Participants September 13, 2019

Spooked Participants Flee Into Inflated Fixed-Income

When equity markets become volatile, retirement plan trading activity spikes towards fixed-income.

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August 2019 proved to be the 19th month in a row during which net 401(k) trades have flowed from equities into fixed income, according to the newly updated Alight Solutions 401(k) Index.

Followers of the index will know that when equity market become volatile, the index tends to see trading activity spike towards fixed-income. Index data shows this has certainly been the case to-date in 2019.

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At the start of the year, as the market had been going up from early year lows, people had mostly been selling out of equities and into fixed income. This represented the “correct” trading behavior of buying low and selling high. However, the second half of the month of October brought renewed volatility in U.S. and global equity markets. After several weeks featuring relatively large price swings for major indices including the DJIA, S&P 500 and the NASDAQ, 401(k) trading activity towards fixed income jumped on Monday, October 29. That day, trading was 2.26-times the normal level, according to the Alight Solutions 401(k) Index.

Then, on August 5th, the index again reported a high level of trading activity—2.78-times the normal level—towards fixed income. The trading spike came after a two-day drop in the S&P 500 of nearly 3.7%. At the time, Rob Austin, vice president and director of research for Alight Solutions, told PLANSPONSOR the spike in trading activity was about as surprising as it was well-timed.

“The money was going out of depressed equities and into inflated fixed income,” Austin explained. “So, it’s disappointing.”

Now that Alight Solutions has published the full August numbers, the extent of the trading towards fixed income is clear. Overall, 16 of 22 trading days in August favored fixed income funds. Net trading activity for the month was the highest in 2019, at 0.24% of balances. Additionally, there were six above-normal days, the highest monthly total since December 2018. 

Important to point out is the fact that these (likely ill-timed) trades are still occurring in a small fraction of accounts. The average day of trading as measured by the Alight Solutions 401(k) Index is 0.016% of balances trading per day.

Compliance September 13, 2019

There’s a New IRS Mailing Address Plan Sponsors Need to Know

The mailing address for Employee Plans (EP) submissions for determination letters, letter rulings, individual retirement arrangement (IRA) opinion letters, and others has changed.

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Effective immediately, the mailing address for Employee Plans (EP) submissions for determination letters, letter rulings and Individual Retirement Arrangement (IRA) opinion letters is:

Internal Revenue Service
7940 Kentucky Drive
MS 31A
Florence, KY 41042

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The IRS says submissions that have already been sent to the previous address will be forwarded to this new address.

Specifically, submissions affected by the address change include:

  • Form 5300, Application for Determination for Employee Benefit Plan;
  • Form 5306, Application for Approval of Prototype or Employer Sponsored Individual Retirement Arrangement (IRA);
  • Form 5306-A, Application for Approval of Prototype Simplified Employee Pension (SEP) or Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA Plan);
  • Form 5307, Application for Determination for Adopters of Modified Volume Submitter Plans;
  • Form 5308, Request for Change in Plan/Trust Year;
  • Form 5310, Application for Determination Upon Termination;
  • Form 5310-A, Notice of Plan Merger or Consolidation, Spinoff, or Transfer of Plan Assets or Liabilities; Notice of Qualified Separate Lines of Business;
  • Form 5316, Application for Group or Pooled Trust Ruling;
  • Letter rulings under Revenue Procedures 87-50, 90-49, 2003-16, 2010-52, 2017-55, 2017-57, or 2019-4; and
  • Nonbank trustee approval letters under section 3.07 of Rev. Proc. 2019-4.

The address for pre-approved plan submissions under Rev. Proc. 2017-41 has not changed from the address stated in Rev. Proc. 2019-4.

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