (and state tax, depending on where you live), but also a 10 percent early withdrawal penalty (depending on your circumstances), he says. 

While it can be hard to figure out where to put the money you save for retirement when there are multiple types of accounts you can open, the savings hierarchy can help retirement savers prioritize. By understanding where your money should go first, and then where any extra money should be funneled, you’re making a smart decision for your future. 

Keep in mind that everyone’s situation is unique. While very few people ever regret saving too much for retirement, it is always a good idea to talk to your financial advisor about a personalized strategy for your retirement savings priorities. 

The good news is that the 81-page notice does not appear to require much immediate action from plan sponsors before the end of 2023. However, the notice does provide important clarification on a few significant SECURE 2.0 provisions, including the optional treatment of employer contributions as Roth (section 604). On this subject, the notice devotes substantial attention to addressing key implementation issues, including eligibility and vesting requirements and how employer Roth contributions will be taxed. This is significant, especially considering section 604 has already become effective.

The notice also addresses section 113, another already effective provision, which allows small financial incentives for eligible employees who are not yet participating in a plan. The notice defines a de minimis financial incentive as $250. This means any amount above the $250 threshold will not be permitted.

Some other provisions that the notice addresses are:

• Expanding automatic enrollment in retirement plans (section 101)
• Modification of credit for small employer pension plan startup costs (section 102)
• Contribution limit for plans labeled as savings incentive match plans for employees (SIMPLE) (section 117)
• Provisions related to plan amendments (section 501)

Plan sponsors potentially affected by these provisions may wish to review these sections of Notice 2024-2 more closely.

The Treasury Department and IRS continue to analyze the various provisions of SECURE 2.0 and anticipate issuing further guidance, including regulations, as appropriate. Comments on specific issues outlined in the notice are due by February 20, 2024. We will continue to review the various provisions and related IRS guidance.

Plan sponsors that have questions about this or other SECURE 2.0 provisions should reach out to their financial advisor or visit CAPTRUST’s dedicated SECURE 2.0 Act webpage. The complete IRS notice is available here.