Jayne Gest

With drilling in both the Marcellus and Utica Shale formations, Western Pennsylvania is sitting on one of the largest U.S. natural gas fields.

Even if you’re not directly affected, Bob Taylor, Senior Corporate Banker and Senior Vice President at First Commonwealth Bank, says the multiplier effect ripples out into the economy. Each well site has about 250 different jobs associated with it, and Marcellus alone has about 6,378 active wells.

“It’s an engine that is going to drive the region here for the next 20 years,” he says.

Smart Business spoke with Taylor, an energy lender, about where Western Pennsylvania’s natural gas industry is going.

What is the current situation with Marcellus and Utica?

Small companies first explored Marcellus, finding the sweet spots to de-risk the field. Then larger companies like Exxon Mobil Corp., CONSOL Energy and Chevron Corp. bought up these companies and their acreage to move into steady production drilling. Three years ago, more then 45 operators were drilling in Marcellus. By 2013 that was down to 33, according to the Pennsylvania Department of Environmental Protection.
With Utica, the large companies stepped in first to acquire acreage. This consolidation has impacted area service providers that supply the well operators in Utica.

Overall, there has been a strong impact in counties like Washington and Greene. Pittsburgh will be affected now that an agreement has been reached to drill under the airport, bringing in $50 million upfront and $450 million in royalties over the next 20 years.

How are natural gas prices impacting the rig count and service providers?

Marcellus has been ranked as one of the lowest cost fields; operators can get a 10 percent ROI with prices as low as $2.75 per 1,000 cubic feet (mcf) for dry gas and $2.25 per mcf for wet gas. With today’s price around $3.50 to $4.25 per mcf, Marcellus is profitable.

Wet gas is more valuable because it has additional liquids that can be separated out and sold, such as ethane used to make plastics. Utica is principally dry gas in Pennsylvania, but Marcellus has both wet and dry gas.
Several years ago prices were high, but supply began to exceed demand, depressing prices. Therefore, some rigs moved to the wet gas in Ohio’s Utica play. Marcellus went from 100 rigs last year to around 53. Many service companies also have crossed the border.

However, each region has a field manager — service companies that supply products in Pennsylvania have to re-qualify for Ohio. The overriding factor is safety. For example, a service provider’s truck can’t be within 100 feet of the wellhead and must have fire extinguishers.

In the future, the volatility of price should moderate to around $3 to $7 per mcf, with increased demand from export, vehicles, manufacturing and electric generation.

What gas-gathering infrastructure is developing?

Many wells have been drilled and completed, so the next push will be to lay pipe to gather the gas and bring it to production facilities. It costs about $1 million per mile to lay pipeline, and about $3 billion to $5 billion is being spent in Pennsylvania alone.

Just like drilling, laying pipe has a number of associated jobs from engineers, steel pipe manufacturers, excavators and welders to safety inspectors who monitor pipelines.

Why is wastewater treatment the wild card?

Water is injected into the ground at high pressure to frack the shale rocks and release natural gas. Flow-back water that comes up has salt brine, minerals, dirt, sand, etc. Originally, the solids were removed and the water was reused for fracking.

With the drilling slowdown, there is excess wastewater. The cheapest elimination method is deep injection wells, but there are environmental concerns. The Environmental Protection Agency (EPA) may stop or limit deep injection wells sometime in the future. The EPA could require an evaporation and crystallization technique that distills the wastewater, but cost estimates for these reclamation facilities vary from $2.5 million to $100 million.

Bob Taylor is a senior corporate banker and senior vice president at First Commonwealth Bank. Reach him at (412) 690-2214 or rtaylor@fcbanking.com.

FOLLOW UP: To learn more, call (800) 711-BANK (2265), or visit fcbanking.com.

Insights Wealth Management is brought to you by First Commonwealth Bank

Anything published online lasts forever, so it is important to set the right tone for your company’s online communications and to mean what you say from the outset. You might try to retract or amend these public statements, but it is relatively easy to find prior versions, thus causing embarrassing or false statements to not truly disappear, says Christina D. Frangiosa, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC.

