Thin(k) About Your 401(k) Plan: What A Great Benefit!

It’s unsurprising that American workers love their retirement plans and don’t want them to change. The Investment Company Institute’s (ICI) recent research report, “American Views on Defined Contribution Plan Saving, 2020 confirms this fact in no uncertain terms. ICI has conducted this study for 13 years. Here are two key takeaways from the report.

First, American workers, who have a 401(k) plan or an IRA, like them and believe the accounts are instrumental in helping incentivize saving.

  • More than 90% of these workers agree that the plans simplified the saving process, helping them focus on the long term and
  • 86% agreed that the tax treatment was a big reason they were saving.  Almost all of these workers agreed that they should be able to choose and control their investments in the accounts. And
  • 83% felt like retirement accounts could help them meet retirement goals.

Second, there’s a lot of talk in the political arena about altering retirement benefits to generate tax revenue, and workers are paying close attention to this. They strongly oppose changes to the tax advantages, contribution limits and removing control of investment decisions that come with 401(k) plans and IRAs:

  • 87% of those saving via a 401(k) plan or IRA disagreed with the concept of the government taking away the tax advantage.
  • 89% disagreed with the idea of reducing contribution limits. And
  • 89% disagreed with the thought of giving away their ability to decide how to invest their money.

These results should clearly indicate to plan sponsors that they offer a benefit highly valued by their workers and that the workers gain financial security by receiving the benefit. The American retirement plan system is functioning well and workers do not want the benefit to change, especially when it is to their disadvantage. As my father used to say, “if it ain’t broke, don’t fix it.”

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Thoughts in Charts: Beware of the 1-Year Returns

Trailing returns can be a fickle beast. We are about to see dramatic examples of why rolling returns can often convey a deceiving message, especially when it involves an unprecedented time period like 2020. The intense market drop in March of last year began moving back upward just about the time the 1st Quarter ended. That means that this quarter, the published 1-year returns will begin at market lows.


If you had new cash, and invested during the crisis, then enjoy those 1-year numbers. They look pretty amazing, even for the hardest hit asset classes. If you were invested through the entire year of 2020, please take those numbers with a grain of salt.


In the chart above, I used a US real Estate ETF. This isn’t actively managed, and it’s designed to represent the general US Real Estate market. In early April, this ETF will publish something around a 50% increase for the 1-year trailing return. If you tick back the performance period to encompass the whole 2020 experience and the first three months of 2021, however, the 15-month return is really more in the 1% range.


If you were fully invested last year, one trick to use in assessing how distorted the trailing 1-year number is by looking for the calendar returns for the same investment. They usually are published on the same factsheets, and they can help you sort out the full story.


For disclosures, please click here.

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Thin(k) About Your 401(k) Plan: ESG Investing in Your 401(k) Account

It’s no surprise that with the change of presidential administrations that we would see regulations changing. Late in the Trump Administration there were two regulations that particularly affected ESG (environmental, social and governance) investing. Many were concerned about these policy shifts, but as you’ll see, it appears that these rule changes have been put on hold at least temporarily if not permanently.

In October of last year, the Department of Labor (DOL) issued a final rule for private-sector retirement plans regarding non-pecuniary factors like ESG ,which limited these factors, stating that, “retirement plan fiduciaries are focused on the financial interests of plan participants and beneficiaries, rather than on other, non-pecuniary goals or policy objectives.”

That was big news, and it didn’t stop there.  Another policy was to limit ESG considerations in fiduciary proxy votes.  Plan Sponsors serve as fiduciary to the plan and in the selection of investment options must, therefore, take into consideration how the funds they select vote proxies.  401k Specialist reported $7.9 trillion invested in all employer based defined contribution plans, of which $5.9 trillion were invested in 401k plans.*  That is a lot of money under the watch of the DOL covered under ERISA Law.

The big news didn’t last long. On President Biden’s first day in office, he issued an executive order directing federal agencies to review existing regulations issued or adopted during the Trump administration “that are or may be inconsistent with, or present obstacles to, the policies” the new president set forth “to promote and protect public health and the environment.”+

Not long after the order, the DOL seemed to back away from its final rule from just a few months back. Here’s what it had to say about non-pecuniary factor consideration and proxy voting by fiduciaries: “Until the publication of further guidance, the department will not enforce either final rule or otherwise pursue enforcement actions against any plan fiduciary based on a failure to comply with those final rules.”+

So much for final rules. The possibility of adding ESG investment options to ERISA governed retirement plans without potentially violating fiduciary responsibility is back on the table.  Stay tuned.


