Small Business Administration (SBA) loan programs can fill needs that traditional bank lending does not.
“The key is going to a bank that is a preferred lender and has dedicated resources or an SBA specialist who really understands the eligibility requirements and programs,” says Tom Doherty, managing director and head of Business Banking at The PrivateBank.
Smart Business spoke with Doherty about how SBA loans can give your business access to vital capital.
How does SBA lending benefit businesses?
What the SBA offers fits into three categories:
• Collateral shortfall — Banks have certain advance rates on the collateral they lend against. If there’s a collateral shortfall, the SBA can provide a guarantee to enhance the financing.
• Lack of equity — Banks have down payment requirements, but the SBA will guarantee loans to allow for a smaller equity injection by the business owner.
• Need for extended terms — If the borrower needs to extend the amortization term of a loan beyond traditional bank financing, the SBA will step in. If, for example, you need financing for a piece of equipment, the bank might offer five years on the loan term. The SBA has a program where you could go seven to 10 years on that deal.
What are some misunderstandings about SBA lending?
What the SBA considers a small business differs by industry, and although there is no minimum, it goes larger than most would think. Visit www.sba.gov/content/small-business-size-standards to find qualifying cutoffs. The standards are expressed in either millions of dollars or number of employees. In some instances, a company can still qualify with 1,500 employees.
Then, there’s a perception that SBA is a lender of last resort. However, the SBA, like a bank, looks at cash flow. Recently, businesses have been returning to profit on their financial statements, so more are eligible for SBA programs.
Many borrowers also think SBA lending is a tedious process with a lot of paperwork. In part, this misconception may come when borrowers deal with an inexperienced lender. But the SBA has listened, too, and streamlined its processes, such as the small loan advantage program, which lends up to $350,000 on a very quick turnaround.
Are certain SBA loans not as well known?
The SBA’s 7(a) loan is the general flagship program with which most banks and borrowers are familiar. The SBA 504 loan program is a little lesser known. It applies when, for example, you want to buy a piece of real estate and put 10 percent down. The bank then takes 50 percent of the loan, and a local certified development company sells the remaining 40 percent as a debenture on the secondary market. Bottom line, it can give the borrower a 20-year fixed rate deal that’s not available conventionally.
What should a borrower know about the SBA loan process?
The SBA website, www.sba.gov, is a great place to find background on the different programs. But the best option is to go to a bank that is a preferred lender with a dedicated SBA specialist. As part of the application, there are SBA requirements to be met and documents to be completed. Many times, lenders don’t do enough of these on a regular basis to have expertise in putting the package together.
Once the application is complete, the loan goes through the normal course of underwriting because the SBA, in essence, has delegated the approval authority to that preferred lender.
What would allow more SBA lending?
Under 504, as part of the stimulus package, the government allowed banks to refinance existing real estate debt where businesses could improve their terms or lock in a longer fixed rate. However, this ended in September 2012 and the level of 504 lending has dropped significantly.
The new congressional budget proposal has suggested this refinancing provision be extended out to September 2014. This provision is something small business owners should push for and keep an eye on.
Tom Doherty is Managing Director and head of Business Banking at The PrivateBank. Reach him at (847) 920-3180 or firstname.lastname@example.org.
Website: Learn more about financing opportunities for small businesses through our small business banking page at http://www.theprivatebank.com.
Insights Banking is brought to you by The PrivateBank
The historical benefits of self-funded health insurance — lower costs, more flexibility and control — are even more appealing when added to the ability to avoid many Patient Protection and Affordable Care Act (PPACA) rules and expected premium increases.
As a result, there’s growing interest in self-funding. A March study by Munich Health North America of 326 executives from health plans, HMOs and insurance brokerages, found 82 percent of respondents saw more interest in self-funding, with nearly one-third seeing significant interest. The survey also found nearly 70 percent of insurance organizations plan to increase self-funding offerings during the next year.
“The PPACA has shed a light on self-funding because it created several new reasons why self-funding or partial self-funding is attractive,” says Mark Haegele, director, sales and account management, at HealthLink.
Smart Business spoke with Haegele about the reasons why self-funded health insurance is getting so much employer interest.
What historical self-funding benefits remain relevant today?
