Retirement and Your Evolving Health Insurance Needs

Turning 65 can ease some of the financial burden of health care, as you’re likely to qualify for Medicare—a federal health insurance program available starting at that age. However, if you retire before reaching 65, you’ll need to find a way to cover your medical expenses until Medicare becomes available.

While some employers provide substantial health insurance benefits for retirees, this is relatively uncommon. If your employer doesn’t offer continued coverage, you may need to explore other options, such as purchasing a private insurance plan (which can be expensive), extending your existing coverage through COBRA, or enrolling in a policy through a state or federal Health Insurance Marketplace.

It’s also important to note that Medicare doesn’t cover long-term care services. If you ever need long-term support, you’ll be responsible for those costs unless you have long-term care insurance (LTCI) or qualify for Medicaid due to limited income or assets.

Understanding Medicare Coverage Options

As previously stated, most Americans become eligible for Medicare at age 65. If you’re already collecting Social Security benefits at that time, enrollment in Medicare is automatic. Once enrolled, you’ll need to determine whether Part A coverage alone meets your needs or if you should also sign up for Part B.
Part A—typically offered at no premium for most retirees—covers inpatient care, hospice services, and certain types of home health care. Part B helps with expenses for outpatient services such as doctor visits, lab work, and physical therapy.

Additionally, some retirees choose to join a Medicare Advantage plan (Part C), which is a managed care or fee-for-service plan offered by private insurers approved by Medicare. These plans may reduce out-of-pocket costs and often include additional benefits. If you lack adequate drug coverage, enrolling in a Medicare Part D prescription plan through a private provider approved by Medicare is also worth considering.

Keep in mind, though, that Medicare doesn’t cover every expense. You’ll still be responsible for deductibles, co-pays, and certain services. For this reason, many retirees look into purchasing supplemental insurance—commonly called a Medigap policy—to help cover these gaps.

It’s important to know, however, that insurers cannot sell you a Medigap policy that significantly overlaps with any coverage you already have. You are not eligible to buy Medigap if you’re enrolled in a Medicare Advantage (Part C) plan, and you may not need one if you already have post-retirement health coverage through an employer or a spouse.

The Role of Medigap Policies

If you’re concerned about out-of-pocket costs not covered by Original Medicare (Parts A and B)—such as deductibles, co-pays, and coinsurance—a Medigap policy may be a valuable addition to your coverage. Medigap policies are designed to help reduce financial strain by covering certain expenses that Medicare doesn’t pay for.

When you sign up for Medicare Part B at age 65 or older, you’re granted a six-month Medigap open enrollment window. During this period, you have guaranteed access to purchase any Medigap plan offered by a private insurer, regardless of your health status. Insurers are not allowed to deny you coverage or charge you higher premiums due to preexisting conditions during this time.

Key Features of Medigap Plans

Standardized Plans:

Core & Additional Benefits:

State-by-State Availability:

Long-Term Care Insurance and Medicaid

The thought of needing extended care in a nursing home is a major concern for many aging individuals and their families, especially given how expensive long-term care can be.

That’s why a number of people in their 50s or 60s explore LTCI as a way to prepare. A solid LTCI policy can help cover care in a nursing facility, an assisted living center, or even at home. However, it’s wise not to delay—these policies usually require you to be in relatively good health, and premiums tend to rise with age.

Another option may be Medicaid, which can cover long-term care costs if your income and assets fall within certain limits. Because Medicaid eligibility and planning can be complex and may impact your spouse or heirs, it’s best to consult a financial advisor or an attorney who specializes in this area before making any decisions.

Resource by the CAPTRUST wealth planning team

In 2024, economic conditions steadied, the Federal Reserve started cutting interest rates, and the market anticipated—then reacted to—federal election results. Against this backdrop, retirement plan sponsors refined their plan designs to improve participant experiences, participation, and outcomes. Past trends accelerated, and new ones took shape.

2025 promises further evolution. From changes in investment menus to the impact of an incoming administration, employers will need to stay nimble to address shifting regulations, emerging technologies, and evolving employee needs.

Here, CAPTRUST leaders share some quick-take predictions for the coming year.

Prediction One: Sponsors Seek Discretion

As employers look for ways to increase efficiency and tap additional expertise, discretionary services continue to gain traction. Retirement plan sponsors are increasingly outsourcing investment management and plan administration to financial advisors through a range of discretionary relationships.

Retirement plan discretionary services include several key roles.

“Along with the rise in discretionary relationships, we’re also seeing more informed consumers,” says Grant Verhaeghe, CAPTRUST institutional portfolios practice leader. “Sponsors know what they’re looking for now, and they’re asking good questions about each firm’s service offerings, process, and more.”

While OCIO and 3(38) relationships have become more established, the emergence of 3(16) plan administration services is still in its early stages. “We get a lot of inquiries about high-level due diligence and who the players are in the 3(16) market,” says Lori Dillingham, CAPTRUST senior director of vendor analysis and plan consulting. “There’s a wide variety of services being offered, and sponsors need help navigating the landscape.”

In 2025, CAPTRUST expects continued growth in discretionary services, supported by increasing standards and industry advocacy.

Additional Resources:

Prediction Two: Financial Wellness for All

Over the past few years, financial wellness, education, and advice have evolved into cornerstone benefits, with employers now leveraging advanced technologies and data to deliver tailored solutions. This type of personalization is key, as financial wellness programs now address diverse employee demographics, from entry-level workers to seasoned executives.

“What’s changing is the view of who can benefit from financial wellness programs,” says Jennifer Doss, CAPTRUST defined contribution practice leader. “It’s not just employees with lower incomes or those in financial straits. It’s everyone.”