*401k Specialist, 401k Assets Totaled $5.6 Trillion in First Quarter 2020, by John Sullivan, Editor-in-Chief, June 17, 2020.

+ ThinkAdvisor, DOL Won’t Enforce New Rules on ESG in Retirement Plans, by Bernice Napach, March 10, 2021.

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Thoughts in Charts: A Bumpy 2nd Year

Are we in for a bumpy recovery ride? The above chart shows the average implied volatility on the left axis during the second year of a bull market, which is represented on the bottom axis.


March 23rd will mark the 1-year anniversary of the COVID-19 market low and the start of a new upward bull market environment. Year two of a bull market is about to begin. History suggests that volatility tends to really pick-up a couple months into the second year. If it holds true for this recovery, then May, June and July of this year could see above average volatility.


Our typical portfolio design factors in long-term volatility expectations, although short-term volatility can become a very big distraction. The drama of “the best day” and the “worst day” headlines can cause a significant amount of anxiety. But according to this chart, by the end of the second year, average historical volatility seems to taper down.


Every recovery has its own path, but it can be a relief to know that the bumps aren’t unexpected.


Weekly Market Recap, JP Morgan Asset Management. March 15, 2021. https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/weekly-market-recap-us.pdf


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Thoughts in Charts: No Fighting It

One of the most common phrases in the COVID Crisis financial era seems to be “don’t fight the Fed”. While there is a lot of uncertainty in the economy, the influx in available money from the Federal Reserve and U.S. Treasury has been extensive. If we are going to trust this money as supporting our markets, it’s probably important that we understand the tools being used.


This week’s thoughts in charts illustrates the ways in which money has been flowing into the system, but also provides an opportunity to see the structure and the timing.


There are two types of programs:

  • Loan Facilities that lend directly
  • Purchase Facilities that buy debt from those that lent directly


The Loan Facilities are a bit easier to get your head around, partially because they are familiar from the 2008 crisis and because most of us are familiar with receiving a direct loan. The Paycheck Protection Program (PPP) was by far the largest of the direct lending activity with about $525 billion issued to small businesses.1 The chart illustrates that these Loan Facilities’ programs got off the ground quickly and pumped a substantial amount of money into the economy.


The Purchase Facilities are a little more interesting because they are a newer concept. The idea here is that the government will bear some of the risk born by lenders. As the crisis ramped up, it was clear that the risks of loaning money were higher. To try to incentivize banks and other institutions to keep loaning money, the government agreed to purchase a substantial portion of the loans. The lenders were no longer responsible for taking the full brunt if the loan could not be repaid; therefore, they remained incentivized to loan.


Because the Purchase Facilities concept was newer it took more time to get off the ground. While the Loan Facilities were in full swing or winding down by June of 2020, the Purchase Facilities were just ramping up.


One of the quickest Purchase Facilities programs to get off the ground was the corporate bond support. If you owned corporate bond mutual funds in 2020, you may have noticed that your results were higher than we usually expect. In part, you can thank the Purchase Facilities for gain, as their promise to buy corporate debt restored a crashing bond market.


On the slower side of the Purchase Facilities was the Main Street Lending Program, which didn’t really ramp up until the end of the year. It targeted loans to mid-sized companies that had too many employees for PPP but were too small for some of support going to giant corporations. As of December 31, 2020, the program issued about $17 billion in loans.1 This program was tiny when compared to PPP, but this is still new money that has really just started circulating in the U.S. Economy.


With all of these facility programs targeting specific spaces in the market, it’s no wonder the market isn’t fighting back. The 2008 Financial crisis really solidified the Loan Facilities as a tool, and now the COVID crisis has likely done this with the Purchase Facilities.


1Donald P. Morgan and Steph Clampitt, “Up on Main Street,” Federal Reserve Bank of New York Liberty Street Economics, February 5, 2021, https://libertystreeteconomics.newyorkfed.org/2021/02/up-on-main-street.html.


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ESG investing: Spotlight on board composition

It’s the annual proxy season, and many eyes are on investor votes concerning a variety of corporate matters including the election of board members.