Historically, self-funded employers avoid the risk charge — typically 2 to 4 percent of the total premium — that all insurers build into premiums. Self-funded plans also avoid costs from insurer profit; premium taxes, usually 1 to 3 percent, depending on the state; and the insurance company’s fixed operating costs. A fully insured plan can include fixed operating costs that are 40 to 50 percent higher than a partially self-funded plan with a third party administrator.
Plan flexibility and control is the other overarching benefit of self-funding or partially self-funding. You don’t need to follow state coverage mandates for areas like autism, bariatric surgery and infertility treatments. Employers can customize plans based on member population needs.
Smaller, self-funded employers also receive detailed member data, resulting in the ability to make informed decisions. With the help of consultants and brokers, they can manage their population as much or as little as they want.
Why is health data more critical now?
The health care system is moving from a fee-for-service to a performance-based model, so transparency and information are more critical. If you expect members to make good purchasing choices, then employers and their members must know what services cost. This transparency is one of the staples of a self-funded plan. Employers know what services members partake in, the plan risk factors, what care those with chronic illnesses receive, etc.
What is drawing employers to self-funding because of the PPACA?
A number of pieces from the PPACA aren’t required under self-funding, including the:
• $8 billion insurer tax, currently calculated to be passed onto employers as a 4- to 6-percentage point increase in premiums.
• Medical loss ratio requirements, which force profitable insurance companies to reduce administrative expenses and ultimately lower service levels.
• Community rating rules that group small employers by geography, age, family composition and tobacco use. Thus, healthy, younger insurance groups will pay more — estimated to be 60 to 140 percent — while older, less healthy member groups pay less.
• Minimum essential benefits, where insurance companies are required to limit annual deductibles.
How are PPACA-driven premium increases already factoring in?
Although the PPACA’s community rating rules, insurance tax and minimum essential benefits don’t begin until Jan. 1, 2014, the repercussions have started. Some carriers are including extra 2013 premium increases. For example, rather than a 4 percent premium increase now, insurers might try to get employers to accept a 20 percent increase this year. In addition, despite state pushback, many insurance companies are considering offering an early renewal — changing the plan effective date from Jan. 1, 2014 to Dec. 1, 2013, for instance — to let employers temporarily avoid increases. However, those with a self-funded plan never have to worry about these costs.
Mark Haegele is director of sales and account management at HealthLink. Reach him at (314) 753-2100 or email@example.com.
Video: Watch our videos, “Saving Money Through Self-Funding Parts 1 & 2.”
Insights Health Care is brought to you by HealthLink
In this day and age, insurance is a very important line item for businesses. And you don’t want a broker who is unable to deliver results.
Managing Director David Toth, of Momentous Insurance Brokerage, Inc., says it’s critical for your insurance agent or broker to be familiar with your specific industry. If you make widgets, the broker should have experience with manufacturers. If you’re running a hospital, the broker needs experience in the health care industry.
“Experience and past performance of underwriting the business successfully is key,” he says. “You don’t want to be a guinea pig.”
Smart Business spoke with Toth about how to vet and ensure good service from your insurance broker.
What should you be looking for and asking about when vetting a new agent?
Use the vetting process to make sure you have a broker who understands your business, is responsive and shows flexibility. For example, in the entertainment field, you need special insurance enhancements and carefully crafted policy language to ensure the broadest coverage possible. You also need a broker who is capable of adhering to your wishes — it’s not how the broker wants it, it’s how the client wants it.
Ask for referrals, which most brokers are more than willing to share, rather than depending solely on a firm’s website. Also take time to meet the key people in the firm.
Inquire thoroughly about what insurance markets are available, because the more competition the broker can foster for your insurance, the better your program. In addition, inquire whether people from the brokerage sit on any of the governing boards of the carriers they represent, as this means they have influence on policy decisions and/or claims procedures.
One more point of qualification to ask a new broker is: What limit of errors and omissions insurance do you carry? If the brokerage only carries $1 million, is this enough if a broker’s mistake results in a loss to your business? Keep in mind this is the limit they carry for all clients in the firm.
Are there ways to tell if an agent provides good service?