Also, financial benefits are no longer strictly retirement centered. “We’re seeing more consideration about the role of financial benefits to support each stage of a person’s career and what they might need at various point in life to make informed decisions about their financial futures,” says Chris Whitlow, head of CAPTRUST at Work.

For example, Whitlow says, executive benefits like employee stock ownership plans (ESOPs) and nonqualified defined contribution (NQDC) plans are now being included in financial wellness offerings in an effort to drive higher engagement across a broader spectrum of employees.

“In the coming year, I imagine financial wellness conversations—and plan design conversations— will mostly focus on issues supported by SECURE 2.0 provisions, such as student loan debt, emergency savings, auto portability, and missing participants,” says Whitlow.

As the financial landscape grows increasingly complex, employees will need better and more frequent advice to navigate.

Additional Resources:

Prediction Three: Nonqualified Plans Gain Wider Appeal

NQDC plans, traditionally viewed as executive benefits, may now be expanding to include key employees and others in critical roles.

“We’re seeing more conversations every year about making these plans accessible to a broader group of employees within allowable guidelines,” says Jason Stephens, CAPTRUST nonqualified executive benefits practice leader. “Generally, that’s one of our recommendations. It typically doesn’t cost much more to make your NQDC plan available to a wider audience, and you can make a big impact on key employees by including them.”

This shift reflects a growing focus on retention and recruitment strategies for highly compensated employees.

“Employers who may have overlooked nonqualified plans in the past are now beginning to see their value,” says Dillingham. “It’s about offering thoughtful and competitive benefits to attract and retain top talent.”

“We’re seeing an uptick in discretionary relationships in the nonqualified space too,” says Stephens. “For nonqualified plans, discretion does not provide fiduciary protection, but still, plan sponsors are mirroring qualified trends and trying to pick up on administrative efficiency across the board.”

In 2025, expect more integration of nonqualified plans into broader financial wellness strategies, along with increased participant education to optimize these offerings.

Additional Resources:

Prediction Four: Measuring the Impact of SECURE 2.0 Provisions

The rollout of SECURE 2.0 provisions will reach a critical point in 2025, with sponsors now beginning to assess the impact of implementing optional features like student loan matching and self-certified hardship withdrawals.

“There’s huge interest in modeling tools to evaluate the return on investment of adding these provisions,” says Dillingham.

Sponsors are not only evaluating the impact of the provisions they’ve already chosen to implement but also looking at their peers’ plans for guidance on potential future changes. “In 2025, we’re going to see more and more sponsors asking, ‘OK, what’s the outcome of what we chose to do?” says Doss. “‘Did it lead to the results we were expecting, like higher participation, higher savings, or more retirement readiness? Or were there unintended side effects, like plan leakage?’”

Employers can expect 2025 to bring even more sophisticated tools and services that meet employees where they are. Plan sponsors will need to assess the effectiveness of their plan design choices and adjust as necessary to meet participant and organizational goals.

Additional Resources:

Prediction Five: Defined Benefit Plans Explore Their Options

Economic and market changes are leading sponsors to rethink the next steps for their defined benefit (DB) plans. Funding levels are high, with the average DB plan now funded at more than 100 percent, according to the Milliman Pension Funding Index November 2024.

“An improved funding scenario gives you more flexibility to make changes to your benefits package,” says Verhaeghe. “When plans are fully funded, sponsors have more options—whether that means terminating the plan, maintaining it, or restructuring benefits to leverage surplus assets.”

“It’s expensive to terminate a plan,” says Verhaeghe. “But for sponsors who manage it strategically, there’s an opportunity to optimize benefit programs.”

As 2025 unfolds, sponsors will continue exploring ways to balance risk and reward in their DB plans, using market conditions to inform decisions.

Additional Resources:

Prediction Six: Inevitable Change

As 2025 approaches, the retirement plan landscape is poised for some potentially rapid evolution, shaped by legislative shifts, economic conditions, and emerging trends in plan design and participant engagement.

“Among the uncertainties is the influence of a new administration, which raises questions about the future of tax policies, budget constraints, and retirement-focused legislation,” says Doss. “It’s possible we will see Congress discuss adjusting the tax benefits associated with retirement plans as a way to offset expiring tax cuts.”

“Plan sponsors are always managing multiple, competing priorities,” says Doss. “But next year could hold even more change than is typical.”

While the specifics remain to be seen, one thing is clear: Change is inevitable. Throughout it, CAPTRUST stands ready to guide employers through the complexities ahead, offering data-driven insights and tailored solutions so clients can navigate emerging challenges and seize new opportunities—no matter what 2025 holds.

The Tax Cuts and Jobs Act (TCJA) went into effect in 2018, reducing income taxes for individuals and corporations and increasing the Child Tax Credit, standard deduction, and estate and gift tax exemptions, among other impacts. Without congressional intervention, the TCJA will sunset after 2025, taking $3.4 trillion in tax cuts with it as tax law reverts to 2017 values, indexed for inflation.

As the expiration date approaches, it’s important to understand how this rollback will affect you. You may want to consider strategies to take advantage of lower tax rates in 2025 and prepare for changes in 2026 and beyond. Three areas to address are:

As always, your CAPTRUST financial advisor can help you assess these changes and apply them to your unique financial situation. Keep in mind that the sunset of these provisions is not guaranteed and could be changed due to future legislative action.

Smaller organizations may hesitate to use alternative investments, listing concerns such as liquidity and portfolio size. But endowments and foundations may benefit from pursuing alternative investments to help diversify their portfolios, enhance returns, or generate income.

Read on for an overview of alternative investments and what to consider based on your organization’s liquidity needs and portfolio size.

What Is an Alternative Investment?

