The Markets June 9, 2020

401(k) Investors Light on Trading in May

A mere 0.018% of balances were traded daily, according to the Alight Solutions 401(k) Index.

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May was the lightest month of trading activity among 401(k) investors in 2020, according to the Alight Solutions 401(k) Index. On average, a mere 0.018% of balances were traded daily, down from 0.023% in April and 0.078% in March. Throughout the month of May, 401(k) participants traded 0.11% of their balances. Year-to-date, they have traded 1.72%. There were no above-normal trading days.

401(k) investors continued to favor fixed income, with those trades dominating 13, or 65% of the total trading days in the month, and equities leading for seven days, or 35%.

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Asset classes with the most trading inflows in May were bond funds, taking in 31% of the inflows, valued at $73 million, followed by international equity funds (23%; $53 million) and money market funds (19%; $44 million).

Asset classes with the most trading outflows in May were target-date funds (TDFs) (48%; $113 million) and large U.S. equity funds (28%; $65 million).

Asset classes with the largest percentage of total balances at the end of May were TDFs (29%; $61.6 billion), large U.S. equity funds (25%; $53.5 billion) and stable value funds (11%; $22.6 billion).

Asset classes with the most contributions in May were TDFs (46%; $513 million), large U.S. equity funds (21%; $230 million) and international equity funds (7%; $76 million).

During the month, small U.S. equities rose 6.5%. Large U.S. equities rose 4.8%, international equities were up 3.3% and U.S. bonds were up by 0.5%.

Compliance June 9, 2020

Opinion Letters for Pre-Approved DC Plans Coming

The IRS says it expects to issue the letters on June 30, or in some cases, as soon as possible thereafter, and an employer adopting a newly approved plan document will be required to do so by July 31, 2022.

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The IRS has announced its intention to issue opinion letters for pre-approved defined contribution (DC) plans that were restated for changes in plan qualification requirements in the 2017 Cumulative List and that were filed during the third six-year remedial amendment cycle.

The IRS says it expects to issue the letters on June 30, or in some cases, as soon as possible thereafter.

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An employer adopting a newly approved plan document will be required to do so by July 31, 2022. Starting August 1, 2020, and ending July 31, 2022, the IRS will accept from any employer eligible to submit a determination letter request an application for an individual determination letter under the third six-year remedial amendment cycle for pre-approved DC plans.

In 2016, in Revenue Procedure 2016-37, the agency closed the determination letter program except for initial plan qualification and for qualification upon plan termination. Three years later, the IRS issued Revenue Procedure 2019-4 to provide an “other circumstances” category for which determination letters can be requested. Though the category was added, the agency did not specify what “other circumstances” for which it applies.

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