Updated Loan Interest Rates

PLAN LOAN INTEREST RATE INCREASED FROM 5.75% TO 6.50%

The Dauphin County, PA Deferred Compensation Plan offers participants the opportunity to take loans against their account value.  So that you do not fall behind with your retirement income goals, you are required to pay interest on the loan.  The plan's loan interest rate is 1%+ the prime interest rate. The key point is that you are paying yourself the interest.  Essentially, you are acting as your own bank.  Below is more information on how the loan interest rate is calculated and the plan's loan provisions. These new rates take effect on March 4, 2020.

THE PRIME INTEREST RATE

You might have heard that the Federal Reserve Bank (Fed) increased its Federal Funds Target Rate (Target Rate) recently.  The Target Rate is the suggested range of interest which one bank may charge another for overnight lending.  The Fed does not set the prime interest rate. However, once the Fed establishes the Target Rate, then U.S. banks take action to set the rate for their best or "prime" customers. Generally, a bank's prime rate is linked to the Target Rate and moves in lockstep with it. Each U.S. bank can determine its own "prime" rate that it offers customers. However, there is no central authority which sets "prime."

The loan interest rate is based upon the prime interest rate.  The Wall Street Journal (WSJ) publishes the prime rate, which is determined by surveying the thirty largest banks in order to come up with a consensus amount.  The WSJ reports changes to the prime rate when the surveyed banks have adopted a new rate, which occurred when the Fed changed its Target Rate.

The Wall Street Journal (WSJ) published a change in the prime interest rate increasing it from 4.75 percent to 5.50 percent, effective May 5, 2022.

PLAN LOAN PROVISIONS

Any active employee may borrow money from his/her account for any reasonable purpose. Provisions of the loan program are as follows:

• You may borrow up to half of your total vested account balance for any purpose, with a minimum loan of $1,000 and a maximum loan of $50,000.

• The maximum number of loans a participant may leave outstanding at any time is two.

• You may choose a repayment schedule of up to five years, except if the loan is used to acquire your principal residence (up to 15 years). All loans will be paid back through payroll deduction.

• The interest rate charged on your loan will be 1% above the prime interest rate. All interest that you pay on your loan is credited to your account.

• A one-time, non-refundable fee of $75 plus a $25 per year administrative fee will be deducted from your loan proceeds.

• It may take three to four weeks to process your loan application, so plan accordingly.

If you have questions regarding the plan loan provisions, Contact Us.

2022 Q3 Tactical Model Report

This report contains the 2022 Q3 quarterly allocations for your retirement plan’s tactical models.   As of this quarterly review, the U.S. equity trend indicator was negative, the international trend indicator was negative, and the Balance of Strength Signal was negative.  The Bond Bull-Bear Indicator remains negative. 

In late January, the stock indicators we use in these models turned negative and the models moved to more conservative allocations just above each model’s minimum High Risk Category Exposure.  For this quarter, the models will reduce their High Risk Category exposure all the way to their minimum allocations.  Money not invested in High Risk Category investments will be allocated to the money market fund.  With short-term rates rising, money markets are starting to provide a decent yield especially when compared to the uncertainty in the bond markets.  We will monitor the market action and will consider intra-quarter changes should the indicators change.  Changes to the model allocations will be made in July.  

Most stock indexes entered a bear market this past quarter with losses of 20% or more.  The top performing stock sectors of the last couple of years have been hit the hardest year-to-date.  For example, the technology heavy index, the NASDAQ 100 had lost over 30% YTD this past quarter.  What has been most surprising this year has been the negative returns of bonds.  It has been reported that the first quarter of 2022 was the worst quarter for the U.S. aggregate bond index  since 1788.  It has also been one of the worst starts of the year for a typical stock and bond portfolio.  It has been since the 1970’s that we have seen comparable periods of stocks and bonds both dropping this precipitously.  

