Market Update | The Markets Are Up, But So Are Prices

The U.S. economy showed continued growth in May but faced increasing pressure from elevated inflation, rising yields and continued weakness in consumer confidence. The S&P 500 and NASDAQ both posted strong gains in May, up 5.3% and 8.4% respectively, fueled in large part by continued enthusiasm around artificial intelligence. Within the international space, the MSCI EAFE index gained 3.1% while the MSCI Emerging Markets Index surged 9.7% for the month. Treasury yields climbed in May, as rising inflation expectations and fading hopes for Middle East de‑escalation caused the bond market to reprice risk across the board. As such, 10-year Treasury yields rose to 4.45% at the end of May, up from 4.40% at the end of April.

Inflation arguably remained the biggest concern in May for both consumers and the Federal Reserve alike. The headline Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) index both increased at an annual rate of 3.8% for April (Core CPI which strips out more volatile energy and food prices rose 2.8% whereas Core PCE rose 3.3%). The inflation figures were at the highest level in 3 years, as energy prices continued to climb due to the ongoing conflict with Iran and the resulting closure of the Strait of Hormuz. This intensified the long-standing affordability concerns for Americans who were already dealing with rising prices over the last few years. 

Aside from the obvious rise in gas prices, electricity prices were up 2.1% in April, marking their fastest rise in 4 years, while food prices continued to climb as well. Compounding the affordability issue, shelter inflation, which is one of the heaviest weighted categories in Headline CPI, rose 0.6% for the month, boosted by a one-time catch-up adjustment related to last year’s government shutdown. In October of 2025, the Bureau of Labor Statistics (BLS) was unable to fully collect CPI data, resulting in an assumption that rental inflation was 0% for that month. As such, inflation at the end of last year was understated, and as the BLS caught up with the data collection this April, shelter inflation surged higher to its actual levels. 

To make matters worse, unlike in recent years where Americans’ pay was rising faster than inflation, annual inflation-adjusted average hourly wage growth went negative for the first time since April 2023, as paychecks grew 3.6% from April 2025, on average; coming in lower than the inflation reading of 3.8%. And with wages lagging and expenses higher, the savings rate dropped to 2.6%, down from 5.5% a year prior and to its lowest level since June 2022.

Not surprisingly, and very understandably, consumers are worried. The Conference Board’s Consumer Confidence index slipped for the first time in three months, with 66.5% of consumers cutting back on spending because of rising prices, 49.5% delaying expensive purchases and 46.6% delaying buying items they wanted rather than needed. Further, the University of Michigan’s survey of consumer sentiment plunged to 44.8 in May, marking the lowest level on record dating back to 1978, when the university began publishing the index on a monthly basis. Sentiment was worse in May than at any point during the 2020-21 pandemic, worse than at any point during the financial crisis of 2008-09 and even worse than at any point during the 1980-82 timeframe, when the U.S. suffered two recessions, 11% inflation and 18% mortgage rates.

As the softening job market fears were alleviated to some extent after a relatively solid employment data reading in April, with 115,000 jobs created and the unemployment rate remaining steady at 4.3%, the Federal Reserve could now turn their attention solely to the inflation issue that is again at the forefront. New Fed Chair Kevin Warsh, who was just recently sworn in on May 22nd, faces quite the challenge, as the rate cuts that were forecasted at the beginning of the year seem to be off the table and the possibility of rate hikes is now squarely back on the table. While this may be diametrically opposed to President Trump’s view of where rates should be headed, this may be the only route an independent Federal Reserve can take if inflation remains high. 

While the equity markets seemed to defy gravity in May, consumers are certainly feeling the pressure of higher prices and an uncertain outlook. And with the consumer being such an integral aspect of our economy, and ultimately one of the key drivers of growth, one has to wonder whether the picture being painted by the stock market is just a bit too rosy considering the far gloomier picture the consumer is seeing. Either way, timing the market has never been a winning proposition, but staying the course has always tended to be the best course of action.

Legal Update | Fast-Approaching Deadlines for Required SECURE 2.0 Amendments and Plan Restatements

Retirement plan sponsors are facing several significant compliance initiatives over the next couple of years. First, most retirement plans—including 401(k), profit sharing, money purchase pension, ESOP, defined benefit, cash balance and 403(b) plans—must adopt amendments reflecting the legislative changes under the SECURE Act, CARES Act, SECURE 2.0 Act by December 31, 2026 (with later deadlines for certain governmental and collectively bargained plans). Collectively, these amendments are generally being referred to as the “SECURE 2.0 Amendment,” and will likely be handled in one omnibus amendment.

