#43 - Q124 Retirement Plan Update w/ Todd Zempel

Welcome to the quarterly retirement plan update with Gordon Asset Management. In today's episode, Todd Zempel will recap the first quarter 2024 market performance, touch on retirement income, and discuss developments in fiduciary duties for group health plans.

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Speaker 1 0:03

Welcome to the Quarterly Retirement Plan Update with Gordon Asset Management . In today's episode , todd Zempel will recap the first quarter 2024 market performance , touch on retirement income and discuss developments in fiduciary duties for group health plans . Please stay tuned to the end for important disclosures about our firm . Please stay tuned to the end for important disclosures about our firm .

Speaker 2 0:26

This is Todd Zimple , retirement Plan Services , director and Partner at Gordon Asset Management . Thanks for joining me today . First , let's touch on the markets . The US economy continues to show resilience , avoiding recession with moderate growth and easing inflation . However , uncertainties remain as we navigate through numerous geopolitical risks towards the US election . Investors finished the quarter in high spirits , after a 10.56% rise in the S&P 500 index . Smaller companies lagged their larger peers , with the Russell 2000 index rising 5.18% . International markets were noticeably more subdued , with the International Developed Markets Index up just shy of 6% and the Emerging Markets Index up 2.44% 4.4% . Bonds were mostly flat on the year as of quarter end . However , in April inflation came in hotter and stickier than the Fed would like , so rate cut expectations have started to fade and most bond indexes have since gone negative on the year . Sector-wise , energy , as represented by the XLE , was the strongest performer , up 12.61% , likely a result of heightened geopolitical risk . The communications services sector , the XLC , was up 12.39% , fueled by the trend toward AI . Looking forward , many economists are anticipating economic momentum to slow as the consumer becomes more strapped for cash as they navigate higher costs . Business spending remains robust , particularly in artificial intelligence , though caution is warranted due to tightening credit and softer corporate profits . Overall , the first quarter proved yet again that staying invested and maintaining a diversified portfolio , despite the noise , is often the key to long-term investment success .

Speaker 2 2:36

Switching gears I recently got back from the National Association of Plan Advisors annual conference . The hot topic of the year was retirement income . Most of the discussion centered around in-plan income solutions , or , in other words , solutions for retired employees to draw income directly from their 401k account . The industry is heating up with new solutions , but in my opinion , I think we're still in the early stages . Many of the current offerings are complex , not portable and a one-size-fits-all solution , which I think is less than ideal for most plan participants . While I'm all for innovating retirement income strategies , I believe it's premature to recommend an in-plan solution . As a fiduciary , I find it extremely difficult to justify adding an unproven and complex new strategy . However , I will keenly follow developments as we wait for a track record to materialize . Instead of one-size-fits-all in-plan solutions , I think the better approach is to tailor income plans to each individual's unique circumstances and behavioral quirks . That's why we've introduced a new tool the Retirement Income Style Awareness , or the RESA assessment . The RESA is essentially akin to a risk tolerance assessment that takes into consideration your unique personality traits to map out a personal retirement income plan that fits with your individual comfort with market volatility and income expectations . Whether you're market savvy and flexible with spending or prefer a predictable paycheck for life , the RESA assessment brings clarity to the best fit approach for you . If you're interested , you can take the RESA for free on our website at wealthqbcom . We are also planning on holding educational sessions on retirement income planning or those near to retirement , using the RESA construct to guide the conversation . More to come on this . Stay tuned . Let's shift gears to a vital issue that's emerging for employers , that is , fiduciary responsibilities for group health plans . I briefly touched on this last quarter , but I wanted to circle back , as I think it is one of the most important topics that employers aren't talking about .

Speaker 2 5:09

Appropriations Act of 2021 , the CAA-21 , along with the Transparency and Coverage Rule , represent the most significant reforms to health plan legislation since the introduction of the Affordable Care Act . They impose fresh mandates on group health plans and health insurers regarding the disclosure of plan fees and the transparency of pricing . Enacted on December 27 , 2020 , and effective for plan years starting in 2021 , the Consolidated Appropriations Act of 21 introduced a requirement for group health plans to disclose fees , echoing the mandate for retirement plans established since 2012 . Echoing the mandate for retirement plans established since 2012 . Under ERISA Section 408b-2 , it is considered a prohibited transaction if a group health plan enters into a contract without fully disclosing in writing any compensation , direct or indirect , of $1,000 or more . These disclosures are intended to equip fiduciaries of group health plans with the necessary information to assess the reasonableness of fees , in line with IRIS's fiduciary guidelines . This law also serves to heighten fee awareness among health plan participants . It is anticipated that the information from these disclosures , or lack thereof , could be pivotal in legal claims pursued by participants against fiduciaries of ERISA health plans and their service providers .