“It’s safer to wait to publish materials to the Web until you have confirmed they are accurate, not misleading and not based on someone else’s intellectual property rights,” she says. “False statements about either your company’s products or about a competitor or its products could lead to lawsuits claiming false advertising, unfair competition or commercial disparagement. Misuse of the company’s or a competitor’s intellectual property can result in a loss of rights, or even, perhaps, an injunction or damages.”

Smart Business spoke with Frangiosa about avoiding legal mistakes on the Internet.

How should you handle statements about your competitors and their products?

Avoid knowingly making false statements about a competitor or the quality of its products. Publishing statements about them without appropriate due diligence could result in negative publicity for your company, corrective advertising costs or monetary damages.  

How does cutting and pasting content from other websites create copyright concerns?

Many users have a common misconception: If they can find ‘free’ content on the Internet, then they must be able to use that content for any purpose. Just because content may be freely accessible does not mean that you have a right to use it. Copyright holders have exclusive rights, including the ability to choose to publish or not to publish their works; posting something on a public website constitutes publication. Copying and pasting someone else’s images, text or video into your company’s website without permission could expose the company to copyright or trademark infringement suits, among other claims.

How might misuse in social media undermine company trademarks?

Companies today use their websites and social media to communicate about their products or services. Specific employees may be assigned to prepare and/or post content. These employees should be informed about how to use the company’s trademarks to further develop the brand and maintain existing rights. If employees misuse these trademarks on the company’s sites, they may unknowingly undermine the value of the brand, and perhaps cause problems for trademark renewals or other filings.

Some employees may also use the company’s marks on personal social media. For example, an executive might use a company logo rather than a headshot on his or her Facebook page. Any statement made on these pages about company business could be seen as a formal company representation, and perhaps cause problems for the company with the Securities and Exchange Commission or other governing bodies.

What can you do to protect against these pitfalls?

  • Create your own content, rather than relying on design elements you see on other sites. This may have a higher upfront cost but could reduce your litigation exposure in the long run.
  • Seek a license to use any content in which you are interested, and pay the appropriate royalty fee for its use. There are organizations that accept those royalty payments on behalf of content owners.  
  • Obtain images, videos or other content from a valid image collection service, authorized by the copyright owner.
  • Ensure employees understand the source of the content they plan to use before they upload it to the company’s site. They should be trained to avoid the impulse to right-click, ‘save as’ and then upload.
  • Avoid using a competitor’s trademarks to advertise your own goods or services.
  • Ensure employees understand the appropriate use of trademarks.
  • Establish a social media policy that includes explanations of limits on use of the company’s trademarks.

Christina D. Frangiosa is an attorney at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or cfrangiosa@sogtlaw.com.

Find about more about privacy and intellectual property law on Christina’s blog.

Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC

When it comes to insurance, many customers feel they have no control over their price, product, how incidents happen, losses, etc. A properly constructed service plan mitigates this frustration.
James Misselwitz, CPCU, vice president at ECBM, says a service plan is something business owners should be asking their broker about upfront.

“They should say, ‘OK, you’ve given me this spiel on all the wonderful things you’re going to do. Now show me how you’re going to deliver it to me,’” he says. “‘Show me how you deliver it to your existing customers, and show me what happens when something doesn’t get done. Give me that blueprint, so I know I can depend on you.’

“There’s no question that somebody who doesn’t follow an active service plan with a broker will ultimately pay the highest premium out in the marketplace.”

Smart Business spoke with Misselwitz about effective service plans that help manage risk.

How do service plans create fail-safe procedures?

Although most brokers use some version of a service plan, many do not monitor and control it. A service plan is a client-driven method where business owners determine, along with a broker or agent, what services they need, how often they need it and who is responsible for delivering it to them.

Some services might be a review of market conditions before renewal; a review of the loss experience and current claim activity; a review of the outstanding reserves on claims that have already occurred; a review of information for the renewal like the current automobile schedule or payroll; and a tentative experience modification factor review that shows the impact of workers’ compensation on your renewal.

The service plan helps manage the insurance throughout each cycle of the policy. Both the company and broker know the expectations, and the plan can operate as a safeguard. When the broker doesn’t complete a claim review at six months, for example, a fully automated, computerized service plan notifies the underwriter by triggering an alert at the brokerage firm. At the same time, executives have a copy of the plan and can ask the broker about it.