It depends on whom you ask. Some clients might place responsiveness at the top of the list, while others need to be kept abreast of changes in the industry, including trends with insurance prices. So, for example, is the agent sharing the upcoming changes with the Patient Protection and Affordable Care Act? Has the brokerage advised you that if you’re in California your workers’ compensation rates might increase because of changes with the insurance code? Do you already know that with insurance carriers exiting the California management liability market, those lines could increase dramatically?
Other service concerns are:
• How does the agent keep you up to date on the claims process? Does he or she regularly follow up?
• What does the broker do in terms of your premium rates? Is he or she doing all he or she can to obtain the best rates for you?
• Is the agent delivering the renewal two weeks prior to renewal, or waiting until the last minute? Do you feel as if you are part of the process and have control?
• How available is the agent? If it’s important to you on a Saturday, it should be important to the broker on a Saturday.
How do you know whether to stay with your current broker or to move on?
Loyalty is a great thing, but it doesn’t hurt to have another set of eyes. Ask an independent insurance broker to review your insurance program — usually at no cost — and make sure you don’t have duplicate coverage or coverage gaps, while double-checking for extra benefits and/or cost savings. And if someone else can’t improve upon your insurance policies significantly, it confirms that your current broker is doing a good job.
David Toth is managing director at Momentous Insurance Brokerage, Inc. Reach him at (818) 933-2721 or firstname.lastname@example.org.
Blog: Insurance strategies are constantly changing as the market evolves. To keep up, subscribe to our blog.
Insights Business Insurance is brought to you by Momentous Insurance Brokerage, Inc.
There’s a popular metaphor referred to as “the boiled frog.” Simply put, it says if you drop a frog in boiling water it will quickly try to escape. But if you place a frog in tepid water that’s slowly heated to a boil, the frog will “unresistingly allow itself to be boiled to death.”
With the 2013 tax changes, this metaphor may apply to taxpayers, married and filing jointly, with wages of taxable income of $223,000 to $450,000, says Geoffrey M. Zimmerman, CFP®, Senior Client Advisor at Mosaic Financial Partners, Inc. These households could see their federal marginal tax rate go from 28 to 45.5 percent.
“Executives in this income range may soon find that they are in hot water with the heat on as the marginal tax rates ramp up fairly quickly,” Zimmerman says.
Smart Business spoke with Zimmerman about key tax changes as well as possible planning and investment strategies.
Why are $223,000 to $450,000 income earners unaware of the danger?
The increases come from moving up tax brackets, new Medicare taxes of 0.9 percent on payroll and 3.8 percent on unearned income, and the phase-out of itemized deductions. People earning more than $450,000 have a good idea of what’s coming, but others aren’t as prepared for 1 to 2 percent increases that can add up. For example, if each spouse earns less than $200,000, their employers aren’t required to withhold additional taxes from their paychecks for the 0.9 percent increase in Medicare. But, if their combined income pushes them over the $250,000 threshold in household wages, they may be surprised by an unexpected tax bill.
Additionally, if you live in a state like California where state income taxes have gone up, combined federal and state income tax rates can exceed 50 percent, with capital gains rates reaching 33 percent or more.
What should these taxpayers be doing?
First and foremost, don’t let the tax tail wag the dog. Tax strategies that look great in a silo may actually be detrimental to the big picture. If your strategy puts you in a concentrated position or triggers undue risk, then a sudden bad market movement can be worse than paying the taxes.
This is an opportunity for people to update their financial plan and review how the tax changes affect their goals. Make sure your advisers are talking with one another and coordinating their work and advice.
How can some key planning strategies mitigate these increases?
Look for opportunities related to the timing of cash flows. If you have a big income year where up to 80 percent of your itemized deductions might be lost, defer some itemized deductions to the following year where the income might be lower. In a low income year, look at doing IRA to Roth conversions, realizing capital gains and/or accelerating income.
Take the initiative to engage in tax loss harvesting in taxable accounts, which means you sell a security, harvest the loss and then use that loss to offset a gain in either the current year or carry forward for use in future years. This can be attractive, particularly for investing styles that offer similar but not identical alternatives. One example might be to sell an S&P 500-index fund and reinvesting with a Russell 1000-index exchange traded fund to capture the loss while remaining invested.