An alternative investment is any asset that isn’t categorized as a stock, bond, or cash. This could include vehicles that invest in private markets, like private equity, private real estate, or private credit funds. As the figure shows, the term alternative investment represents a broad range of investment types, including debt, equity, real estate, and venture capital, that range across the risk-return spectrum.

Figure One: Risk-Return Characteristics of Private Market Alternatives Investments

E & F 2022 August Chart

Why include alternatives in your organization’s portfolio? CAPTRUST Senior Research Specialist Will Volkmann says that alternatives are a way to not only diversify a portfolio, but they may additionally increase returns for an endowment or foundation due to their long-term investment horizons. “In general, endowments and foundations can take advantage of private markets,” says Volkmann. “There’s an expected illiquidity [return] premium you get when you invest in private assets with time restrictions on accessing your money.”

A Range of Liquidity Options

Alternative investments are available in vehicles across the liquidity spectrum—from daily liquid mutual funds to less-liquid strategies to illiquid limited partnerships or direct investments. “Each option comes with its own characteristics, including fund structure, risk and return targets, minimum investment size, tax reporting, and investor accreditation requirements,” says Volkmann.

Despite hesitations about liquidity, alternatives can deliver benefits for organizations with a long-term investment time frame.

Liquid Investments

Liquid alternatives can be a good fit for nonprofits or organizations looking for a substitute for fixed income strategies or to reduce interest-rate risk. “These are daily liquid mutual funds that most closely resemble traditional hedge fund strategies,” says Volkmann. Liquid alternatives usually have low minimums for entry, making them a lower-risk option for an endowment looking for diversified alternatives exposure, income-generation, or both.

Illiquid Investments

On the other side of the spectrum are illiquid investments. These typically require a significant amount of capital to invest and are often best suited for large endowments or foundations—typically starting with portfolios that have at minimum around $50 million in assets—but can depend on a number of factors, says Volkmann. Despite the financial buy-in, illiquid alternatives reap potentially huge rewards. Illiquid investments—typically held in a limited partnership fund structure—frequently require seven- to ten-year-plus commitments but offer higher return expectations.

According to Volkmann, investing in this space doesn’t happen overnight and takes time and thoughtful planning. “To build an allocation, you must pace multiple investment commitments over time,” he says. “It could be several years before you reach the allocation target.”

Less-liquid Investments

A possible happy medium for alternatives, less-liquid assets are ideal for organizations that don’t want to lock up their capital for the long term and want to have the option to redeem if they need cash, says Volkmann. While semi-liquid strategies invest in illiquid assets, these strategies offer the potential to redeem quarterly or multiple times throughout the year. Less-liquid fund structures also typically require less capital than illiquid drawdown funds. “These less-liquid solutions mostly capture the beta of private markets, and depending on strategy, will target returns above the public market equivalent,” he says.

Consider the Risk and the Reward

When considering alternatives for a nonprofit, it’s important to know that not all alternatives—or liquidity options—are alike: Some have more considerations than others, and all require deeper due diligence. There’s also the question of your organization’s time horizon, so it’s helpful to consider how long a nonprofit plans to remain invested and can have the assets locked up. Keep in mind that the longer the money is kept in the alternative investment, the greater the return potential.

CAPTRUST’s 2024 Endowment and Foundation Survey explored some of the ways nonprofits are preparing for the future by shifting their fundraising tactics, governance structures, asset allocation, and more. The 2024 survey expanded on questions and techniques from previous years’ editions. As always, its intention was to help nonprofit leaders understand what their peers are doing, and why.

There were six key findings:

  1. There is less concern about inflation and market volatility compared to previous years, reflecting a more positive economic outlook. In 2024, 55 percent expressed extremely high or high concern about inflation, down from 81 percent in 2022.
  2. While survey participants indicated an increased interest in environment, social, and governance (ESG), impact-, values-, and mission-aligned investing, expectations for performance enhancement from these strategies has declined. Only 11 percent of respondents anticipated that the trend towards socially responsible investing would decrease in general.
  3. For nonprofits invested in alternatives, private equity is the leading choice in illiquid alternatives. Public real estate funds are the top vote-getter for liquid alternatives.
  4. We were surprised to see a downturn in organizations engaging an outsourced chief investment officer (OCIO). In 2023, 48 percent reported using an OCIO strategy, compared to 32 percent in 2024. 2023’s high number may be an anomaly, however, since 2024 results fall almost in line with the 33 percent reported in 2022. We will be keeping an eye on this trendline.
  5. Many organizations reported receiving significant fundraising support via planned and legacy giving. Arts, culture, and humanities organizations seem to be missing out on this opportunity and, instead, show a heavy reliance on individual donations through annual giving. This group also expressed the greatest degree of dissatisfaction (80 percent) with their overall fundraising.
  6. Larger nonprofits with more assets ($100 million dollars or more) indicate a high percentage of investment committee members that stick around. Almost half (40 percent) of these organizations report term limits of four years or longer. In our experience, one thing to be mindful of is that boards that nominate a committee chair annually—or who have implemented short committee term limits— may struggle with continuity and the ability to drive strategy changes forward quickly.

CAPTRUST’s 2024 Endowment and Foundation Survey gathered responses from 186 organizations. 53 percent of responses came from private nonprofits, and 47 percent were from public nonprofits. Foundations comprise the largest share of participants (26 percent), with education-related organizations representing 23 percent, and six other sectors included.

For more information, please reach out to your financial advisor. They can help you understand how the trends and practices reflected in these findings might impact your nonprofit’s financial picture.

“We need love as we need water,” the poet Maya Angelou wrote. From the time we’re babies, through our teen romances, then as adults, we naturally look to our partners, children, friends, and family members to make us the object of loving attention. Some are lucky in love, while others continue to seek it, but the need to be loved and appreciated is widely accepted as being essential to happiness.

