Stock Market Commentary
For the week of December 21, 2009
The U.S. dollar made gains against the euro last week, as Standard & Poor’s downgraded Greece’s credit rating and military conflict between Iran and Iraq prompted a flight to safety according to Reuters. The Federal Reserve Open Market Committee voted on Wednesday to leave interest rates unchanged at their near-zero rate. Although Wall Street faces a shortened week – the markets will close at 1 p.m. EST on Thursday and remain closed Friday for Christmas – low trading volumes could amplify small moves, creating volatility. In addition, several key economic readings will be released before the holiday, including revised third-quarter gross domestic product, November existing home sales, and November personal income and spending numbers. For the week, the Dow lost 1.36 percent to close at 10,328.89. The S&P fell 0.35 percent to finish at 1,102.47, and the NASDAQ climbed 0.98 percent to end the week at 2,211.69.
Homes for the Holidays – New home construction rose in November to an annualized rate of 574,000, in line with expectations of analysts surveyed by Briefing.com. The rate is 8.9 percent above October. The number of building permits issued during November increased 6 percent over October to a seasonally adjusted annualized rate of 584,000.
Partridge Price Decline – In its annual calculation of the price tag for all the gifts in “The 12 Days of Christmas” holiday song, PNC Wealth Management found the cost rose just 0.9 percent to $87,402 if the giver repeats the gifts for each verse. Without repeats, the bill comes to $21,465, or 1.8 percent more than last year. The jump in gold prices caused the five rings to increase 43 percent to $499.94, while declines in the price of birds brought the partridge in the pear tree to $159.99 (down 27.3 percent), the six geese to $150 (down 37.5 percent) and the seven swans to $5,200 (down 6.3 percent).
Bond Buyers – Sixteen percent of the corporate bonds outstanding in the U.S. (by dollar) are owned by life insurance companies (Source: American Council of Life Insurers, BTN Research).
WEEKLY FOCUS – Turning Vacation and Sick Pay into Retirement Pay
Back in 2002, the IRS issued a private letter ruling stating employers could allow employees to convert unused vacation and sick leave pay into contributions to qualified retirement accounts, such as 401(k)s. President Obama in September of this year voiced support for making those conversions easier, and the IRS followed with two revenue rulings clarifying how employers can allow employees to turn their time-off pay into retirement pay.
Allowing such conversions is up to the employer, but a Sept. 26, 2009, Wall Street Journal article lists some advantages. The conversion contribution is not subject to employment taxes and doesn’t increase the employee’s base pay. Companies can make pay for excess time off a “save only” option, with no opportunity for a cash payout. Employers can create across-the-board rules for prorating time off into 401(k) contributions. And employer plan contributions are a tax-deductible business expense.
Any contributions resulting from conversion of unused paid leave would be subject to annual contribution limits. Before converting, employees would need to check their amount of regular payroll contributions to ensure a time-off conversion doesn’t put them over the limit. It remains unclear whether the conversion contributions will be subject to employer matching. Also, the revenue rulings do not specifically address IRAs or SIMPLE 401(k)s, so it is unclear whether time-off conversions can be contributed to those plans.
Employers who don’t already offer employees the opportunity to convert unused paid time off into 401(k) contributions may want to consider it as a way to help employees save for retirement. Employees who don’t have this benefit may want to approach their company about adding it as an option. And employees who do have this benefit need to evaluate the impact converting time off may have on their annual contribution limit.
Whether you are converting unused time off into contributions, making payroll deduction contributions, considering a 401(k) plan rollover to an IRA or any other move with your retirement savings, we’re always here to help. Give us a call to discuss your retirement needs or review your current retirement plan to ensure you are making the most of your available options.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years.Securities America and its representatives do not offer tax and legal services these services offered in conjunction with qualified professionals. Written by Securities America. SAI# 302191