What happens when service plans aren’t properly executed?

Things fall through the cracks. The insurance business is a deluge of paper and electronic messages, so it’s easy to lose a due date or report that needs to be run. If companies don’t actively manage insurance with the help of their brokers, they give up control of pricing, coverage, and losses to the whims and vagaries of the insurance companies and marketplace.

For instance, if your company doesn’t have a regular claim review on workers’ compensation activity, you could have a few large claims on reserves. You might not be working on action plans to mitigate those claims. So your renewal comes up, and it’s running a temperature with a poor loss ratio. Your insurer might ask for 40 percent more to underwrite the risk or send out a notification of cancellation. Now, you and your broker are scrambling to put together a response that will allow the underwriter to stay on a reasonable price.

With what types of insurance is a service plan most important?

With a commercial account, service plan diligence is most critical with insurance lines that have loss activity and when there is anticipated change. You want to automatically stay in control of critical items like losses, payroll, premiums, sales, etc.

Also, you need a service plan if there’s an anticipated change, such as a merger or expansion. It’s important to have the right coverage at the inception, as well as coordinating existing coverage so you’re not being overcharged because of overlap.

Why is flexibility key?

As a commercial insurance purchaser, it is important to develop a system with your broker that will deliver the service that you want and need. A service plan is one such system that can help you control costs and deal effectively with change, both in your operations and in the insurance marketplace. While flexibility is the key to tailoring a service plan for each business owner, it is the ability of the broker to audit the process that seems to be the critical element in making the program work extremely well.

James Misselwitz, CPCU, vice president at ECBM. Reach him at (888) 313-3226, ext. 1278, or jmisselwitz@ecbm.com.

For more information about risk management, visit ECBM's blog.

Insights Risk Management is brought to you by ECBM

Taxes are complicated, confusing and sometimes intimidating. Even though you might want to put everything on the shelf after getting through another filing season, a checkup could be in order.

 “If your car is running fine, you shouldn’t wait until it breaks down to get it tuned up or have routine maintenance,” says Michelle Mahle, CPA, director of tax at SS&G

There are valuable tax opportunities you may be missing. Certain tax positions or reporting could help your business mitigate risk. 

“You have an opportunity to have somebody independent of what’s been done historically to come in with a fresh set of eyes,” she says.

Frank Taylor, CPA, director of tax at SS&G, says it comes down to how you feel about your current tax situation. 

“If nothing else, you can get peace of mind that everything is being handled correctly,” Taylor says.

Smart Business spoke with Mahle and Taylor about how a third-party checkup of your tax filings might uncover new opportunities and tax savings strategies.

How do you know whether your tax returns need a second glance?

First, this goes beyond the scope of just federal tax returns. It could include international, state and municipal tax compliance, as well as personal property and sales and use tax filings. An independent party can look at your business and say, ‘We should see this, and that’s a concern because it’s generally required with the business you’re operating.’ A third-party checkup can help you mitigate risk and exposure to audit, provide insight on tax strategies, and avail opportunities to secure tax credits and incentives unique to your industry.

It comes down to whether you feel comfortable. Maybe you’re unhappy about the taxes that you just paid, feel like you may be missing opportunities or just hope your next filing season will be different. A second glance or opinion may provide the peace of mind you need to stay focused on growing your business.  

What are some examples of opportunities businesses could be missing? 

Just looking at the restaurant industry, for example, there are organizations overlooking routine benefits available to them. They might be missing out on FICA (Federal Insurance Contributions Act) tip and work opportunity tax credits. Owners, previously paying alternative minimum tax (AMT), have found that their AMT credit carry forwards were handled improperly and when corrected resulted in substantial refunds. Many companies continue to improperly capitalize assets, not taking full advantage of accelerated depreciation deductions. 

Business owners in general tend to be intimidated by the Internal Revenue Service (IRS). When they are under audit or receive a notice, they just assume the IRS is right. The number of IRS audits taking place is increasing steadily. Always consult with your service provider to find out how much experience they have handling these types of matters so that you can be poised with good information and tax strategies to mitigate your risk and exposure.   

What should you look for when going to an independent party for a tax filing review?