Psychologically speaking, though, there’s a much shorter, more direct path to happiness—and it’s a surprisingly accessible one: giving love. Though we may not pay as much attention to this parallel emotional need, research from the field of positive psychology tells us that humans indeed have a deep, hardwired need to be the givers of love, tenderness, support, understanding, and attention. 

This is according to New York Times best-selling author Howard Cutler, M.D., an expert on the science of human happiness who co-wrote with the Dalai Lama the classic book, The Art of Happiness: A Handbook for Living. Drawing on 40 years of conversations with the spiritual leader of Tibetan Buddhism, Cutler is a psychiatrist who takes a secular approach to Buddhist practices. 

What Is Love, Anyway? 

Love isn’t a single emotion, Cutler says. Instead, it’s a family of emotions and mental states that includes compassion, caring, loving-kindness, mercy, and more. All love is positive, but there are nuances. Some types can be seen as conditional: I’ll love that person as long as they love me back. 

For example, a husband may have tremendous love for his wife and harbor only good wishes for her. But say the wife later cheats, and the marriage ends in divorce. All the warmth and compassion he had for her is gone. Conditional love isn’t the most reliable or stable since it contains an implicit desire for someone to fill a certain role for you.

Compassionate love is a bit more selfless. A combination of empathy, kindness, and care, with no expectation of anything in return. It’s the feeling you have for that dog you never met on the internet, or a war-torn country.

A central feature in many religious traditions, compassionate love is rooted in feelings and behaviors that are focused on caring, with an orientation toward helping others. 

Giving this kind of love is good for your overall health and well-being. Studies from Ivy League universities to prestigious medical centers report that love is not only key to a happy and satisfied life, it’s even good for our heart—literally and figuratively. These types of relationships can reduce our stress and protect us from certain diseases. 

Give Love to Get Love 

The road to happiness through giving love needn’t be convoluted. 

When you choose to show someone compassionate love—that love comes back to you in the form of trust, respect, loyalty, and more. It can be a small gesture to make your partner or friend feel appreciated, practicing loving-kindness mediation, or just taking time out of your schedule to show up for someone on an occasion big or small. 

Giving love is not about grand, showy gestures. It doesn’t take a lot of time, effort, or money to offer another person compassionate love and affection. However, if you want to live a life that is surrounded by love, you have to invest love in others. 

Cultivate Compassion 

Luckily, there are a host of ways to give love. Cutler offers techniques and exercises in his “Art of Happiness” training courses, executive coaching sessions, and corporate workshops, Cutler teaches simple activities and exercises that are secular in nature but drawn from Buddhist principles. 

Take a few minutes to try some of the exercises. You may soon feel the effects for yourself.

VESTED Winter 2022 Chart One

15 Circles Exercise 

This exercise cultivates compassion and forgiveness. Think of someone you know well and have some kind of grudge against, maybe a family member or former romantic partner. Draw a circle on a sheet of paper and write a few words in it describing your grudge. 

Next, draw 15 more circles on the same paper. Fill each one with a word or phrase about something you could be grateful to that person for. Although you may not immediately feel grateful, use your creativity to think of some benefits to you that arose out of the situation. You can try asking yourself a few questions: 

Fill as many circles as you can, even if you can’t fill them all. The exercise is not meant to excuse or minimize what you’re angry about. The purpose is to look at the person’s entire effect on your life, not just the negative, “and in the process, diminish the grudge as your perspective widens to authentically include this gratitude,” Cutler says. You may not end up loving the object of your grudge, but the gratitude produced will open up your heart. 

A Simple Act of Gratitude 

When was the last time you wrote a letter to your partner, friend, or family member? This simple act of gratitude can help reconnect you to a loved one. Moreover, practicing gratitude is one of the easiest, most effective ways to increase overall happiness, Cutler says. 

Think of someone that you feel gratitude toward but have never properly thanked. Write a detailed letter to the person, explaining what they did that you appreciated and how specifically it made you feel. The next step is to make an appointment to see that person and read the letter aloud. This may feel awkward for some, but those who push themselves to do it will find it very powerful. 

“This exercise often elicits intense positive experiences, which some people may find transformative—and the effects have been shown to last a long time,” Cutler says. Even writing the letter without sharing it can be a positive experience. 

Remember to start slowly. You may find that what you get back can be very fulfilling, and even that the supply of love you have is endless. The truth is, the more love you give, the more love is given to you and that you have to give to others. 

About Howard C. Cutter graphic

Yesterday, November 5, American voters made their choices for leadership across the country. On the federal ballot were the presidency, 34 seats in the Senate, and all 435 seats in the House of Representatives.

At the time of publication—late morning on Wednesday, November 6—former president Donald Trump is the projected winner. The Republican party is projected to retake the majority in the Senate, although the margin is still unknown. The makeup of the House of Representatives is not yet clear. Regardless, the margin is going to be thin.

Investors’ initial reactions to election outcomes are typically driven by emotion. However, these first moves often prove temporary as fundamental drivers ultimately outweigh feelings and policy speculation.

What is important to note is that markets generally do not prefer one result over another. Markets react to certainty and uncertainty and the health of the economy. After elections, stocks tend to do well because elections clarify some of the questions that have been swirling throughout the previous months.

Now that some of the election questions have been answered with more clarity than many expected, businesses can begin making decisions in the context of the new political landscape. Economists are reflecting on the likelihood and impact of policy actions, both in the near term and long term. Investors are considering portfolio positioning. And consumers are evaluating how the outcomes will affect them.

As financial advisors, we are paying close attention to many factors. While we may see short-term market volatility, tried-and-true investment principles still apply. Remain diversified, resist emotional decision-making, and stay invested to take advantage of the long-term compounding power of time.