Review the use of asset location strategies to improve tax efficiency. Strategically place securities that produce ordinary income or that generally don’t receive favorable tax treatment into a tax-deferred account, while putting tax-efficient investments that generate long-term capital gains or qualified dividends in taxable accounts.
Municipal bonds/bond funds in taxable accounts now may be more attractive, and you also can review opportunities to take advantage of ‘above the bar’ deductions, such as contributions to qualified plans like your pension, 401(k), etc. For senior executives, contribution to nonqualified deferred compensation arrangements may be more attractive, particularly if a transition, such as retirement, is on the horizon.
With the help of good advisers who understand these moving parts and how they fit together, executives can use these strategies and others to make better decisions to move toward the things that are really important to them.
Geoffrey M. Zimmerman, CFP®, is a senior client advisor at Mosaic Financial Partners, Inc. Reach him at (415) 788-1952 or Geoff@MosaicFP.com.
Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.
Cash flow management is important for business owners who need to know where they stand on a daily, weekly, and monthly basis in order to pay bills and employees on time. If, for example, a business owner unexpectedly discovers he or she cannot purchase inventory, it can shut down his or her operation, says John West, CPA, CGMA, director of finance at SS&G.
Cash flow management is a far different world for larger corporations, he says, as they tend to closely monitor cash flow and run their organizations as lean as possible — something smaller companies could learn from.
“To some degree, you’re just not exposed to it when you are a smaller company — you’re not thinking in that mindset.”
Smart Business spoke with West about how to handle cash flow management.
How does cash flow forecasting act as a warning system?
Many organizations consider cash flow on a weekly basis — looking at payables, accounts receivable, inventory, payroll, etc. By monitoring on a weekly or at least a monthly basis, businesses can foresee and fund potential shortfalls and not go out of business. For example, if they know they’re going to fall short in six months, they can obtain a line of credit or fund fixed assets.
Where do businesses get into trouble with cash flow and cash flow projections?
Fundamentally, it’s misunderstanding how cash flow and cash flow forecasting works in their operation. Problems also come from not realizing how business seasonality impacts cash flow. When receivables and inventory grow, cash is needed to cover them.
It’s important to do projections one to two years out. Many organizations don’t go out that far; they just do it on a quarterly basis. That’s more just looking at the current status as opposed to a projection.
How can companies guard against overly optimistic projections?
Payables and payroll can be fairly predictable, other than inventory fluctuations, so finance can do a great job at monitoring those. Overly optimistic projections usually come down to an overly optimistic sales forecast, so have finance take a hard look at changes, trends and new customers.
How should cash flow and shortfalls be managed?
Organizations should obtain a line of credit, even if they don’t need one. Once they run into trouble, lenders are far less likely to lend. There’s no interest charge to have available credit sitting there.
Another strategy is using a corporate credit card through the payables department. Wait 30 days to make a payment, and then put it on the card to get up to another 30 days.
Financing fixed assets is something a lot of organizations don’t do, but rates are great right now. Banks are very willing to give three- or five-year loans on fixed assets, which can help with a shortfall for the year.
It’s key for businesses to focus on collections by contacting their customer base and sending out reminder letters. Receivables shouldn’t go past their terms. If they are causing delays it could cause a cash shortfall.
Pushing out payables and extending terms is another more recent cash management trend. Some organizations send out vendor letters, stating they are pushing their payment time back X number of days. Otherwise, it’s something that could be considered when entering into a vendor agreement. Also, weigh vendor discounts against payment terms to see if the value is offset by potential shortfalls.
Finally, no one wants to say it, but it might be necessary to eliminate expenses, such as payroll, inventory and even whole product lines.
If business owners aren’t ‘numbers people,’ how should they tackle cash flow?
Businesses should calculate their projections to understand their current position, even if it takes outside accounting help. However, cash flow projections can actually be easier in small and midsize businesses because owners are more involved day to day.
If there’s a shortfall, accept it and move on. It’s hard to face the fact that there’s trouble, but it already exists. Now it’s just a matter of putting it on paper and dealing with it.
John West, CPA, CGMA is director of finance at SS&G. Reach him at (440) 248-8787 or JWest@SSandG.com.
Website: Meet SS&G’s new CEO, Bob Littman, at www.SSandG.com.