You want someone with experience, particularly in specialty tax niche areas. There are a lot of service providers who perform very good basic federal tax compliance services. If you are feeling like your business is no longer vanilla, however, basic service may not be enough for you. The way people do business today is very different than the way business was done five years ago. Even small companies have international exposure, and almost every business crosses state lines. 

You want an independent party to have the depth and experience in both specialized areas of taxation and industries. You also want tax experts who stay on the cutting edge of legislative changes and developments, and who can identify tax saving strategies and refund opportunities. The right third party can provide a well-rounded second glance to any industry, for any circumstances, and could bring you real money in the form of refunds or credits as a result.

Michelle Mahle, CPA, is a director in Tax at SS&G. Reach her at (440) 248-8787 or MMahle@SSandG.com.

Frank Taylor, CPA, is a director in Tax at SS&G. Reach him at (440) 248-8787 or FTaylor@SSandG.com.

Website: Get the latest tax news and industry developments, available 24/7, on our website and blogs at www.SSandG.com. 

Insights Accounting & Consulting is brought to you by SS&G





When the news came out July 2 that the Affordable Care Act (ACA) employer mandate — the enforcement of the shared responsibility requirement — would be postponed until 2015, you may have felt relief. But for many large-group employers, it’s not so simple.

“This is not a reason to put your head back in the sand,” says Mark Haegele, director of sales and account management at HealthLink. “Keep your eyes open. See what’s going on. Run some cost benefit analyses of different scenarios of offering different levels of coverage, or not offering. The bulk of the health care reform law is still being implemented on Jan. 1, 2014.”

In fact, Haegele says in some instances it may make sense to follow the employer mandate now, as waiting until 2015 could cause certain problems downstream.

Smart Business spoke with Haegele about what this delay means for business owners and their employees.

What was delayed until January 2015?

The Obama administration announced a one-year delay of the requirement that insurance companies and employers report certain information about health insurance coverage offered to individuals and employees, as well as the employer mandate.

It doesn’t change anything relating to the community rating rules, the individual mandate, the $8 billion sector tax, etc. These provisions are causing employers to explore self-funding, and all are still in play for January.

In what scenario does waiting to follow the employer mandate in 2015 create problems?

Large employers — those with 50 or more employees, according to the legislation — with employees who work 30 to 39 hours who don’t receive insurance face a unique situation. These employers were expecting to either pay a penalty or the need to offer some form of coverage. Many contemplated offering minimum essential coverage plans, or skinny bones plans, that just cover prevention and wellness — no hospitalization. 

Let’s say an employer has 300 employees who work 30 to 39 hours and receive no benefits, and with the delay the company doesn’t plan to offer any until 2015. These employees still must have insurance coverage to meet next year’s individual mandate.

Many also are eligible for sliding-scale subsidies on the new health care exchanges — those with an income level 400 percent or lower than the federal poverty level. In 2013, that qualifies any family of four with an annual income of less than $94,200, or $45,960 for an individual. 

Fast forward to 2015, a portion of the 300 employees have gone on the exchange and gotten insurance with subsidies. Now, you want to provide pared-down benefits to avoid the employer mandate penalties, which basically strips the employees of their subsidy, possibly increasing their insurance costs and/or decreasing their coverage. This might make it worthwhile to price out minimum essential benefit plans for 2014. Otherwise, employees may believe you did this to them, causing retention problems.

What other concerns does the delay raise?

More Americans will be accessing federal subsidies for health insurance, but the Internal Revenue Service (IRS) won’t be collecting employer mandate penalty revenue, as originally projected. With less money coming in and more going out, it may impact the ACA’s sustainability. 

Originally, the ACA required insurance companies and employers to send an informational return to, for example, the IRS. This was meant to help enforce the individual mandate by offering a secondary source about whether individuals are covered by health insurance. With the delay until 2015, there is no way to match up the employer informational returns with the individual tax returns, which may make the individual mandate more difficult to enforce.

So, what are some next steps for business owners?

In addition to considering whether it’s worth offering coverage even though the penalties won’t start until 2015, you still need to implement complicated procedures that measure how many hours variable employees work on average. Companies need to work on their approach even in 2013, as transitional relief going into 2015 is more unlikely after a one-year delay. You’ll want to get it right the first time.