Suzanne Mestayer

In a world increasingly focused on diversity, equity and inclusion, we may wonder to what extent these concepts are embraced within the corporate boardroom. What is the composition of most boards? Are we still seeing members who represent a “first” in a category?

This topic is centered on the G (governance) of ESG investing. Our firm has researched, monitored, and presented the topic of board composition to groups for the past six years, with specific focus on gender. However, we recognize that gender alone does not fully represent diversity. It includes minority and ethnic representation, as well as diversification of skills, age, and functional experiences. The belief, is that these differences provide for better decision making, mitigation of risk, and improved performance.

Looking for data that accurately presents the “state of the boardroom” on gender and minority diversification, we can begin with statistics from the S&P 500 companies. For the past 35 years, Spencer Stuart has published a Board Index that comprehensively reports trends and statistics on the topic of board governance within the S&P 500.  The 2020 report was recently released, and it reveals the following about diversity:

  • Every S&P 500 company had at least one woman on its board, with 39% of boards having three women and 20% of boards having four women. On average, three board seats were occupied by women.
  • In 2020, women held 28% of board seats, while they held 16% in 2010, a 75% increase.
  • Of the top 200 (as measured by revenue) of the S&P 500 companies, 97% had at least one minority director in 2020, an increase from 89% in 2010.
  • Of the same top 200 companies, all minorities together held 20% of board seats.
  • Of new independent board members appointed during 2020, 59% were women and/or minorities. 22% were minorities (12% men and 10% women) and 47% were women.

The data is encouraging, yet it shows more progress for women in the past 10 years than minorities. In addition, the commentary in the report notes that the low turnover of existing board members opens few opportunities for new board members each year. Some companies have increased the size of their board in order to reach their desired diversity levels.

What is not considered above, however, are statistics relating to public companies that are smaller than the S&P 500. If we broaden the database to the 3,000 largest public companies, we find less progress with both gender and minority board representation. The larger companies are clearly setting the pace.

The investing public is holding companies accountable for all aspects of ESG, particularly through the stewardship of institutional managers ( e.g. Blackrock, Vanguard, State Street, etc.). Board diversity is an important part of the Governance evaluation. With the increasing responsibilities of board members for oversight of corporate activities, the diversity of the board will likely remain a best practice well into the future.

Suzanne T. Mestayer is managing principal of ThirtyNorth Investments, LLC. 

All investment strategies have the potential for profit or loss.

ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

For disclosures, please click here.

Thin(k) About Your 401(k) Plan: Cycle 3 Plan Restatement Requirement


Thin(k) About Your 401(k) Plan


Cycle 3 Plan Restatement Requirement



Have you ever received an email that seems frighteningly relevant, but you have no idea what it’s about?  Some of my clients have had this experience recently upon receiving notice that the IRS is requiring that their plan document be restated in accordance with the Cycle 3 Plan Restatement mandate.  Rest assured that receiving this notice most likely from your recordkeeper does not mean you have done something wrong.


The Cycle 3 Restatement requirement is the third of its kind and applies to any plan that uses a prototype or volume submitter plan document.  These types of plan documents are usually provided by a recordkeeper as part of its service. In between restatement cycles, regulatory and legislative changes are incorporated by an amendment.


The IRS requires plan sponsors to restate their plan document every 6 years to incorporate any regulatory or legislative changes that have occurred since the last mandated restatement.  In other words, this is fairly routine.  However, the restatement is necessary for compliance in order to avoid plan qualification failure.  So, while not unusual, the process is very important, and the IRS requires that it be completed by July 31, 2022.  Additionally, the IRS will provide an opinion letter deeming the new document acceptable prior to it being put in place.  Again, your recordkeeper will likely handle this aspect.


The Cycle 3 Restatement Requirement has numerous elements, but here are a few.  The restated document will include plan rules related to:

  • Qualified Non-Elective Contributions, Qualified Matching Contributions and Safe Harbor Contributions as well as the use of Forfeiture Accounts.
  • Disability claims procedures
  • Option to allow in-plan Roth rollovers

These rules were previously covered by Interim Amendments and will now be a part of the actual document.


If you are hearing about this for the first time or if you haven’t yet been notified, I highly recommend you contact your advisor or recordkeeper for additional information.  Remember this happens every six years and while routine, it is a part of your fiduciary responsibility as a plan sponsor to understand and execute the restated document.


Check out ThirtyNorth’s retirement plan services here.