Inflation continues to be one of the pressing concerns for the global economy.  In an effort to fight inflation, the Federal Reserve has continued to raise short-term rates and they are embarking on a plan to reduce their balance sheet, which typically has a contractionary effect on financial markets and the economy.  With some of the economic data coming in, it appears as though their plan of reducing demand by slowing down the economy may be working.  This is a delicate situation.  Their goal is to weaken demand enough to reduce the growth of inflation and slowly bring it down.  The problem is that once the economy begins to slow, it can be hard to control the rate of decline.  They will try to avoid a severe recession, a hard landing, and will shoot for a soft landing.  Their task is further compounded by the issue that some areas of inflation are caused by supply disruption and not increased demand.  People need to eat, farmers need diesel fuel to run their farms, food needs to be transported (usually by truck – diesel fuel), and people need to heat their homes.  These are all core needs that need to be met.  If an increasing amount of money goes toward paying for these items, then there will be much less available for discretionary spending.  This may lower inflation in some areas of the economy, but monetary policy might not have big impact on energy and food inflation. Changes in governmental policies might have more of an impact on energy and food inflation.  The other major issue facing the global economy is Russia’s invasion of Ukraine and the west’s financial response to it.  The disruptions of war and the U.S. and EU sanctions have had profound effects on global energy and food prices.  The longer the war lasts and the sanctions remain in place, the greater the uncertainty.  This could become more of an issue for the European Union as we move into fall and winter.  It should be an interesting summer quarter.

If you are uncomfortable with your selected model maintaining its currently low High Risk Category exposure, we recommend that you look at other plan investment options or a more aggressive tactical model.  You can also contact your investment advisor representative, Stephen Hetrick at Hetrick@retirementc.com or 717-545-1447 to discuss your concerns and alternative options.  Feel free to jump right to the model pages or first read our model and market commentary.  As always, if you have questions regarding these models, your deferred compensation account, or retirement planning; do not hesitate to contact us.

New Rate on Alerus Money Market Fund

From Alerus Financial: “Effective July 1st, 2022, the Alerus Money Market interest rate and APY will increase to 0.74%. As of June 30th, the 1-year yield on the Alerus Money Market is 0.02%, and the 5-year yield is 1.05%. Alerus benchmarks and sets this rate on a quarterly basis, however, the rate is subject to change at any time.”

Updated Loan Interest Rates

PLAN LOAN INTEREST RATE INCREASED FROM 4.50% TO 5.00%

The Dauphin County, PA Deferred Compensation Plan offers participants the opportunity to take loans against their account value.  So that you do not fall behind with your retirement income goals, you are required to pay interest on the loan.  The plan's loan interest rate is 1%+ the prime interest rate. The key point is that you are paying yourself the interest.  Essentially, you are acting as your own bank.  Below is more information on how the loan interest rate is calculated and the plan's loan provisions. These new rates take effect on March 4, 2020.

THE PRIME INTEREST RATE

You might have heard that the Federal Reserve Bank (Fed) increased its Federal Funds Target Rate (Target Rate) recently.  The Target Rate is the suggested range of interest which one bank may charge another for overnight lending.  The Fed does not set the prime interest rate. However, once the Fed establishes the Target Rate, then U.S. banks take action to set the rate for their best or "prime" customers. Generally, a bank's prime rate is linked to the Target Rate and moves in lockstep with it. Each U.S. bank can determine its own "prime" rate that it offers customers. However, there is no central authority which sets "prime."

The loan interest rate is based upon the prime interest rate.  The Wall Street Journal (WSJ) publishes the prime rate, which is determined by surveying the thirty largest banks in order to come up with a consensus amount.  The WSJ reports changes to the prime rate when the surveyed banks have adopted a new rate, which occurred when the Fed changed its Target Rate.

The Wall Street Journal (WSJ) published a change in the prime interest rate increasing it from 3.50 percent to 4.00 percent, effective May 5, 2022.

PLAN LOAN PROVISIONS

Any active employee may borrow money from his/her account for any reasonable purpose. Provisions of the loan program are as follows:

• You may borrow up to half of your total vested account balance for any purpose, with a minimum loan of $1,000 and a maximum loan of $50,000.

• The maximum number of loans a participant may leave outstanding at any time is two.

• You may choose a repayment schedule of up to five years, except if the loan is used to acquire your principal residence (up to 15 years). All loans will be paid back through payroll deduction.

• The interest rate charged on your loan will be 1% above the prime interest rate. All interest that you pay on your loan is credited to your account.

• A one-time, non-refundable fee of $75 plus a $25 per year administrative fee will be deducted from your loan proceeds.

• It may take three to four weeks to process your loan application, so plan accordingly.

If you have questions regarding the plan loan provisions, Contact Us.

