Market Update | The "September Effect" Was in Full Effect

Since 1928, the month of September has historically been the weakest month for the S&P 500 with returns averaging –1.1% while 55% of Septembers have experienced stock declines. This market anomaly is known as the "September Effect", and this September was no different as the S&P 500 sank 0.4% for the month. The Dow Jones Industrial Average (DJIA) performed far worse, dropping 4.1%, while the tech-heavy NASDAQ was one of a very few indices that was positive for the month, adding 1.9%. International equity markets also disappointed. International developed markets, as measured by the MSCI EAFE Index, plunged 3.1%, while the MSCI Emerging Markets Index was down 0.6%. On the fixed income side, bonds struggled immensely as yields surged, with the Bloomberg Aggregate Index dropping 2.6% for the month.  

One of the most significant stories in September was the Federal Reserve’s decision to raise its benchmark interest rate by 25 basis-points on September 16^th to a target range of 3.75% to 4.00%, its first rate hike since July 2023. The Fed made the move in an effort to combat sticky inflation that has remained elevated amidst higher oil prices brought on by the conflict in Iran and uncertainty pertaining to the Strait of Hormuz. Interestingly, the Federal Open Market Committee (FOMC) approved the move unanimously (a vote of 12-0) after just three members favored a hike at the July meeting.

A deeper look into the decision via the dot-plot grid of individual officials’ expectations released by the FOMC showed that the majority of members believe another rate hike is possible before year-end. Specifically, 16 of the 18 participants (Fed Chairman Warsh has chosen not to submit a dot since taking the position) anticipate at least one additional rate increase, while four projected two additional rate hikes.

Economic data also points to the possibility of further increases and a higher-for-longer rate environment. Data showed that economic growth was relatively strong here in the United States. U.S. flash PMIs rose to 58.4, the highest level since July 2021, signaling strong economic activity, while second quarter GDP growth was revised up from 1.5% to 2.2% and Consumer sentiment increased to 48.1, showing an improved consumer outlook. As growth remains resilient, the Fed has less urgency to reverse course, meaning higher-for-longer rates may continue to be a concern for markets. 

In addition to the Fed Funds Rate increasing in September, Treasury yields across the board were on the rise for a multitude of reasons indicated above, along with rising US government debt and a historic investment cycle driven by the increased demand for capital amid the AI build-out, all of which contributed to a sell-off of Treasuries. For reference, the 10-year Treasury yield hit 5.29% at month-end (from 4.75% at the end of August), its highest level since 2002, while the 30-year Treasury jumped from 5.25% at the end of August to 5.64% at the end of September. These factors weighed on fixed income returns during the month and continued to pressure interest rate sensitive assets.

However, there was some good news released on the last day of the month pertaining to the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Index. August PCE data showed that prices cooled more than expected during the month, with headline PCE at 3.4% (down from 3.7% in July) and the core PCE (which excludes food and energy) at 3.0% (down from 3.3% in July). The relatively positive data on the inflation front may temper expectations of another interest rate hike next month.

While higher prices and affordability remain an issue for many Americans, the Fed’s initial move to alleviate those concerns was certainly a step in the right direction. And if history were any indication of what’s to come, it’s very likely that more hikes are on the horizon. A look back at historical Federal Reserve action shows that single-hike cycles are quite uncommon, and that multi-hike cycles are much more the norm. What the Fed decides to do going forward is anyone’s guess, but it certainly looks like Fed Chairman Warsh is sticking to his claim that price stability is the central bank's core duty.

Legal Update | Treasury and IRS Release 2026–2027 Priority Guidance Plan: What It Means for Retirement Plan Sponsors

A New Rhythm for Guidance Planning

A fundamental component of strong fiduciary governance is ensuring that committee members understand their responsibilities. ERISA requires fiduciaries to act prudently, solely in the interests of plan participants and beneficiaries, follow plan documents, diversify investments when appropriate and avoid prohibited transactions. Regular fiduciary training can help committee members understand these obligations and make informed decisions on behalf of the plan.

SECURE 2.0: Continued Implementation

The Priority Guidance Plan confirms that regulators continue to work through several core SECURE 2.0 provisions affecting plan design and administration. Among the projects identified are guidance addressing:

• Section 103 (Saver's Match)
• Section 110 (Qualified Student Loan Matching Contributions)
• Section 125 (Long-Term Part-Time Employees)
• Section 127 (Pension-Linked Emergency Savings Accounts)
• Section 324 (Rollover Rules)
• Certain distribution provisions under Code Section 72(t)

In addition, the IRS has identified several related projects that plan sponsors should continue to monitor, including:

• Modifications to required minimum distribution rules under Code Section 401(a)(9)
• An exception to the unified plan rule for Section 413(e) multiple employer plans
• Automatic enrollment requirements under Code Section 414A
• Updates to EPCRS
• A new IRA Compliance Resolution System
• Catch-up contribution guidance
• Guidance addressing uncashed retirement plan checks

Update: EPCRS Guidance Already Issued

One of the highest-profile items on the Priority Guidance Plan has already been addressed. On October 22, 2026, the IRS issued Revenue Procedure 2026-34, a comprehensive update to the Employee Plans Compliance Resolution System (EPCRS), the IRS's correction program for retirement plan failures.

The new revenue procedure supersedes Revenue Procedure 2021-30 and incorporates various pieces of interim guidance issued since that time. While the familiar three-part EPCRS framework remains intact, consisting of the Self-Correction Program (SCP), Voluntary Correction Program (VCP), and Audit Closing Agreement Program (Audit CAP), the updated guidance expands and refines available correction methods. Revenue Procedure 2026-34 became effective immediately upon issuance.

The IRS also established a new correction program for certain IRA-related failures that are not eligible for correction under EPCRS. This new IRA Compliance Resolution System will become available on May 1, 2027. Until then, IRA custodians and owners will need to rely on existing correction mechanisms where available.

Given the significance of these changes, plan sponsors and administrators should review the new guidance carefully and evaluate whether any pending or anticipated compliance issues may be affected.

Other Technical Priorities for Defined Benefit Plans

The guidance plan also continues several projects of particular importance to defined benefit and cash balance plan sponsors. Industry groups, including the American Academy of Actuaries' Pension Committee, have encouraged the IRS to prioritize guidance addressing:

• EPCRS issues arising under SECURE 2.0
• Cash balance plans
• Funding method changes
• Funding balances
• Section 420 transfers
• Closed-plan nondiscrimination testing
• Affiliated service group issues under Code Section 414(m)

Cash balance plans remain an area of particular interest, especially market-based cash balance plans. SECURE 2.0 included changes to the anti-backloading rules intended to facilitate these plan designs, and additional guidance remains highly anticipated.

A Reminder on Amendment Deadlines

Separately, the IRS and Treasury recently clarified amendment deadlines related to the SECURE and SECURE 2.0 Act implementation. Most employer-sponsored retirement plans generally have until December 31, 2026, to adopt discretionary amendments implementing the SECURE  and SECURE 2.0 Act provisions, although later deadlines apply to certain collectively bargained plans.

Importantly, amendments required to implement future guidance generally must be adopted by the end of the second plan year following the year in which the guidance appears on the Required Amendments List. Consequently, guidance finalized during 2027 could result in amendment deadlines extending into the 2029 plan year.