Courts Highlight Key Fiduciary Process Elements

This quarter, several cases considered the details of claims alleging fiduciary breaches in the selection and retention of investments and payment of fees. In each of these cases, the plan fiduciaries prevailed. The judges’ observations offer good guidance for practical actions fiduciaries can take as part of a prudent governance process.

In Luckett v. Wintrust Financial Corp. (N.D. Ill. 2024), a fiduciary committee decided to replace their actively managed T. Rowe Price Retirement target-date funds with the passively managed BlackRock Lifepath Index target date funds. Unfortunately, the BlackRock funds did not perform as well as the T. Rowe Price funds, so plan participants sued, alleging a fiduciary breach in making the replacement.

In In Re: Prime Healthcare ERISA Litigation (C.D. Cal. 2024), plan fiduciaries were alleged to have had an inadequate governance process for investment reviews, monitoring investment expenses, and recordkeeping fees. Following an 11-day bench trial, the judge concluded that the fiduciaries’ process was prudent and denied all the plaintiff’s claims. The opinion made the following points, among others.

In In Re: Quest Diagnostics Incorporated ERISA Litigation (D. N.J. 2024), plan fiduciaries were sued for retaining underperforming investments and having an inadequate governance process. Ruling on a motion for summary judgment, the judge concluded that the fiduciaries’ process was prudent. All the plaintiff’s claims were denied. The ruling made the following points, among others.

Fees Litigation Grinds On

The flow of fees cases continues. Many of these cases are settled before progressing to a court decision. A few recent examples of court-approved settlements include the following.

Hedge Fund Plan Fiduciaries to Pay $40,000 per 401(k) Plan Participant

The former human resources director of a hedge fund investment management firm filed a class action lawsuit challenging the firm’s operation of its $103 million 401(k) plan. Allegedly, the only investments offered in the plan were two of the hedge fund’s strategies, both of which included alternative investments. The offered investments suffered significant losses, and a lawsuit followed. A settlement of $7.9 million has been announced, which equates to an average award per participant of $40,000. Andrew-Berry v. Weiss and GWA, LLC (D. Conn. 2024)

Recordkeeper Not Responsible for Market Losses During Distribution Delay

In late February 2020, as the COVID-19 pandemic was taking hold and roiling equity markets, a recently retired 401(k) plan participant requested complete distribution of her nearly $1.7 million account balance. Although she was told that a check would be sent the next day, the plan had a mandatory distribution waiting period of 30 days following a participant’s retirement. Ultimately, because the market had declined, the distribution amount was about $150,000 lower than the participant’s account balance when the distribution was requested.

The recordkeeper recognized its miscommunication about the waiting period and let the participant know within a few days. Acknowledging the communication error, the recordkeeper paid the participant an additional $52,000. Even so, the participant received $98,000 less than she anticipated.

The disappointed participant sued, claiming that, pending completion of the requested distribution, the recordkeeper should have moved her account assets to a safe harbor cash account, where it would have been protected from market volatility. She also claimed that the recordkeeper breached its fiduciary responsibility to her by enforcing the 30-day waiting period.

The court ruled against the participant, noting that the recordkeeper did not have the discretion or authority to change her investment direction pending completion of her requested distribution. Additionally, the recordkeeper was not acting as a fiduciary in enforcing the plan-mandated 30-day distribution waiting period. Harris v. American Electric Power Service Corporation (S.D. Ohio 2024)

This case is a good reminder that plan recordkeepers have very limited discretion and rarely take on a fiduciary role.

Health Claim Denial Requires Meaningful Dialogue

Editor’s note: Although the Fiduciary Update is focused on retirement plan issues, significant other fiduciary developments are also reported from time to time.

A recent case involving a health benefit claim denial held that, in the course of considering a benefit claim and appeal, there must be a “meaningful dialogue” between the plan administrator and the participant.  

In Dwyer v. United Healthcare Insurance Company (5th Cir. 2024), a plan beneficiary’s eating disorder treatment was dramatically reduced. Appeal of the care reduction was denied with a single paragraph explanation. The court considered each sentence in the concise appeal denial, noting either its inaccuracy or irrelevance. One statement in the appeal denial— “You are better.”—was characterized as “a doozy” for both being incorrect and having no medical significance.

When health benefits are denied, the beneficiary has the procedural right to a full and fair review by the appropriate named fiduciary. To meet this requirement there must be a meaningful dialogue between the beneficiary and administrator. Failure to have a good-faith meaningful dialogue represents an independent basis to overturn a denial of benefits. The judge observed, “This back-and-forth is how civilized people communicate with each other regarding important matters.”

The court of appeals reversed the plan administrator’s benefit reduction and sent the case back to the court to calculate the damages due to the breach.

Du Pont Matriarch’s Retirement Program Not Covered by ERISA

We previously reported on a retirement program established in 1947 by Mary Chichester du Pont of the DuPont chemical company for domestic employees and those who provided secretarial, accounting, or other assistance to du Pont family members. (See CAPTRUST’s Fiduciary Update | May 2023.] Practically, at this time, the beneficiaries of the retirement program and trust are employees of Mary Chichester du Pont’s grandchildren. This litigation began with a dispute over whether one grandchild’s employee is covered under the trust. The U.S. District Court concluded that the retirement program was governed by ERISA and that the employee was covered under the plan. A special master was appointed to sort out the details, including an estimated $38 million trust liability. An appeal followed.

The U.S. Court of Appeal for the Third Circuit has reversed the finding that the du Pont family retirement program was an ERISA-covered plan and vacated appointment of the special master. The court of appeals noted that there was no single employer of the participating employees. Therefore, to be covered under the program—as an ERISA plan—the employee would have to show that her employer established or adopted the trust and plan. The employee could not meet this burden, so the court of appeals concluded that ERISA does not apply to this arrangement and reversed the lower court’s decision.  