Mark Haegele is director, sales and account management at HealthLink. Reach him at (314) 753-2100 or mark.haegele@healthlink.com.

Website: Visit www.healthlink.com/key_business_trends.asp to learn more about transparency and other key health care business trends.

Insights Health Care is brought to you by HealthLink





No matter what type or size of a business, health care tends to be one of the leading employer costs. Although the Affordable Care Act (ACA) was intended to reduce costs, businesses are finding themselves on the receiving end of double-digit rate increases each year.

“Because of these hefty increases, employers are searching for more creative ways to reduce costs, while ensuring their benefits package remains competitive in the employment sector,” says Mary Policky, assistant vice president at Momentous Insurance Brokerage, Inc.

Smart Business spoke with Policky about how to reduce or restructure health benefits offerings in tough times.

When should a company consider reducing or restructuring benefits?

First, they should review their policies at the beginning of each fiscal year to determine a budget dedicated to the employee benefit package.

Then, they should do a mid-year plan review, which is also a good time to re-educate employees on important benefits available to them, such as various types of preventative care, which may be covered at no cost to the employee.

Lastly, review policies near open enrollment. Typically, the carrier releases renewal rates 60 to 90 days prior to the plan expiration date. That’s the time to shop around and research opportunities with other carriers, as well as alternate plans with the current carrier.

What’s the first step to figuring out where to make cuts or restructure?

A key factor is determining how much you want to spend. The challenge is how to significantly reduce the premium without sending employees into a tailspin from extreme changes, such as increasing deductibles and copays, which inevitably raise financial concern. Additionally, it’s a good idea to conduct employee surveys to determine their areas of concern, such as office visit copays, in-network doctors, prescription drugs, etc.

It’s also beneficial to have your broker provide benchmark information to see where you are in the industry, and where your competition is. More and more, employees are seeing that medical benefits are a vital part of their total compensation package, and will often consider a reduction in salary if the company offers comprehensive plans.

Generally, what low-hanging fruit can businesses look at first?

In addition to the deductible and copays, they should review the provider network. A company with 30 employees enrolled in an HMO plan typically spends $18,000 per month. By changing to a limited network, the premium reduces to $13,000 a month — a 28 percent savings. You can use disruption reports to gauge how many current doctors are in a new limited network.

Many employers are moving toward consumer-driven plans, such as health savings accounts (HSA) or health reimbursement arrangements (HRA). These plans allow employers to give each employee a fixed dollar amount to choose how they want to spend it on medical expenses. These tax-advantaged plans result in a lower premium and less rich benefits. However, a portion of the premium cost savings can be given back to employees to use for deductibles/copays. Also, with cost decisions in the hands of employees, the onus is on them to make better health decisions.

But it’s not always about reducing benefits. Adding wellness or disease management programs help create a healthier workforce and reduce premium increases. 

What’s the best way to communicate to employees?

Employers often underestimate the need for clear communication and making sure that employees truly understand their benefits. Make time for mid-year reviews, webinars, conference calls and/or payroll stuffers. If you must raise rates, inform employees as soon as possible. Also, inform employees how much of the increase the employer is absorbing. A great way to convey this is through benefits statements, which show the total cost of benefits, and how much the employer is contributing. 

Health care reform is just one of the many reasons to have a broker help navigate constant changes in the marketplace and tailor a plan to fit the company’s needs.

Mary Policky is an assistant vice president at Momentous Insurance Brokerage, Inc. Reach her at (818) 574-0426 or mpolicky@mmibi.com.

Blog: Get more information on employee benefits and other important insurance topics at www.momentousins.com/blog.

Insights Business Insurance is brought to you by Momentous Insurance Brokerage, Inc.




“America likes cheap gasoline,” says Sandra Dunphy, director of Energy Compliance Services at Weaver. “But as much as we want cheap gasoline, we also want clean gasoline and clean air — and they are not necessarily mutually exclusive.” 

In the balancing act between the two, Renewable Identification Numbers (RINs), which are attached to gallons of renewable fuel as it is produced, have become very valuable to the oil companies required to own them. 

“If you bought 1 million RINs on Jan. 1, it would have cost you about $70,000,” Dunphy says. “Today, that same purchase would cost about $1 million.” 