Insights Accounting & Consulting is brought to you by SS&G
Technology tool-related capital investments, such as new software, mobile apps and cloud computing services, are as important as a healthy workforce to many small business owners. But you must be strategic about the technological applications you choose, using your goals as a guide.
“It’s a really exciting time for small business. For the first time, you have access to tools and solutions that may have been cost prohibitive in the past, and you can buy them by the seat and without the need to build and support an enterprise infrastructure. This allows you to build a cost effective, end-to-end automation platform that really impacts your business,” says Frank D. “Buddy” Cox, Jr., executive vice president and chief information officer at Cadence Bank.
Smart Business spoke with Cox about how businesses are using technology to operate more efficiently and cost-effectively.
What emerging technology is impacting business productivity and profitability?
Cloud computing, a modern name for traditional outsourcing, has not only grown in adoption, but reach also has been extended from a focus on the enterprise to small business. This shift away from having to build a robust, secure and resilient in-house infrastructure to support software solutions, and instead migrating to a model where all critical infrastructure is built, maintained and shared by the provider, makes most all enterprise-level solutions available to small businesses in a very affordable way.
With Microsoft 365, for example, you can fully leverage Exchange, SharePoint and other enterprise-level solutions for less than $10 per employee per month. Platforms such as salesforce.com, when combined with modern real-time accounting platforms like financialforce.com, allow for a level of work flow and integration once reserved for large scale implementations.
Another technology that’s transforming business is the mobile platform. For most, it has become a primary computing device, allowing people to conduct business anywhere and at any time. When leveraged as a part of an overall business automation platform, the results can be very meaningful.
How are these new technologies transforming banking?
Banks continue to work with businesses that are building end-to-end automation solutions by plugging in at the right points in the process to provide real-time financial information and transaction capabilities. This includes, in many cases, unique one-off solutions to support a customer’s proprietary automated framework.
In the mobile space, we have seen an unprecedented adoption curve. A survey conducted by Constant Contact in March found that 66 percent of small business owners currently use a mobile device, such as a smartphone or tablet, for work. That same survey revealed that mobile apps increasingly are becoming part of how small business owners manage operations. Business owners clearly want to run their businesses and conduct their banking from the palms of their hands. Strategically, we are very focused on building feature-rich, secure and easy-to-use mobile applications that positively impact the day-to-day operation of businesses.
Mobile also is a much more capable and rich development platform than anything that we have built upon in the past. For example, not only can you turn your debit card on or off using a mobile app, but by leveraging location services on your device, we allow you to specify the use of your debit card only if it’s within a certain number of miles of you.
What are some challenges with the adoption of this technology?
Moving your data to the cloud or carrying sensitive data around on your smartphone present risk. Privacy, security, backups and business continuity are all topics to vet. Understanding from your provider how your data is stored, if it is encrypted at rest, how it is backed up, who has access to your data and how that is being properly controlled is extremely important. Third-party audits can be employed to validate that all of this is in place and functioning according to design. You must hold your vendors accountable to the same high standard with which you would grade your own internal control environment.
Frank D. “Buddy” Cox, Jr. is executive vice president and chief information officer at Cadence Bank. Reach him at (713) 871-4000.
Website: Cloud computing services and mobile technology are changing the way businesses operate and serve clients. Learn more at www.cadencebank.com.
Insights Banking & Finance is brought to you by Cadence Bank
Employee benefit plans are an important part of your company, and participating executives have just as much at stake as anyone else. With continually evolving fiduciary roles, the last thing you want is to fail in your responsibility, lose money and possibly face penalties or a lawsuit. That’s why employee benefit plan audits are conducted to identify potential problem areas. But only by closely managing the plan with fiduciary governance can you be ready for an audit.
“It’s prudent to have the board delegate to someone that is closely managing the plan — an oversight committee,” says Bertha Minnihan, national practice leader, Employee Benefit Plan Services, at Moss Adams LLP. “There’s so much to know, you can’t possibly know it all. It’s great to have this committee working with people who have expertise in this area to make sure they are meeting their fiduciary responsibilities.”
Smart Business spoke with Minnihan about areas of concern in employee benefit plan audits.
How do these plans come to be audited?