Updated Loan Interest Rates

PLAN LOAN INTEREST RATE INCREASED FROM 4.25% TO 4.50%

The Dauphin County, PA Deferred Compensation Plan offers participants the opportunity to take loans against their account value.  So that you do not fall behind with your retirement income goals, you are required to pay interest on the loan.  The plan's loan interest rate is 1%+ the prime interest rate. The key point is that you are paying yourself the interest.  Essentially, you are acting as your own bank.  Below is more information on how the loan interest rate is calculated and the plan's loan provisions. These new rates take effect on March 4, 2020.

THE PRIME INTEREST RATE

You might have heard that the Federal Reserve Bank (Fed) increased its Federal Funds Target Rate (Target Rate) recently.  The Target Rate is the suggested range of interest which one bank may charge another for overnight lending.  The Fed does not set the prime interest rate. However, once the Fed establishes the Target Rate, then U.S. banks take action to set the rate for their best or "prime" customers. Generally, a bank's prime rate is linked to the Target Rate and moves in lockstep with it. Each U.S. bank can determine its own "prime" rate that it offers customers. However, there is no central authority which sets "prime."

The loan interest rate is based upon the prime interest rate.  The Wall Street Journal (WSJ) publishes the prime rate, which is determined by surveying the thirty largest banks in order to come up with a consensus amount.  The WSJ reports changes to the prime rate when the surveyed banks have adopted a new rate, which occurred when the Fed changed its Target Rate.

The Wall Street Journal (WSJ) published a change in the prime interest rate increasing it from 3.25 percent to 3.50 percent, effective March 17, 2022.

PLAN LOAN PROVISIONS

Any active employee may borrow money from his/her account for any reasonable purpose. Provisions of the loan program are as follows:

• You may borrow up to half of your total vested account balance for any purpose, with a minimum loan of $1,000 and a maximum loan of $50,000.

• The maximum number of loans a participant may leave outstanding at any time is two.

• You may choose a repayment schedule of up to five years, except if the loan is used to acquire your principal residence (up to 15 years). All loans will be paid back through payroll deduction.

• The interest rate charged on your loan will be 1% above the prime interest rate. All interest that you pay on your loan is credited to your account.

• A one-time, non-refundable fee of $75 plus a $25 per year administrative fee will be deducted from your loan proceeds.

• It may take three to four weeks to process your loan application, so plan accordingly.

If you have questions regarding the plan loan provisions, Contact Us.

2022 Q2 Tactical Model Report

This report contains the 2022 Q2 quarterly allocations for your retirement plan’s tactical models.   As of this quarterly review, the U.S. equity trend indicator was negative, the international trend indicator was negative, and the Balance of Strength Signal recently turned positive.  Also, our long-term U.S. and International stock indicators turned negative last quarter.  This was the first time since 2016 that the U.S. long-term indicator was negative.  The Bond Bull-Bear Indicator remains negative.  

In late January, the stock indicators we use in these models turned negative and the models move to more conservative allocations just above each model’s minimum High Risk Category Exposure.  Models will maintain their current High Risk Category Exposure and we will update the holdings in the High, Medium, and Low Risk categories.  We will monitor the market action and will consider intra-quarter changes should the indicators change.  Changes to the model allocations will be made in April.  

Over the last quarter, there has been a lot of negative pressure on the financial markets.  The Federal Reserve is in the process of raising short-term rates and reducing their balance sheet, which typically has a contractionary effect on financial markets and the economy.  Inflation is at levels not seen for generations, and a war started between Russia and Ukraine.  Russia is one of the largest commodity exporters in the world and they export many commodities vital to the global economy and food chain.  The effects and side-effects of the war and the sanctions the West has imposed on Russia are unknown.  I am concerned that they may lead to negative consequences for U.S. citizens due to even higher commodity and food prices as well as causing an international move away from foreign countries using the U.S. dollar to settle international trades.  The dollar has long been the reserve currency.  If the U.S. losses its reserve currency status, it could have negative repercussions for the U.S. financial system and economy.  To summarize, we see several major macro trends that could put negative pressure on the stock and bond markets and few that could lead to near term positive outcomes.

If you are uncomfortable with your selected model maintaining its currently low High Risk Category exposure, we recommend that you look at other plan investment options or a more conservative tactical model. You can also contact your investment advisor representative, Stephen Hetrick at Hetrick@retirementc.com or 717-545-1447 to discuss your concerns and alternative options. Feel free to jump right to the model pages or first read our model and market commentary. As always, if you have questions regarding these models, your deferred compensation account, or retirement planning; do not hesitate to contact us.