Because there’s so much money in RINs, there’s also the potential for fraud. After a handful of fraud cases rocked the market, the Environmental Protection Agency (EPA) has stepped in with a solution — Quality Assurance Plans (QAPs). 

Smart Business spoke with Dunphy about the EPA’s Renewable Fuel Standards program and how QAPs fit in. 

How do RINs and the RFS program work?

Congress passed the Energy Independence and Security Act in 2007 to introduce fuels with lower greenhouse gas emissions, reduce dependence on foreign oil, and promote domestic agriculture and employment. This act spawned the EPA’s RFS regulations that encourage biofuels beyond corn ethanol — those made from non-food sources like used cooking oil, wood chips and algae. 

Oil refiners and importers of gasoline or diesel are required to own a certain amount of RINs at year-end. The RFS requirements will increase annually from about 16.5 billion gallons in 2013 to about 36 billion gallons by 2022. 

Why have RINs become so valuable?

We are hitting the blend wall. When this law passed, Congress anticipated that the volume of gas and diesel we consume would increase each year. But demand has fallen with fuel-efficient vehicles and fewer driving miles, and now there’s nowhere to put additional renewable fuel into the declining gas and diesel pool. Anticipating higher mandated renewable fuel volumes, and a possible shortage of RINs, many oil companies are buying RINs now to use in 2014 — 20 percent of RINs can be carried forward from one year to the next.

Why did the EPA create the QAP program? 

Since 2011, a few RIN fraud cases have shaken the market’s foundation and made oil companies nervous about buying renewable fuel or RINs, after the EPA penalized oil companies who used fraudulent RINs for their annual compliance needs. As a result, many oil companies started buying only from the biggest renewable fuel producers who had the ability to replace bad RINs, and small fuel producers suffered.

The QAP program seeks to address the concerns of invalid RINs in the market and tries to level the playing field.

How does the QAP program validate RINs?

There are three options available to a domestic renewable fuel producer or importer with this program. The first option is to maintain the status quo, where oil companies do their own due diligence reviews. 

Second, under the QAP-B program, the producer hires an auditor to audit its paperwork and conduct an engineering visit quarterly to ensure the energy and mass going into the plant are equivalent to the energy and mass going out. It reassures those buying the RINs that the producer is doing everything it is supposed to. The oil company has an affirmative defense against EPA penalties if they use a QAP-B RIN for compliance. They just might have to replace bad RINs if the producer cannot.

Another option is the QAP-A program. It’s the same as QAP-B, but the scrutiny is more ongoing. In addition, the auditor must hold an insurance policy. So, if a producer makes an invalid RIN and can’t replace it, the auditor is responsible.

What’s the timeline for the QAP?

The EPA has not issued the program’s final regulations. That is likely to happen in the third or fourth quarter of this year and become effective beginning in 2014. However, the EPA is encouraging producers to get started now. A renewable fuel producer’s purchasers will probably dictate what type of QAP the producer will need, if any.

Sandra Dunphy is director of Energy Compliance Services at Weaver. Reach her at (832) 320-3218 or sandra.dunphy@weaverllp.com.

Follow up: Weaver has been pre-approved to perform U.S. EPA RFS Quality Assurance Plan audits. Contact Sandra Dunphy if you’re a domestic producer or importer of renewable fuel and would like to learn more.

Insights Accounting is brought to you by Weaver






Estate planning is more than just having documents. It needs to be tied to long-term intent and aligned with your goals. What works for one person may not work well for the next, and what worked 10 years ago may not work now.

Geoffrey M. Zimmerman, CFP® practitioner, senior client advisor at Mosaic Financial Partners Inc., says many treat their estate plan like a transaction, even though the moving parts may have changed.

“They may have a document that is doing things to them and to their beneficiaries, and not really working well for them,” he says. “That’s why it’s important to review the plan periodically. It might take a visit to your attorney and the cost of several hours of time to update it. But in terms of relieving the headache on a surviving spouse or beneficiaries, those can be dollars well spent.”

Smart Business spoke with Zimmerman about why your estate plan should be continually adjusted.

What recent changes make updating your estate plan important?

