FIG Topics of Interest



Retirement savers and financial companies cheered Thursday. The really big change they feared—a slashing of the amount workers can contribute before taxes to their 401(k) plans—didn’t materialize in the U.S. House of Representatives tax bill.

But it does include some proposed tweaks.

Here are five changes legislators want to make to the workplace accounts, and how they could affect employees in retirement savings plans.
1. Continuing contributions 

Currently, someone taking a hardship withdrawal from a 401(k) plan can’t contribute again until six months have passed. The bill would eliminate that restriction. 
2. Bigger hardship withdrawals

Right now, participants can only take hardship withdrawals of money they contributed, not matching contributions from their employer or amounts that have appreciated through investments. The proposed change would allow savers to take a withdrawal based on the whole balance. 

3. Repaying loans

Currently, if you have an outstanding loan from your 401(k) and lose your job, you generally have to roll that money into an IRA or new employer’s plan within 60 days. If you don’t, the loan becomes taxable and subject to a 10 percent penalty. The bill says a worker who was terminated with a loan outstanding would have until their taxes are due (so April 15 of the following year) to repay it into an IRA or a plan at a new job.
4. Syncing ages

The age when plan participants can take in-service distributions would be synced for 401(k)s and government plans. In-service distributions are withdrawals some employees can make while still working. With 401(k)s, the age to take money out without penalty is 59 1/2, but some state and local governments with 403(b) or 457 plans set the age at 62. The bill would declare the age as 59 ½ for all of these types of defined contribution plans.

5. Nondiscrimination test tweaks

One change would make it easier for defined benefit plans, the predecessor to 401(k)s, that are closed to new participants to pass nondiscrimination tests. Those tests are meant to ensure that the retirement plan doesn’t favor higher-compensated employees over lower-paid workers. 

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Powell on Monetary Policy in his Own Words:
On interest-rate increases 

  • “U.S. monetary policy normalization has been and should continue to be gradual, as long as the U.S. economy evolves roughly as expected,” Powell said in an Oct. 12 speech. “The expectation of gradual policy normalization should reduce the likelihood of outsized movements in interest rates.”

On reducing the balance sheet 

  • “The shrinkage of the Fed’s balance sheet is also expected to proceed quite gradually, with slowly phased-in increases in caps on the monthly reductions in the Federal Reserve’s security holdings,” he said in the October speech.
  • “It’s hard for me to see the balance sheet getting lower than $2.5 trillion, let’s say, $2.5 to $3 trillion,” he told CNBC in June. “That assumes we normalize the balance sheet over the course of the next five years and go back to a fairly small number of reserves.”

On consumer prices 

  • “Inflation is a little bit below target, and it’s kind of a mystery,” he told CNBC in August. “You would have expected, given that we’re getting tighter labor markets, that we’d have a little higher inflation. I think that what that gives us is the ability to be patient.”

On the Phillips Curve and inflation expectations

  • “The relationship between slack and inflation has weakened substantially over the years," Powell said in June 2016. “In addition, inflation depends importantly on the inflation expectations of workers and firms. A widely shared view among economists today is that, unlike during the 1970s, expectations are no longer heavily influenced by fluctuations in inflation, but are fairly constant, or anchored. For both these reasons, inflation has become less responsive to cyclical changes in the economy.” 
  • “While inflation expectations seem to me to remain reasonably well anchored, it is essential that they remain so,” he said. “The only way to assure that anchoring is to achieve actual inflation of 2 percent, and I am strongly committed to that objective.”

On economic growth, unemployment and wages 

  • “My baseline expectation is that the economy will continue on a path of growth of about 2 percent, strong job creation and tightening labor markets, and inflation moving up toward our 2 percent target,” he said in a June 2017 speech. 
  • “I expect that unemployment will decline a bit further and remain at low levels for some time, which could draw more workers into the workforce, put upward pressure on wages, or cause businesses to invest more as labor costs rise, all of which I would view as desirable outcomes,” he said.

On using rules to set monetary policy

  • “There is general agreement that these simple policy rules do provide interesting and useful insights into policy,” he said in a February speech. “To gain the benefit of those insights, it is helpful to look at a range of rules. But there is no consensus that any one rule is best, let alone that it would be desirable to require the FOMC to pick and mechanically follow one rule to the exclusion of others.”
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“There’s a complacency that shale is going to continue to produce at the kind of volumes that we had in the past,” says Jim Brilliant, a portfolio manager for Century Management Investment Advisors in Austin, whose investments include shares in energy-related companies. Output has recently failed to meet expectations. As of June, the U.S. Energy Information Administration expected an average of about 9.3 million barrels a day, more than 220,000 barrels a day higher than companies reported.

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"I think that final bill will not be as grand as Donald Trump envisions. It's not going to be as bold. The reason is they're going to phase in aspects of it," said Greg Valliere, chief global strategist with Horizon Investment.

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Cities across the U.S. often feel the same pinch—trying to manage the typical costs of running a city, such as picking up trash and filling potholes, on top of ballooning retirement obligations and outstanding debts. Several major cities are struggling to keep up.

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The Republican-controlled House voted 216-212 to pass a budget blueprint for the 2018 fiscal year. The measure will enable the tax legislation, due to be introduced next week, to win congressional approval without any Democratic votes.

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The House hopes to pass a budget on Thursday and move one step closer to approving a tax plan. If House Republicans can clear a budget resolution already passed by the Senate, they hope to release a tax bill next week and pass it by Thanksgiving.

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“The moment of truth has arrived for secular bond bull market!” DoubleLine Capital Chief Investment Officer Jeffrey Gundlach tweeted Tuesday, just before yields touched session highs. “Need to start rallying effective immediately or obituaries need to be written.”


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Lots of factors go into the decisions but these companies have made a simple calculation: Cheap labor in Mexico -- as much as a $20,000 saving per worker compared with the U.S. -- is enough to offset the higher costs of any tariff imposed by Nafta’s demise. That math shows how Trump’s America First effort to revive manufacturing faces hurdles.
The latest rounds of talks over the 23-year-old trade treaty ended last week, with Mexico and Canada rejecting hard-line U.S. proposals. Negotiations will resume in November but the ministers agreed to put off any resolution until next year.

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Business wasn't great during the third quarter, but things should pick up again through the rest of the year, according the latest survey of business economists.
Profits were squeezed, jobs were harder to fill and materials prices rose in the latest quarter, according to a majority of the National Association of Business Economists. But overall, the group expects sales to continue rising in the last three months of the year.

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