There are two types of employee benefit plan audits. If you have more than 100 eligible plan participants at the beginning of the plan year, you generally need an independent financial statement audit attached to your plan’s annual tax Form 5500. Eligible participants not only include employees eligible to participate, whether they do or not, but also those with plan account balances who are no longer employees. However, if you have between 80 and 120 eligible participants, the Department of Labor (DOL) allows you to file the same as the year prior.
The other type is when the DOL decides to audit the plan. Most of the time the DOL says its audits are random. But, for example, if you’ve reported late deposits on your Form 5500, sometimes that causes the DOL to want to look further. Another trigger is an anonymous employee phone call. The DOL also has different levels of inquiry — sometimes it just asks for supporting documentation from the independent plan auditors or the company, and sometimes goes directly to auditing the plan as far back as three to five years.
What are some areas of noncompliance, correction and deficiency you’ve come across when auditing these plans?
The DOL hot buttons remain similar to what they’ve always been. The top ones, on the regulatory and compliance side, are:
- Timeliness of getting all employee contributions into the trust. The DOL has said small plans, with 100 eligible participants or less, need to get everything in the trust within seven days. However, there’s no hard-and-fast rule for large plans, just as soon as administratively possible. This leaves a lot of room for judgment.
- Eligible compensation. What are the compensation components that are eligible for deferral and match?
- Operational defects, like not following eligibility requirements as noted in Plan documents or auto enrollment that isn’t kicking in when it should.
What developments are auditors following?
The accounting and auditing world has gotten more complex, especially on the investment side. Auditors are waiting for additional guidance on disclosure requirements for investments for certain plan types. For example, the Financial Accounting Standards Board hasn’t ruled on whether employee stock ownership plans are exempt from certain quantitative investment disclosures about the valuation of private company stock. Another issue is what exactly makes a plan public or nonpublic, and how that impacts the benefit plan disclosure requirements. Additionally, auditors continue to follow the convergence of U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards.
How should plan sponsors handle their plans?
Generally, sponsors need to stay educated. Things are moving fast, but companies have many service and investment providers at their fingertips. Call on them to educate your board and oversight committees.
When making a change in your plan, document it. Have an oversight committee, no matter how big the company, following and documenting the plan operations and plan investment decisions. The committee would, for instance, know the participant demographic trends or how auto-enrollment is unfolding. In the end, you’ll always be better for whatever is going on if you have that structure and a solid governance foundation.
Bertha Minnihan is national practice leader, Employee Benefit Plan Services, at Moss Adams LLP. Reach her at (408) 916-0585 or email@example.com.
Insights Accounting & Consulting is brought to you by Moss Adams LLP.
The retirement plan marketplace is a buyer’s market right now. Plan sponsors that haven’t shopped around in the past couple years might not be getting the most value for their money.
“The retirement marketplace is constantly changing with the addition of new products and services and the compression of costs,” says John Adzema, Vice President of Sales and Consulting at Tegrit Group. “Plan sponsors need to be aware and take advantage of these enhancements.”
Smart Business spoke with Adzema about the necessity of reviewing and benchmarking your retirement plan.
How often should plan sponsors have retirement plans reviewed?
Have your plan reviewed every three years or as certain events dictate, such as company acquisitions/divestitures, workforce changes, etc. You also could look at your company and its demographics to see if it makes sense to add another plan type such as cash balance, employee stock ownership or non-qualified.
What should you discuss with your financial advisor during a review?
As the plan quarterback, the financial advisor typically is tasked with overseeing plan investments, taking some type of a fiduciary role and managing the involved service providers. So, you should ask:
- Are my plan costs reasonable?
- Are my plan’s service providers, including the financial advisor, meeting service standards and helping me meet my fiduciary requirements?
- Are the plan investments performing as expected?
- Is my plan receiving the best consulting and latest technology?
- Are my employees getting the investment help they need?
What could happen if plans aren’t reviewed?
Even though you might not change anything, you need to compare your plan to the marketplace. You may save on costs or be able to expand to another fund family. You could get more tools for participants, website capabilities and educational materials. If your company acquires another firm and the plan assets increase from $1.5 million to $8 million, not only do you need to review from an operational standpoint to ensure compliance, but as a bigger plan you’ll have more purchasing power.