Murderer Cannot Receive Beneficiary Proceeds

Two recent cases have addresses so-called slayer statutes, which provide that murderers cannot receive money as the beneficiaries of those who they kill.

In Standard Insurance Company v. Guy (6th Cir. 2024), Joel Guy murdered his parents and admitted that the reason for the murders was financial gain. He was a designated beneficiary on his mother’s life insurance. The family lived in Tennessee, which has a slayer statute. The district court held that ERISA does not preempt the Tennessee slayer statute and precluded Guy from benefitting from the murder. He appealed, arguing that ERISA preempts state laws and does not include a slayer statute, so he should receive the life insurance proceeds. The circuit court of appeals reviewed the issue and found that, regardless of the Tennessee slayer statute, the federal common law (that is, decisions by other courts) includes a slayer statute. So, he cannot benefit.

In Hartford Life and Accident Insurance Company v. Nickal (D. Colo. 2024), Gary Nickal murdered his wife, Molly Jean. Nickal was the designated beneficiary on her life insurance policy. Molly Jean’s estate sued to get the life insurance benefits. Colorado, where the family lived, has a slayer statute, but the issue of ERISA preemption had not been addressed. The court considered the matter and concluded that ERISA does not preempt Colorado’s slayer statute. The life insurance proceeds were awarded to the estate.

Two significant challenges of managing cyber security for retirement plans are their size and human impact. Those factors are also what make retirement plan cyber security so important. As CAPTRUST Chief Technology Officer Jon Meyer points out, “What’s at stake is participants’ largest nest eggs—their life savings—being put at risk due to insufficient management of cyber security.”

Also at stake: The plan sponsor’s reputation and financial health. Cybercriminals today are targeting large and small businesses almost indiscriminately, and to great effect. Research by the National Cyber Security Alliance found that more than 70 percent of cyberattacks target small or medium-sized businesses, and 60 percent of those attacked went out of business within six months. For larger businesses, the average cost of a data breach is now $4.88 million dollars, according to IBM’s 2024 “Cost of a Data Breach Report.” Publicly traded companies can also expect significant hits to stock values, waves of impact throughout their supply chains, and long-term damage to their brand reputation.

“It’s not just about securing the plan itself,” says Nick Brezinski, CAPTRUST director of information security and network. “It’s about securing the entire ecosystem, including recordkeepers, third-party administrators, participants, and anyone else with access to plan data.” That can seem daunting for plan sponsors that don’t know how to get started. But there are key practices that can help to light the way.

Fiduciary Cyber-Responsibility

The Department of Labor’s (DOL) “Cybersecurity Program Best Practices” provides a framework to help plan sponsors to act as prudent fiduciaries when it comes to cyber risk management. “These are guidelines and best practices, not specific technology recommendations,” says Meyer. “They emphasize the need for a full and effective information security program, rather than focusing on individual technological solutions.”

Under these guidelines, a plan sponsor’s fiduciary duty is to safeguard participant assets, in a similar way to how they guard their own organization.

Typically, this means building up internal expertise or hiring external experts in cyber security, in the same way that they might hire an ERISA lawyer or an investment manager.

However, Brezinski warns, “Hiring external experts or service providers does not transfer the risk to that third party. The sponsor still owns the responsibility for securing their data and running the plan’s broader cyber security program. External experts can supplement where internal resources are lacking, but accountability remains with the plan sponsor.” Fiduciary responsibility itself cannot be outsourced, which means that sponsors have a duty to monitor their vendors.

Vendor Management and Accountability

Since many plan sponsors rely on third-party service providers, it’s crucial to vet vendors rigorously, and confirm that they are complying with stringent security standards. This includes regular reviews and contractual obligations regarding data protection.

“When vetting technology partners, it’s essential to have conversations about what you’re looking for, considering the size of your organization and where you are in your cyber security journey,” says Brezinski. Cost is often a significant factor, and it’s important to balance capability with affordability.

Once the vetting process is complete, consider legal contracts to enforce cyber security standards. “It’s not enough to have a handshake agreement,” says Jon Atchison, CAPTRUST senior team lead for governance, risk, and compliance. “Where possible, make an effort to lock down your vendors with data privacy and security agreements.” These agreements legally bind vendors to maintain certain standards, which are essential for ensuring that vendor security practices align with the plan sponsor’s risk management strategies.

Vendor management also includes proactive engagement throughout the length of the partnership. “You don’t need to be an expert on cyber security, but you do want to have a modicum of understanding of the threats and protective measures,” says Atchison. “That way, you can ask good questions and understand where your partners are doing well, and where they might not be.”

Fraud Awareness and Participant Education

Another critical aspect of cyber security is educating participants. Although fraud is a distinct threat from cyber security risks, it often gets lumped in. Plan sponsors have a responsibility to help employees understand how they can help protect their accounts from fraud and scams.

For example, participants could have their retirement funds stolen due to social engineering attacks, such as phishing or romance scams, which may not involve cyber security breaches. “In these cases, it’s important for sponsors to understand their recordkeepers’ guarantees, and how they plan to handle cases of fraud,” says Meyer.

Phishing is when scammers impersonate trustworthy sources and persuade people to reveal sensitive data like personal information or passwords. Through romance scams, malicious actors build trust over time, then ask for money. Pig-butchering is another type of scam to be aware of. According to the Financial Industry Regulatory Authority (FINRA), “These scams often involve fraudsters contacting targets seemingly at random, then gaining trust before ultimately manipulating their targets into phony investments, and ultimately disappearing with the funds.” On its website, FINRA offers tips for identifying and avoiding specific scams like these.