Although the estate tax exemption did not reset as many feared, there are new items to consider. Undistributed income from an irrevocable trust can reach the top federal income tax bracket of 39.6 percent plus the Medicare tax of 3.8 percent after only $11,950. Those trusts can also see capital gains rates increase from 15 to 20 percent. This might impact a surviving spouse with capital gains assets in a credit shelter trust (also called a bypass trust) and assets in a marital trust.

How could outdated plans create problems?

In 1996, a couple with a $3 million estate would typically use a bypass trust to allow both spouses to use their respective $600,000 exemption to non-spouse beneficiaries, effectively allowing $1.2 million to pass to heirs free of estate tax. The remaining $1.8 million — plus any additional growth — was taxed at the death of the surviving spouse at rates up to 55 percent. A common planning strategy at the death of the first spouse was to put growth assets into the trust, as there would be no estate taxes on those assets. Heirs would still pay capital gains taxes, but capital gains taxes were (and still are) lower than estate taxes.

Today, the estate tax exemption has increased to $5.25 million per person. In our example above, the surviving spouse’s estate of $2.4 million worth of property could more than double before reaching $5.25 million and triggering any estate taxes.

Also, with the new laws, there is a now a new feature called ‘portability,’ which allows the surviving spouse to use the deceased spouse’s unused exemption amount. So in theory, a surviving spouse could pass up to $10.5 million worth of assets to heirs free of estate tax without using a bypass trust.

Older trusts that call for the creation and funding of a bypass trust may incur other unintended consequences. For example, formulas that call for funding the bypass trust to the maximum amount available without triggering an estate tax could leave the surviving spouse at a disadvantage with little or no assets in the survivors trust. Subtrusts that contain highly restrictive conditions for distributions to the survivor can create further complications. Finally, estates that contain large amounts of illiquid  assets that would need to be split between multiple trusts may also be problematic.  Periodic reviews, including a flowchart to understand what assets are going where, may be particularly helpful.

Also, as mentioned earlier, undistributed income in the bypass trust can hit top tax rates at very low levels of income, whereas the surviving spouse may not reach top tax brackets until he or she reaches $400,000 in taxable income.

Does this mean subtrusts are no longer useful?

They are still useful in cases where control over the disposition of assets is important, such as preventing a surviving spouse from disinheriting children from a previous marriage. You must balance the need for control against the surviving spouse’s needs, and your goals for your non-spouse beneficiaries. The surviving spouse and beneficiaries may have different interests — income versus growth. Proper planning, which includes a good understanding of goals and motivations, can help improve the odds of a successful outcome.

Geoffrey M. Zimmerman, CFP® practitioner, senior client advisor, at Mosaic Financial Partners Inc. Reach him at (415) 788-1952 or Geoff@MosaicFP.com.

Zimmerman, CFP® practitioner and senior client advisor for Mosaic Financial Partners Inc. serves affluent individuals and families. A complimentary consultation is available upon request.

Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.


Sunday, 30 June 2013 20:27

How to manage excess liquidity

A company’s liquidity and cash needs are like a river. The short-term immediate needs flow pretty fast as cash moves in and out of the business. But the further you go down in the water — down to cash that’s only needed for a rainy day — the slower it moves. In fact, it can be too idle.

“Often, there is this big pool of excess cash for the off chance they need liquidity,” says John Whiting, CFP, principal at Moss Adams Wealth Advisors. “But what they give up in that scenario, by keeping that money highly liquid, is less yield and return on those dollars. It can grow to be a fairly significant amount of money that potentially, year-after-year, is pooling up in unproductive ways.”

Smart Business spoke with Whiting about maximizing your business’s treasury management to make assets as productive as possible.

Why is treasury management critical?

Treasury management is the strategic management of a company’s working capital and excess liquidity. By maximizing this, given the specific business needs, the company is more competitive with better earning potential through properly deployed assets.

Today, businesses have accumulated a lot of cash and may not deploy those assets with the economic uncertainty. Even in this low-yield environment, companies that have built cash over the past three to five years could be getting an extra 20 to 30 basis points. And by deploying excess liquidity, you not only can get an extra return, but also, with low interest rates, can use working capital lines to address unexpected needs.

Why do treasury functions not get the same scrutiny as inventory control, capital budgeting and accounts receivable?