Speaker 2 6:46

Alongside the new fee disclosure rule , we also have the new transparency and coverage or TIC rule . Unveiled in 2020 and phased in between 2022 and 2024, . The TIC rule mandates that group health plans make available data that details payment rates for services within their network , allowable amounts for out-of-network care and prescription drug pricing . This requirement aims to demystify health care costs for participants , granting them the ability to understand the expenses for services and medications prior to use . Building on the TIC rule , the CAA 21 necessitates a more comprehensive reporting on costs related to prescription drugs and medical services by group health plans , this is particularly relevant , thank you . This expanded transparency not only aids fiduciaries in assessing fee reasonableness in accordance with DOL guidelines , but may also play a role in the increase of legal actions regarding excessive plan fees .

Speaker 2 8:02

And with that regulatory background , let's talk about some pending litigation . On February 5th 2024 , a lawsuit was brought against Johnson Johnson . February 5th 2024 , a lawsuit was brought against Johnson Johnson alleging that its health plan fiduciaries violated ERISA by causing participants to incur excessively high costs for prescription drugs compared to other options . The suit claims mismanagement led to significantly higher drug payments , premiums , deductibles and co-pays . It also accuses fiduciaries of not securing the most competitive drug prices , failing to properly oversee expenses , inadequately negotiating with their pharmacy benefit manager and not fully disclosing costlier mail-order drug pricing . One stark example cited is a generic multiple sclerosis drug costing the plan over $10,000 for a 90-day supply , whereas it was available for between $28 and $77 in retail outlets . Though this case is still being litigated , I suspect it will serve as a template for other litigators to go after other employers and , just like with retirement plans , I suspect hundreds of follow-on lawsuits that will serve to reshape group health benefits .

Speaker 2 9:26

What's this mean for us ? Well , it's a clear signal that we must vigilantly manage and monitor our health plan vendors and fees , just like we do with retirement plans . The days of high broker commissions and undisclosed and opaque revenue sharing agreements are coming to an end , just like they did for retirement plans . Competition is about to heat up and at last , I suspect , there may finally be a meaningful opportunity for employers to take back control over spiraling health care costs . If you'd like to learn more , I suggest you search up the Department of Labor's Guide to Understanding your Fiduciary Responsibilities Under a Group Health Plan . This guide was published in September 2023 . When you read it , you'll realize that this guide is essentially a carbon copy of the DOL's 2021 meeting your fiduciary responsibilities guidebook for retirement plans .

Speaker 2 10:28

That said , fiduciaries already familiar with prudent governance structures for their retirement plans will be well positioned to apply the same concepts to their group health plans , and that is why our firm is keenly watching developments . In fact , we have even stepped in to do some consulting in this space , and the results have been shocking . In to do some consulting in this space and the results have been shocking . We helped one company with around 150 employees save around $143,000 per year on their benefit spend . The savings for another 70-employee firm was roughly $90,000 . Needless to say , I think there is a huge opportunity for employers to really make a difference and potentially save a ton of money With that . I hope you enjoyed this quarter's update . If you'd like to learn more or if you'd like a second opinion on what you're doing , please do not hesitate to reach out .

Speaker 3 11:33

Thanks for tuning in . To learn more , please visit our website , wealthqbcom . Todd Zempel is a registered investment advisor . Opinions expressed in this show are those of the speaker and do not necessarily reflect the opinions of Gordon Asset Management LLC . All statements and opinions expressed are based upon information considered reliable , although it should not be relied upon as such . Any statements or opinions are subject to change without notice . Information presented is for educational purposes . Thank you , not guaranteed . Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual . Listeners are encouraged to seek advice from a qualified tax , legal or investment advisor to determine whether any information presented may be suitable for their specific situation . Past performance is not indicative of future performance .