“You can’t rely on technical security alone,” says Atchison. “Participants need to be taught how to recognize scams so that they don’t become unwitting participants in their own attacks.” The stakes are high because participants who fall for scams may not be reimbursed for the legitimate transactions they initiated. Recordkeeper guarantees only go so far to protect participants against cyber fraud.

Sponsors should also encourage participants to register for online services, regularly review their retirement accounts, and report suspicious activity to the plan sponsor and recordkeeper immediately, and sometimes to the FBI. “It’s about building a culture of cyber security awareness at every level,” says Brezinski.

The Limitations of Cyber Liability Insurance

While cyber liability insurance can provide a financial cushion in the event of a breach, it’s important for plan sponsors to understand what this insurance covers, and, perhaps more importantly, what it doesn’t. As Meyer says, “Cyber liability insurance may cover breaches caused by the plan sponsor, but it won’t necessarily cover breaches by a third-party service provider, like a recordkeeper, and a huge number of breaches are third-party breaches.”

Brezinski and Atchison recommend that sponsors carefully review their cyber insurance policies to verify that they provide adequate protection for plan-related data. Relying solely on insurance without a comprehensive cybersecurity program in place could leave sponsors and participants exposed to significant risks.

Brezinski reiterates the need for contractual coverage with vendors. “This will help ensure that, if a breach happens at the vendor level, the vendor will take responsibility,” he says. “Cyber liability insurance alone might not offer full protection in such cases.”

“At the end of the day, it’s about safeguarding participants’ retirement security,” says Atchison. “The risks are real, but, with the right strategies, they can be minimized.”

Undoubtedly, the cyber security landscape for retirement plans is complex, and rapidly evolving. To face today’s and tomorrow’s threats, plan sponsors should take a proactive approach, implementing a comprehensive cybersecurity program that includes proactive vendor management and participant education. By staying attuned to emerging threats, and committed to robust cybersecurity as part of their fiduciary responsibilities, sponsors can better protect their participants’ information and retirement savings.

“Plan sponsors would do well to look at cybersecurity as a continuum of shared responsibility—a continuum between themselves, their vendors, and their participants,” says Meyer. An effective information security program, well-written vendor contracts, participant education, and a comprehensive understanding of fraud risks are essential components of an effective cybersecurity strategy for retirement plans.

Earlier this year, investors expected the Fed would eventually shift from its restrictive stance, which it adopted to combat inflation, to an accommodative stance with lower interest rates. But with higher-than-expected inflation throughout most of the first half of 2024, investors just weren’t focused on rate cuts.

Things changed in the third quarter. With inflation moving a step lower, market expectations shifted and all eyes turned to the Fed. At its September meeting, the Fed made the pivot investors were expecting, moving the economy into a new chapter. Here, we recap the third quarter and explain a few things the CAPTRUST Investment Group is watching to stay prepared for what could happen next.

Market Rewind: Third Quarter 2024

The cool inflation report at the start of July was a stark contrast to the previous quarter. All asset classes showed positive performance. A soft-landing narrative—driven by increasing confidence that inflation was decreasing as recession fears eased—allowed markets to shine.

Figure One: Asset Class Returns, Third Quarter (Q3) 2024 and Year-to-Date (YTD) 2024

This chart shows market returns across many asset classes in the third quarter of 2024. All data is also repeated in the copy of this article.

Asset class returns are represented by the following indexes: Bloomberg U.S. Aggregate Bond Index (U.S. bonds), S&P 500 Index (U.S. large-cap stocks), Russell 2000® (U.S. small-cap stocks), MSCI EAFE Index (international developed market stocks), MSCI Emerging Market Index (international emerging market stocks), Dow Jones U.S. Real Estate Index (real estate), and Bloomberg Commodity Index (commodities).

Large-cap stocks saw another solid quarter, rising 5.9 percent and finishing near all-time highs. Although corporate earnings were roughly flat, we saw gains across a broad swath of the market, with all sectors other than energy rising for the quarter. Mega-cap stocks ceded leadership but remain ahead year-to-date.

After trailing in the first half of the year, small-cap stocks rocketed higher in July before falling in August. Despite this fall, they finished 9.3 percent higher for the third quarter.

As U.S. Treasury rates declined, interest-rate-sensitive markets performed well after a difficult first six months of the year. Investment grade bonds rose 5.2 percent, and real estate posted a stunning 17.0 percent return, boosted by low relative valuations. Declining interest rates eased concerns over financing in the commercial market.

Commodities managed to hold their ground, rising 0.6 percent. Geopolitical tensions simmered, allowing oil prices to decline. Meanwhile, gold continued its relentless climb, hitting a new all-time high of $2,672 an ounce.

Outside the U.S., developed market stocks performed well, returning 7.3 percent. Japan was the outlier as the yen’s appreciation relative to the U.S. dollar brought returns down 6 percent. Emerging market stocks were nearly relegated to a footnote this quarter, until China’s government announced a significant stimulus in late September. This sent the Chinese market soaring, after lagging for the past several years. In total, emerging market equities returned 8.9 percent.

The Fed’s Influence on Markets

When Congress created the Fed in 1913, it had three objectives:

Markets tend to focus most of their attention on the first two of these relatively ambiguous objectives. Generally, price stability equates to a 2 percent inflation rate. Maximum employment is the highest level of employment the economy can tolerate without driving inflation above the stated target.

While the Fed is often criticized for its approach to and execution in achieving these objectives, Fed officials take their responsibilities seriously. Therefore, when markets believe a change is imminent, they too care deeply about inflation and labor statistics.

What Changed

Inflation: For most of the first half of this year, not only did we see a continuation of elevated inflation on a month-to-month basis, but the data came in above expectations. This increased pessimism and uncertainty about whether inflation was truly on a path back to the Fed’s 2 percent target. While the data for May, released in mid-June, came in both low and below expectations, at 0.0 percent, there was enough doubt built up in the system to prevent a dramatic reaction.