Second, sponsors using pre-approved plan documents must complete IRS-mandated plan restatements during the applicable remedial amendment cycles. For employers maintaining pre-approved 403(b) plans, the current IRS Cycle 2 restatement deadline is December 31, 2026. In addition, sponsors of pre-approved defined contribution plans (401(k), profit sharing, money purchase pension, ESOP) should begin preparing for the next IRS-defined contribution restatement cycle, which is expected to commence later this year and run through late 2028. Sponsors of defined benefit and cash balance plans should continue monitoring future IRS guidance regarding applicable restatement cycles and document update requirements.

Although these projects are related, they are separate requirements. Plan sponsors should begin evaluating both now to avoid compliance risks, operational inconsistencies, and last-minute implementation challenges.

Why This Matters

The legislative changes have significantly modified the rules governing retirement plans. Many provisions are already operationally effective, but plan documents may not yet have been formally updated.

Plan sponsors generally must ensure that:

1. Their plan documents are timely amended to reflect mandatory and optional legislative changes; and
2. Their plans are timely restated when updated pre-approved documents become available.

Failure to complete these required updates can create document compliance issues and may require corrective action under IRS correction programs.

Amendment Deadlines

The deadline for adopting SECURE Act, CARES Act, SECURE 2.0, and related amendments depends on the type of plan:

Plan sponsors should work with their document provider, recordkeeper, third-party administrator, or legal counsel to determine which amendments are required and whether any optional provisions should be adopted.

Key SECURE 2.0 Amendment Provisions to Review

SECURE 2.0 contains numerous required and optional provisions that may affect plan operations and plan design.

1. Required Provisions

Depending on plan type and operations, required amendments may address provisions such as:

Required Minimum Distribution (RMD) Changes

SECURE 2.0 increased the age at which participants generally must begin taking required minimum distributions.

Roth Catch-Up Contributions

Beginning in 2026, certain high-wage participants who make catch-up contributions must do so on a Roth basis. Plan sponsors that permit catch-up contributions should review whether plan design changes or administrative updates are necessary.

Roth Account RMD Relief

Roth accounts in employer-sponsored retirement plans are no longer subject to lifetime RMD requirements.

Long-Term Part-Time Employees

Eligibility rules for long-term part-time employees have been expanded, requiring many plans to allow participation after two consecutive years with at least 500 hours of service.

Surviving Spouse Elections

SECURE 2.0 provides additional options for surviving spouses receiving retirement benefits.

Overpayment Recovery Rules

New rules govern the recovery of inadvertent benefit overpayments and provide protections for participants.

Certification and Documentation Requirements

Tax Reporting Obligations

The Notice also provides direction on reporting these transactions.

Plan administrators must report LTC distributions on Form 1099-R, including:

• Identification of the distribution as related to certified LTC insurance
• The recipient (participant or beneficiary)
• The amount distributed

Accurate reporting will be critical to ensure proper tax treatment for participants and to avoid downstream IRS scrutiny.

Participant Communications

Plan sponsors offering this feature should proactively update participant communications to explain:

• The availability of LTC premium distributions and applicable limits
• The requirement that policies and issuers be IRS-certified
• The need to provide supporting documentation prior to processing a request

Clear communication will help manage expectations and reduce administrative delays or errors.

Recordkeeping and Administrative Controls

Notice 2026-33 emphasizes the importance of maintaining adequate records and internal processes.

Plan administrators should:

• Retain copies of insurer certifications and participant election forms
• Establish procedures for reviewing and approving LTC distribution requests
• Monitor ongoing issuer certification, including annual updates where applicable

Given the documentation-dependent nature of this feature, robust recordkeeping will be essential for audit readiness and fiduciary oversight.

Practical Considerations and Next Steps

Plan sponsors evaluating this feature should take a coordinated, process-driven approach.

Key action steps include:

• Engage recordkeepers and TPAs to assess system capabilities and update distribution procedures.
• Coordinate with insurance providers to confirm certification processes and documentation standards.
• Train HR and benefits teams on eligibility, documentation and participant support.
• Update participant communications and forms to reflect the new option.
• Ensure Form 1099-R reporting is aligned with IRS guidance.
• Maintain comprehensive records to support compliance and audit requirements.