Recession or Growth Scare? Your Guide

Provided by Marc Aarons

I’m hearing a lot of mixed messages these days about the economy. Some headlines say we’re already in a recession; some say one is looming. Others hint that we’ll avoid a recession and have a soft landing. It makes you wonder who’s in charge of putting a label on the economy.

I did a little digging on the topic, and here’s what I found.

The National Bureau of Economic Research (NBER) is the official arbiter of recessions. A recession is a “significant decline in economic activity that is spread across the economy and lasts more than a few months.” You may be surprised that the NBER no longer defines back-to-back quarters of negative Gross Domestic Product growth as a recession–that’s considered old-school economics.

While the current economy includes inflation and rising interest rates, it’s also creating jobs. This economy created over half a million jobs in July alone. Given that indicator, I think it’s safe to say that our economy is expanding, not receding.

An old saying goes, “Don’t worry about the horse. Just load the wagon.” It’s a good time to stay focused on your goals and not worry too much about what you can’t change.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

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MMI Disclosure: This material was prepared by MarketingPro, Inc. for use by Marc Aarons. Money Managers, Inc.; is a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.  

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Several women-dominated industries were hit hardest by the pandemic.

 Provided by Marc Aarons

 Since the 1980s, unemployment rates have trended higher amongst men than women during a recession. In previous periods of economic downturn, this made sense. Male-dominated industries, like construction and finance, were typically some of the most impacted by a recession.¹

But with the onset of COVID-19, we’ve seen a shift in what workforces are the most impacted. The unemployment rate among women more than quadrupled from 4.4% in March 2020 to 16.1% in April 2020. That’s a 2.5% higher rate of unemployment in women than men.¹

There are a few reasons why this past year’s economic downturn is being called a “she-cession.”

Several women-dominated industries, including hospitality and leisure and entry-level food positions, were hit hardest by the pandemic. And when schools, nurseries, and daycares shut down, parents scrambled to cover. This increased need for full-time childcare meant many working mothers adjusted their professional roles to accommodate.

While the government offered several short-term assistance options to help those affected by the pandemic, there are long-term, compounding financial hardships that should be addressed by a professional. If you’ve experienced financial strain due to the long-lasting effects of COVID-19, do not hesitate to reach out. I’m here to help get your financial goals back on track.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

1. ^{Federal Reserve Bank of St. Louis, 2020}

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Should professional practices look into them? 

Provided by Marc Aarons

In corporate America, pension plans may be fading away. Only 14% of Fortune 500 companies offered them to full-time employees in 2019. In contrast, legal, medical, accounting, and engineering firms are keeping the spirit of the traditional pension plan alive by adopting cash balance plans.¹

Owners and partners of these highly profitable businesses sometimes get a late start on retirement. Cash balance plans give them a chance to catch up since these defined benefit plans are age-weighted: the older you are, the more that can sock away each year, up to $336,000, depending on your age.²

How does a cash balance plan differ from a traditional pension plan? In a cash balance plan, a business or professional practice maintains an account for each employee with a hypothetical “balance” of pay credits (i.e., employer contributions) plus interest credits. The plan’s objective is to pay out a pension-style monthly income stream to the participant at retirement – either a set dollar amount or a percentage of compensation. Lump-sum payouts are also a choice. Another important factor to keep in mind is that cash balance plans are commonly portable: the vested portion of the account balance can be paid out if an employee leaves before a retirement date.³

An employer takes on responsibility with a cash balance plan. The plan document states that annual contributions must be made—either in the form of a percentage of pay or a lump sum. An actuary needs to advise the employer, and help the business determine the yearly contribution needed to appropriately fund the plan. The employer effectively assumes the investment risk, not the employee.³

Cash balance plans must cover at least 50 employees or 40% of the firm’s workforce, whichever is lesser. They can be used in tandem with 401(k) plans.⁴

Benefits are based on career average pay.  In a traditional defined benefit plan, the eventual benefit is based on a 3- to 5-year average of peak employee compensation multiplied by years of service. In a cash balance plan, the benefit is determined using an average of all years of compensation.³

Cash balance plans can be less sensitive to interest rates than some pension plans. As rates rise and fall, liabilities in a traditional pension plan fluctuate. This may open the door to either overfunding or underfunding (and underfunding is a major risk right now with such low interest rates).

A cash balance plan cannot be administered with any degree of absentmindedness. It must pass yearly non-discrimination tests; it must be submitted for Internal Revenue Service approval every five years instead of every six. A plan document must be drawn up and periodically amended, and there are the usual annual reporting requirements.

Ideally, a cash balance plan is run by highly compensated employees (HCEs) of a firm who are within their prime earning years. In the ideal scenario for non-discrimination testing, the HCEs are 10-15 years older than half (or more) of the company’s workers.

If trouble occurs and a company flounders, cash balance plan participants have a degree of protection for their balances. Their benefits are insured up to their maximum value by the Pension Benefit Guaranty Corporation (PBGC). If a cash balance plan is terminated, plan participants can receive their balances as a lump sum or request periodic payments.3

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

  ^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

1. ^{com, June 25, 2020}
2. ^{com, January 23, 2019}
3. ^{com, December 11, 2019}
4. ^{com, November 5, 2020}

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