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The rise of ESG investing: It’s easier to make a difference

Sometimes we forget that money is basically a tool. It can be used for basic exchange needs like food, shelter, clothing and others, and it can be used as an investment tool to accomplish a variety of purposes. For financial advisors, a great first question to ask any new client is “What does money mean to you?”


Suzanne Mestayer

Some will say it means maintaining a certain lifestyle in retirement, leaving a philanthropic legacy, something to pass on to their children, and others will describe it as a way to make a difference while still achieving these other goals. These are all worthwhile, but let’s focus on the last motivation—making a difference—and how the rise of ESG investing has made this easier.

ESG stands for environmental, social and governance, and these factors are then used in making investment selections. Among the many evaluative questions regarding these issues are “What are the company’s policies in reference to environmental stewardship? What are the social policies on employee relations, diversity, or the impact on communities? Is the board of directors using best practices in governance? Does it provide proper oversight, and does the tone at the top build trust?”

The acronym was first used in a 2005 report, “Who Cares Wins: Connecting Financial Markets to a Changing World,” which held that companies that perform well in these three areas could better manage risk and opportunities,  foster  sustainability and improve social outcomes. By the next year, the United Nations launched Principles for Responsible Investment (PRI).  Today, PRI has over 2,300 participating financial institutions who believe ESG considerations are important for investment decision-making.

Initially, there was a reluctance to embrace ESG by institutional investors, who believed that maximizing shareholder value superseded environmental, social or governance impact. That view began to change, however, as more attention has been placed on the potential long term value creation and risk mitigation provided by ESG factors.

Today, ESG investing is estimated to be more than $20 trillion in assets under management (AUM), or about a quarter of all worldwide professionally managed assets. It’s safe to say that ESG investing isn’t a fad. Over time, the focus placed on ESG will likely be a sign of corporate responsibility for all stakeholders. For investors, it is an opportunity to align their investments with their desire to make a difference.

Suzanne Mestayer is Managing Principal of ThirtyNorth Investments and brings deep experience in the financial services and wealth management industry.

All investment strategies have the potential for profit or loss.

ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.

For disclosures, please click here.

When Money Meets Meaning

Perspective Guest 01

It’s finally over! It’s an understatement to say that 2020 will go down as one of the most disruptive years in recent history. We have all been impacted by some combination of the pandemic, social unrest, business closures, personal losses, work-from-home strategies, hurricanes, competing narratives of the election season, and the stock market crash and dramatic rebound.

Navigating through 2020’s challenges was incredibly difficult, but the isolation provided an opportunity to reflect on what we value. We may have thought and continue to think about how we spend our time, how we treat others, and how we spend or invest our money.

For many investors, that has meant an increased desire to align their investments with their values, focusing on corporations that exhibit good stewardship over ESG factors.

What is ESG?

Environmental, social and governance (ESG) factors are criteria that can be used in evaluating investments. They dovetail with many of the very issues we confronted in 2020 and will face in the future. Some examples of ESG criteria to assess a company’s stewardship include:

• Environmental — issues regarding energy efficiency, climate change and water scarcity;

• Social — issues regarding employee relations, labor standards, community relations, customer and supplier relations, and gender and diversity;

• Governance — issues regarding appropriate oversight, board composition, governance best practices and executive pay.

The assessment of ESG factors does not replace the time-tested financial analysis of company valuations, but it does inform our thinking, especially relating to risk assessment, and can serve as an important part of the decision-making process.

Some of these factors have previously been considered when assessing a company’s risks. Seen through the ESG lens, however, it is a more deliberative and broader evaluation of corporate activities. It is becoming a differentiator for investment selection.

Those interested in ESG may want to ensure that these factors are considered in their investments, while others may be drawn to investing in a growing number of ESG-themed investments on specific topics of importance to them.

What is its significance?

ESG was introduced with a 2005 report entitled, “Who Cares Wins: Connecting Financial Markets to a Changing World.” The thesis was that companies that perform well in these three areas could better manage risk and opportunities, foster sustainability and improve social outcomes, and the report laid the groundwork for ESG development. In 2006, the United Nations launched Principles for Responsible Investment (PRI), and currently more than 3,000 global financial institutions are signatories and committed to integrating ESG issues into their decision making.