2022 Q1 Intra-Quarter Tactical Model Report

This report contains the updated 2022 Q1 quarterly allocations for your retirement plan’s tactical models.   As of the week of 1/23/22, the U.S. equity trend indicator has turned negative, the international trend indicator remained negative, and the Balance of Strength Signal turned negative.  The Bond Bull-Bear Indicator remains negative.  Models will reduce their High Risk Category exposure.  The new allocations are listed in the in the report below.  The models will be close to, but not at their minimum High Risk.  Typically, when the stock market has had such a swift and substantial decline, there is generally at least a small recovery rally.   We will look at moving to the minimum stock exposure if the stock market recovers and our indicators remain negative.  The models have substantially reduced their High Risk category exposure, so this additional reduction would be a minor change.  We have submitted the trade instructions to Alerus and the changes should be made in the near future.  

2022 Q1 Tactical Model Report

This report contains the 2022 Q1 quarterly allocations for your retirement plan’s tactical models. As of this quarterly review, the U.S. equity trend indicator is positive and the international trend indicator is negative. The Balance of Strength Signal is positive. The Bond Bull-Bear Indicator is negative. Models will remain in their maximum High Risk Category exposure. Assets not allocated to the High Risk Category exposure will be invested in money markets, short-term bonds and high yield bonds. Quarterly allocation updates to the models will occur in January. For more information, please read the report below.

If you would like to review your account, please contact us.

2022 Plan Contribution Limits Increase

The 2022 plan contribution limits increased from $19,500 to $20,500. Participants age 50 or older can contribute an additional $6,500 a year for a maximum annual contribution of $27,000. There is also a special catch-up contribution available to employees who are within 3 years of their normal retirement age (please contact HR or us for additional information on the special catch-up contribution).

Remember, changes to contributions are implement the first pay of month after you submit your contribution change to HR. This can be done on the Alerus participant website or by contacting HR. Also, when computing the maximum contribution, you need to consider the employer contribution of $4 per pay. Below is an example on how to compute the maximum per pay contributions for 2022

Up to Age 49 and 26 pays

$20,500 - $104 (employer contribution) = $20,396 / 26 pays = $784.46

Up to Age 50 or Older and 26 pays

$27,000 - $104 (employer contribution) = $26,896 / 26 pays = $1,034.46

If you have any questions, please Contact Us.

2021 Q4 Tactical Model Report

This report contains the 2021 Q4 quarterly allocations for your retirement plan’s tactical models. As of this quarterly review, the U.S. equity trend indicator was positive, the international trend indicator was negative, and the Balance of Strength Signal was positive. Intra-quarter the Bond Bull-Bear Indicator turned positive, but at the end of September, the Bond Bull-Bear Indicator turned back to negative. Models will remain in their maximum High Risk Category exposure. There are no changes to the holdings at this time; however, we will monitor the holdings and may make intra-quarter changes.

Towards the end of September, the Plan fund changes were made, so some of the funds are different, but the fund category remains the same. The current portfolios have a diversified equity exposure with the fixed income portfolio maintaining a majority holding in the short-term bond index fund, so the switch of Bond Bull-Bear Indicator does not have a meaningful impact.

Last quarter, major stock indexes and the US bond market were both negative. Currently, many stock valuations are at extremes we saw before the tech bubble and the financial crisis. This does not mean there is an imminent stock market crash coming, but it is a sign that one should be aware of their portfolio’s potential downside risk and if the potential risk is not appropriate for their financial goals, they should look at other options. Our current thought is that the stock market is in a topping process. Maybe the top was already made, but we feel there is a good possibility that after the current decline there could be another push higher. After the final top is made, we would anticipate a multi-year period of declining stock market prices. The goal of these tactical models is to preserve principal (compared to a similar buy-and-hold portfolio) during these multi-year bear markets. We will continue to monitor the stock market action. Should the stock market decline intensify, and our stock indicators turn negative, we will reduce exposure to High Risk Category investments.

If you are uncomfortable with your selected model maintaining its maximum High Risk Category exposure, we recommend that you look at other plan investment options or a more conservative tactical model. You can also contact your investment advisor representative, Stephen Hetrick at Hetrick@retirementc.com or 717-545-1447 to discuss your concerns and alternative options. For more information, please read the report below.

If you would like to review your account, please contact us.