There can be legal consequences as well. In March, a court ruled against the plan fiduciaries in Tibble v. Edison International because they selected retail mutual funds with higher fees when lower cost institutional funds were available. To protect against Tibble-type claims, fiduciary committees should:
- Follow written plan documents and procedures, including any investment policy statements and committee charters.
- Document committee meetings and decisions with respect to plan investments.
- Review 408(b)(2) fee disclosure information and benchmark fees to comparable plans based on the number of participants and plan assets.
What’s the value of benchmarking?
Retirement plan benchmarking is the act of comparing your own plan’s qualities to similar plans. People immediately think about the plan investments or costs, but benchmarking also extends to a plan’s operating provisions and comparing your plan to plans of the same demographics, industry and geography. Benchmarking this helps ensure you are getting the best value for the price paid.
It’s wise to benchmark certain plan items like investment rates of return on an annual basis, but the entire plan’s workings and its service providers should be reviewed at least every three years.
Any final words on benchmarking?
Your financial advisor or another trusted party should carry out the benchmarking process for a consistent and independent approach. Generally you will get better pricing if you’re a bigger plan with larger average account balances and your plan is easier to run.
While benchmarking is a good indicator of what the masses are experiencing, your plan may have unique provisions that work well for you and your employees. If you pay a little more for someone to administer a plan that’s outside of the norm, then that’s OK.
John Adzema, QPA, QKA, TGPC, AIF, is vice president of sales and consulting at Tegrit Group. Reach him at (330) 983-0525 or firstname.lastname@example.org.
Visit Tegrit’s Advisor Resource Center for additional retirement planning tips.
Insights Retirement Planning Services is brought to you by Tegrit Group
State and local governments and nonprofits that receive federal money often must complete Single Audits, also known as OMB A-133 audits. These ensure monies are spent properly according to the different program requirements, and that the relevant organizations only have to go through one consistent audit event.
However, the Office of Management and Budget (OMB) has proposed changes to the audit structure that could have direct and indirect impacts, including decreasing the number of organizations required to undertake a Single Audit.
“A lot of organizations may say, ‘this is great, I don’t have to pay for a Single Audit anymore,’” says Daniel L. Wander, CPA, director of assurance services at SS&G. “But if this does go through, they may need to react to it fairly early to determine what their funders are going to require in terms of any changes or additional procedures.”
Smart Business spoke with Wander about the proposed changes and their impact.
What are the proposed changes?
As of February, the OMB recommended that the annual spending threshold for federal funds that require an organization to have a Single Audit be raised from $500,000 to $750,000. This is partly because of inflation — the last threshold increase was in 2003 — and partly to increase efficiency. The American Institute of CPAs indicated last year that entities receiving less than $1 million in federal funds made up about 24 percent of the total Single Audits but only covered 1 percent of total expenditures. The audits for organizations receiving more than $3 million in federal funds, however, accounted for about 97 percent of total federal expenditures.
Once an organization determines it must undertake a Single Audit, major programs over a certain threshold undergo a compliance audit, at least on some kind of rotational basis, where the auditor renders an opinion. The OMB proposal also raises this threshold from $300,000 to $500,000.
Another change is the coverage rules for high risk and low risk auditees. Coverage means program dollars covered in the compliance audit as a major program. OMB is talking about reducing the coverage rules to 40 percent for high risk and 20 percent for low risk auditees, from 50 percent and 25 percent, respectively.
Finally, OMB wants to streamline the compliance testing areas from 14 to six, focusing on areas where money is going to be misspent, and putting a number of cost and administrative principle guides into one central document.
What’s the timeline on these changes?
The changes are still in proposal form, and the comment period has been extended to June 2. Therefore, the earliest the changes would be in effect would probably be beginning July 1, 2014, giving people a chance to plan.
What might be the impact of the changes?
The direct effect will be fewer entities required to have Single Audits. However, they will still need to follow federal rules and regulations, and could be subject to audits by either state or federal organizations that want to come in specifically.
A fallout may be more state or local entity involvement through audits or additional requirements in order to fulfill state or local monitoring responsibilities. Currently, these organizations get automatic easy oversight from receiving Single Audits each year.