However, with a -0.1 percent inflation data point for June, released on July 11, market perspective shifted dramatically. One obvious manifestation was an incredible reversal and rally in small-cap stocks, particularly relative to large-cap stocks.

Figure Two: Large-Cap vs. Small-Cap Stock Market Performance, January to September 2024

In Figure Two, the S&P 500 Index is used to represent U.S. large-cap stocks, and the Russell 2000® is used to represent small-cap stocks).

This dramatic performance was not the result of lower inflation. Small-cap stocks outperformed because markets saw lower inflation as a green light for the Fed to begin unwinding tight monetary policy. This could ultimately reduce the burden of higher borrowing costs, which were designed to slow the economy and which disproportionately impacted smaller businesses.

Labor: Inflation is important, but labor is the lynchpin.A crucial fact, omitted in the previous paragraph, is that the labor market and overall economy were in good shape throughout the first half of the year, likely headed toward a soft landing.

Consumers make up roughly 70 percent of the U.S. economy, and consumer spending is the primary engine for U.S. economic growth. Therefore, a healthy labor market is critical to the prospects of our economy.

Without a positive outlook for the economy, small-cap stocks, which are more sensitive to economic growth, could have seen their year-to-date struggles worsen. That’s what happened in early August when a weak unemployment report drove a near-perfect reversal of July’s small-cap rally. But because the economic outlook was positive in September when the Fed pivoted, small-cap stock values shot upward.

Markets interpreted the lower inflation data as confirmation that the Fed would be able to take its foot off the brake and lower rates. This caused the more cyclical sectors of the market, such as small caps, to rally. However, weaker employment data raised fears that the soft inflation data was being driven by a weakening economy, and this triggered a rapid reversal.

It turns out, when members of the Federal Reserve Board of Governors consistently tell the market they will be data-dependent in their decision-making, the market listens and becomes data-dependent itself.

What the Pivot Means for Markets

For the moment, there has been an increase in uncertainty. You could say that the volatility of volatility has increased. In plain language, the market is more likely to experience day-to-day swings.

Investors were surprisingly split about whether the Fed would cut the fed funds rate by 25 or 50 basis points (a basis point is 0.01% and commonly referenced as bp or bps) at its September meeting. When it cut the rate by 50 bps, investors were then concerned about what this decision implied about the future rate path. Did Fed Chair Jerome Powell and his cohorts just begin an aggressive campaign to bring rates back down? Or was this a jump start to give the Fed the space to make more cautious decisions?

The anticipated path of the fed funds rate is well captured by the 2-year Treasury yield. The 2-year Treasury declined from 4.75 percent at the start of the third quarter to 3.65 percent at the end—an exceptional move itself. The implications of this movement could be seen across other markets, such as currencies. The U.S. dollar has been very sensitive to the potential path of interest rates, and we’ve seen it decline neatly with the 2-year Treasury.

As mentioned, when the Fed cut rates, more economically sensitive sectors and markets briefly moved higher before retreating. The broader equity market jumped up and down for most of the quarter before moving to new highs at the end of September. And fixed income, which struggled to get its head above water in the first half of the year, enjoyed a strong rally throughout most of the quarter as the market priced in a series of future rate cuts.

Much of this intra-quarter turbulence was the result of two things: investors pricing in a shift from restrictive monetary policy, and the market evolving its view on how quickly the Fed would move.

Figure Three: Two-Year U.S. Treasury Yield vs. U.S. Dollar, September 2023 to September 2024

More Questions Ahead

The Fed has now pivoted to an easing cycle, but there are still many unknowns to face.

What We’re Watching

Investors are students of previous market cycles, and many historically significant indicators are flashing warnings. While we take these indicators seriously, we also recognize that we are in a unique economic environment that continues to normalize from the fiscal, monetary, and economic experimentation that took place after the pandemic. This leaves us in a low-conviction environment as we seek to adapt our historical experience to the unwinding of novel policy choices from the past four years.

Figure Four: Target Fed Funds Rate Probabilities for December 2025

Our base case—what we think is probably likely to happen in the next few months—is that equities will perform in stride with earnings growth. Corporations, particularly mega-cap companies, are healthy and strong. We anticipate they will be able to continue to grow their earnings as the market expects.

Similarly, we expect to clip coupons in fixed income, albeit with some potential volatility as markets digest the Fed’s new direction. With the yield on fixed income markets near 4.25 percent, investors could earn a nice advantage over inflation on investment grade bonds.

In a more optimistic scenario, the elevated margins at corporations, a more dovish Fed, and the potential for increased productivity driven by artificial intelligence could pave the way to higher equity market returns. This scenario would likely be accompanied by an increase in inflation and, therefore, higher interest rates, which could hold down fixed income returns in the near term.

On the other hand, if we choose history to guide us through this novel environment, it does not take long to draw a more pessimistic conclusion. The Fed has a track record of holding interest rates too high for too long, thereby pushing the economy into recession. And we have seen unemployment levels rise steadily over the past year, although not to concerning levels. Historically, high unemployment rates align with recessions.

Cautiously Optimistic

The next quarter is likely to be turbulent, but we may see markets steady themselves after the election and as economic data unfolds. Throughout the bumps, it’s important to keep in mind that turbulence is a normal market reaction to uncertainty. With the tailwind of the Fed’s new stance, and attuned to the multiple unknowns before us, we see a lot to like in this economy and in markets today.

Of course, markets will need to adapt to this new monetary policy regime to gain a better grasp on the Fed’s framework for analysis. But with consumers and corporations in fundamentally strong positions, we are cautiously optimistic.