Overall global assets under management at funds leveraging ESG data have increased to more than $40 trillion in 2020, as reported by research firm Opimas. ESG-themed strategies are also growing rapidly, with Morningstar reporting 400 new ESG strategies launched by funds in their investment universe in 2019, compared with 160 launched in 2016.

Perhaps the most compelling change is the focus on ESG matters by corporations and the institutional investors who hold the vast majority of their stock. ESG has developed into a topic of prominence and influence among investors, asset managers, rating agencies, boards of directors and the broader financial community. The Sustainability Accounting Standards Board (SASB) released standards for reporting and it is expected that the number of corporations voluntarily reporting will rise to 300 by next year. This is in addition to those reporting under the Global Reporting Initiative (GRI) standards.

What are the hurdles?

Despite the traction being gained by attention to ESG, there remain numerous challenges for the investor community that need to be addressed, such as:

• Disclosures are beginning to flow from corporations, yet there are no universally common standards, and reporting is voluntary.

• Disclosure standards for investment products (funds, ETFs) do not yet exist, although it is encouraging that the CFA Institute is currently developing a voluntary, global industry standard.

• Further requirements for disclosures will come at an administrative cost to corporations, which is yet to be quantified.

• Conflicts with fiduciary responsibilities have been questioned when considering non-pecuniary factors, as illustrated by the Department of Labor ruling on Oct. 30, 2020, regarding investment selections for ERISA retirement plans.

• Sufficient time has not passed to evaluate the long-term relative investment performance of including ESG factors in investment selection.

Yes, there is still important work to be done, but the growing number of interested investors suggests that consideration of ESG factors in evaluating investments is poised to be a significant trend for years to come. It’s an opportunity for people to bring together money and meaning. After the year we just experienced, many people are probably thinking it’s about time.


Perspective Guest 02

Suzanne T Mestayer is the managing principal at ThirtyNorth Investments, LLC. All investment strategies have the potential for profit or loss. ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.


For disclosures, please click here.

Choosing the right financial road

When you don’t know where you are going, any road will get you there.  – Lewis Carroll.

This is true in life, careers, and our financial futures. It is particularly relevant when the stock market is as volatile as it has been throughout 2020. Our human tendency is to react in ways that undermine our long-term investment success, motivated through either fear or greed. We are especially susceptible when we don’t have clarity about where we are going.


Suzanne Mestayer

So how do we embrace the financial responsibility to choose the right road for ourselves, and how do we stay on it? Here are three important steps to keep in mind:

  1. Start with your destination in sight. Thoughtfully consider how you want to spend your time and your resources today and into the future. There are many topics to think about, including what age you would like to retire, your desired lifestyle in retirement, your health, your perception of financial security, potential career changes, your financial obligations to others, the legacy that you hope to leave to your children, and/or your philanthropic wishes.

We often hear people say that they are so busy with their professional lives and raising children, they don’t have time to focus on these questions until they are close to retirement. Keep in mind,“any road” will take you somewhere as your investments accumulate, but it may not be your destination of choice.

  1. Increase your financial knowledge. There are countless resources available which can         familiarize you with investing principles. One book that’s both concise and fundamental is Nick Murray’s “Simple Wealth, Inevitable Wealth”  (2019  20th Anniversary Edition). Even for non-beginners, it is filled with good information to reinforce what you may already know.

Some writers might have a bias towards a particular investing style with enviable tales of success, but keep your eyes wide open. This is where a broader level of knowledge will enable you to question the premise.

If you want to continuously learn in smaller bites, or to keep yourself current with recent trends, you may want to “follow” on social media—think LinkedIn– those people, firms, or publications that you believe are both trustworthy and informative. Stay focused on those that take a long-term view rather than those that are highly reactive to a moment in time.

  1. Work with a professional who feels like a partner. While some would rather use a do-it-yourself approach, many others are seeking a relationship with a professional. Trust should be high on the list of important characteristics of a good advisor. To build that trust look for someone who listens well, helps you create and stay on your personalized road, watches your back, keeps you informed, and has a willingness and desire to increase your financial knowledge. A good advisor is your ongoing partner in reaching your destination.

If you find yourself more concerned than confident of your financial future, use these three steps as a starter to achieving peace of mind and an opening road for your financial future.

Suzanne Mestayer is managing principal of ThirtyNorth Investments, LLC.

All investment strategies have the potential for profit or loss.

ThirtyNorth Investments, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements


For disclosures, please click here.