What are some next steps for nonprofits?
First, if nonprofits have anything specific to say, use the extended comment period. Then, reach out at least to your major funders, usually state, local or county agencies, and open a dialog so there are no surprises. How do the funders think they will react? Will they be putting in additional requirements as part of their oversight?
A nonprofit’s costs may go down but it may need to reallocate. If a nonprofit is subject to a Single Audit, the cost can come from the federal portion of your budget. If somebody else is imposing certain audit costs, you’ll need to talk to that organization about where that’s going to be allowable. If Ohio is requiring something additional, it ought to be paid with state money.
Hopefully, no one begins to believe auditors won’t be looking at this anymore. You still have to comply with the federal regulations, and there’s a chance someone will look at your spending at some point.
Daniel L. Wander, CPA, is a director, Assurance Services, at SS&G. Reach him at (800) 869-1834 or DWander@SSandG.com.
Save the Date: You have until June 2, to provide comments on the proposed revisions to OMB Circular A-133 and related grant reforms. The OMB must receive comments electronically.
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A fully insured business will shop around with different health insurance companies for the best value, including a good network. However, self-funded health plans — which are growing in popularity — contract with a rental network that administers benefits with the help of a third-party administrator.
Smart network provider contracting will maintain lower costs and access to care for members. Many employers only look at the discounts for services in the contract, but there are other methods just as important when evaluating a network.
“There are always some things out of your control, but you try to manage the network and build in predictability to make sure you have control over it rather than the providers,” says Jamie Huether, regional vice president, Network Management, at HealthLink, which rents its network to self-funded entities.
Smart Business spoke with Huether about what to consider when evaluating a network contractor.
How can a network provider maintain lower costs?
A network provider employs a number of contracting methodologies to help health plan clients achieve the best rates. One is having as many fixed rates and as much charge master protection as possible, which limits exposure to provider changes. So, for instance, if a health care provider bills $3,000 for a procedure, and then increases it to $4,000, the network provider’s fixed charge of, say, $900 remains the same.
The alternative is reimbursement methodologies that pay a percentage of the billed charge, which rise as the bill increases. This fully exposes whoever is paying the claim to whatever the providers want to bill.
Why is the network with the highest discount not always the best option?
When evaluating networks, focus not only on the network discount but also the unit of cost, or what the service actually costs. Although the discount can look good, it doesn’t tell the whole story because providers don’t bill the same. Typically, hospitals owned by for-profit entities have a higher billed charge structure than not-for-profit hospitals. So, an appendectomy at a for-profit hospital may have a 75 percent discount for a final procedure cost of $15,000. However, the same appendectomy at a not-for-profit hospital might only have a 30 percent discount but just cost $9,000.
In addition, facilities make charge master — the master list of what they bill for services — changes throughout the year, depending on financial goals. These increases aren’t across the board because some service lines are bigger revenue drivers.
How does the network contractor work with self-funded businesses?
A self-funded plan sponsor contracts with a rental network to help manage costs and plan ahead. For example, one rental network used multi-year contracts to limit uncertainty and keep costs low. By offering stability to the health care providers, who also are trying to budget, it could mean a cost break.
A network contractor shares management reports with self-funded entities to show what they are spending at each facility and the average cost per day. The rental network also can report upcoming negotiations and cost increases that are locked in, giving businesses greater control.
When looking for a health network, what should you ask?
Health plan sponsors need to look for stable, broad networks with good geographic coverage. You don’t want to contract with a network where providers are coming in or out, or that doesn’t include one of the area hospitals. Businesses should ask:
- How much turnover is there in your network?
- Do you anticipate any major provider terminations in the next 12 months?
- What is the network doing with respect to transparency around costs for certain procedures, as well as being able to provide answers about quality?
Another factor is size — a network provider that does a lot of business can use that to leverage better rates from health care providers. Ask about additional services, such as customized directories, and how much help the network will provide to resolve issues related to the pricing of claims. Finally, determine how flexible the network is in addressing issues important to you.
Jamie Huether is regional vice president, network management at HealthLink. Reach her at (314) 923-6756 or email@example.com.
Learn more about HealthLink's broad network of contracted physicians, hospitals and other health care professionals on their website.
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