In 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act increased the Required Minimum Distribution (RMD) age for retirement plan participants from age 70 1/2 to 72. Additionally, it introduced opportunities for Long Term Part Time (LTPT) employees to make deferral contributions to retirement plans in situations where they have not yet met the plan’s eligibility requirements. An updated version of the SECURE Act—the SECURE 2.0 Act of 2022—was signed by President Biden on December 29, 2022, as part of the Consolidated Appropriations Act of 2023. While this omnibus spending bill covers a variety of topics, changes to qualified retirement plans were included to encourage earlier plan participation and a better retirement outcome. SECURE 2.0 modifies the original RMD and LTPT provisions while introducing new rules. Here is what lies ahead:
Effective as of the date of enactment:
Effective for Plan years beginning on or after 1/1/23:
Effective for Plan years beginning on or after 1/1/24:
Effective for Plan years beginning on or after 1/1/25:
When Plan Sponsors are asked to provide company and employee census information for a recent plan year, the details being collected affect the contributions that must be calculated and funded as well as which compliance tests the plan must satisfy. The same questions are asked year after year because changes in the company affect the plan a great deal. Information collected may include:
Employee census: Details about all employees on payroll must be provided, whether they are full time, part time or only worked a few weeks.
Ownership % and other businesses owned by those owners: Not only does it matter who owns a part of your business, how much they own makes a difference as well.
ERISA fidelity bond: The amount in place for your plan at year end is requested to determine if it is sufficient or needs to be increased.
Within 18 months:
No later than two (2) years after the date of enactment:
Within five (5) years:
28th: IRS Form 1099-R Copy A – Deadline to submit 1099-R Copy A to the IRS for participants and beneficiaries who received a distribution or a deemed distribution during the prior plan year.
15th: ADP/ACP Corrections – Deadline for processing corrective distributions for failed ADP/ACP tests without a 10% excise tax for plans without an Eligible Automatic Contribution Arrangement (EACA).
15th: Employer Contributions – Deadline for contributing employer contributions for amounts to be deducted on 2022 S-corporation and partnership returns for filers with a calendar fiscal year (unless extended).
31st: Required Minimum Distributions – Normal deadline to distribute a Required Minimum Distribution (RMD) for participants who attained age 72 during 2022.
14th: Excess Deferral Correction – Deadline to distribute salary deferral contributions plus related earnings to any participants who exceeded the IRS 402(g) limit on salary deferrals. The limits for 2022 were $20,500 or $27,000 for those aged 50 and over if the plan allowed for catch-up contributions.
18th: Employer Contributions – Deadline for contributing employer contributions for amounts to be deducted on 2022 C-corporation and sole proprietor returns for filers with a calendar fiscal year (unless extended).
Global financial markets saw a rebound early in the fourth quarter as inflation pressures eased and U.S dollar weakness helped spark a strong rally in November in both fixed income and equites. However, continued hawkish global central bank policy and rising global bond yields continued to be a headwind for the market, and as a result, the market began to wane towards the tail end of the quarter. During the December FOMC meeting, the Federal Reserve Board revealed that they expect upcoming rate hikes to take the Federal Funds rate above 5%, implying two to three more rate hikes could potentially be on the table in 2023.
All major market indices finished the quarter with positive returns. Equity markets, as measured by the S&P 500 Index, rose by 7.48% during the quarter and finished the year down 19.44%, marking the indices worst year since the global financial crisis in 2008.
Despite inflation contracting sharply during the quarter, long term interest rates remained stubbornly high as Fed Chair Jerome Powell made it clear that rates would ultimately have to stay higher for longer to regain price stability. The 10-year U.S. Treasury started the quarter at 3.8%, hitting 4.3% during the quarter and subsequently finished the quarter slightly higher at 3.9%. Treasury Bills continued to outperform during the quarter rallying 110 basis points causing the yield curve to further invert to levels not seen since the 1980s.
Expectations for higher rates, slowing economic growth, and underwhelming earnings weighed on growth during the fourth quarter, and because of elevated interest rates, value continued to outperform making it the best year for value stocks relative to growth stocks since the late 2000s. On a sector level, the Industrials and Materials sectors outperformed as a result of a weaker U.S dollar and demand improving in China. Consumer discretionary was the notable laggard during the quarter as corporations reported lower than expected earnings due to a weaker consumer.
Foreign markets strongly outperformed the U.S. markets during the fourth quarter, as the U.S dollar weakened, and the Bank of England took control in the bond market. International equity funds continued to see multi-year high inflows during the fourth quarter as investors looked to further diversify.
Despite the U.S dollar contracting, emerging markets underperformed developed markets due to strong relative outperformance from the United Kingdom, Germany, and France.
Real economic growth bounced back during the third quarter growing 3.2% and economists are projecting fourth quarter Gross Domestic Product (GDP) of approximately 4%. The rise in GDP was fueled by an increase in exports and consumer spending. Despite prolonged inflation eroding consumers purchasing power, historic low unemployment helped consumers balance sheet stay resilient.
The labor market remained resilient in the fourth quarter adding 747,000 jobs to the U.S. economy. Notable job gains took place in leisure and hospitality, health care, construction, and social assistance.
The overall U.S. unemployment rate remains at historic low levels at 3.5% with the total number of unemployed people standing at 5.7 million.
Inflation, as measured by the Consumer Price Index (CPI-U), grew at a pace of 6.5% for the past 12-month period ending December 31, 2022, marking the smallest 12-month increase since December 2021. The core inflation reading, which excludes food and energy, rose 5.7%. Rising prices for electricity in December were offset with a continued price decline in Energy and used cars and trucks.