It can be an afterthought, as it may initially start so small it doesn’t feel like it warrants a lot of attention. Typically, a controller or CFO is charged with making sure the liquid assets are positioned, but there isn’t anything defining the objective.

What’s a better approach?

You need to be disciplined, looking out over the horizon and anticipating company cash needs to a better extent.

The business should have a written investment policy statement that defines expectations and is used to segment liquid assets into different buckets based on the time horizon for the business’s needs. The statement also would say exactly what investments are appropriate for each bucket, including the necessary credit quality.

Further, the investment policy statement should help set up controls to monitor risk.

How should the guidelines for how funds are invested be structured?

Start with assessing the risk and the needs of the company. Then, look at the next business cycle or more to see possible cash flow needs. You can time assets to ensure the liquidity is there when you need it.

Let’s say, a business is sitting on $10 million in liquid assets and is anticipating either an acquisition or significant capital improvements that might take $3 million or $4 million of that in 18 months or two years. Understanding that allows you to position the assets by buying municipal bonds or high-quality corporate fixed income that would mature three months before the assets might be needed. Now, you’re getting the best and highest yield possible, given that expected need.

What’s important to know about monitoring these treasury functions?

It’s important to understand the real return on investments by having a reporting mechanism, which then determines your success. For example, many CFOs or controllers use multiple financial institutions in order to mitigate risk. However, they need to aggregate all of the information to really assess and score the overall management process.

The cost of management is not terribly opaque, even with the effort to create more transparency. With fixed income, you need an understanding of who is negotiating on your behalf and how are they going about procuring that fixed income for you.

Half the battle is asking the questions and getting straight answers. An outside adviser is often the best management choice, but be sure to have an open discussion about the fee structure and associated costs. In fact, it can be a line item on your investment report because understanding the real cost of managing assets is key.

John Whiting, CFP® is a principal at Moss Adams Wealth Advisors. Reach him at (707) 535-4167 or john.whiting@mossadams.com.

Insights Accounting & Consulting is brought to you by Moss Adams LLP.

Even in this recovering economy, businesses are trying to do more with less. While managing existing processes can enable flexibility for the ups and downs of business, incorporating software could alleviate pain points, improve productivity and save money.

“The big question is, ‘How do I improve what I do with my customers, my vendors or my employees?’” says Curtis Verhoff, systems integrations and applications manager at Blue Technologies. “Those are the big three, and every organization is like that — whether it’s somebody who sells widgets, provides professional services or is trying to find donors and support.”

Smart Business spoke with Verhoff about utilizing software to improve a range of business functions.

What are some examples of optimizing your software resources?

These software solutions often deal with enterprise content or customer relationship management, but they also can be transactional, such as helping handle invoices, statements, packing slips or the documents you use daily to communicate with customers. One business recently optimized its existing systems to reduce raw postage costs, saving anywhere from $4,000 to $5,000, or 20 percent, each month.

Two other organizations increased productivity by improving payment management. By adding to its software and adjusting existing systems, one company took better advantage of pricing discounts by paying vendors earlier. The other business tweaked the integration of its current system, getting its elite group of customers to pay on average five to seven days faster, which improved cash flow.

What can maximizing your software integration mean for your business?

In this economy, it’s critical to look at the level of success you’re having integrating your current software products. All businesses have to work harder to maintain their current customer loyalty, while trying to attract new customers. You must be more productive with the same or fewer employees.

Your competitors are already working to be productive and more customer friendly — you don’t want to be left behind. You need to provide advantages to your customers to separate yourself. Highlighting your software solutions through marketing can give your customers an indication of how it will make doing business with you more pleasant and reliable.

How can you discover if you have problems with existing software?

What complaints do you hear from your current staff about being more productive, servicing customers better or doing day-to-day activities more efficiently? Is each department running at peak efficiency? Where is your business not functioning at optimal capacity? If you’ve integrated certain solutions, then what’s the ROI and are you happy with that?

If you’re not hearing about problems, check with your managers. Some managers don’t take problems to the top until they reach critical mass.

Once you’ve spotted the pain, what’s next?

First, identify and pull together people to discuss the fine details of the problem. You don’t need to connect all the dots, just get a solid understanding. Develop a game plan that focuses on the most painful areas that, if resolved, can produce the biggest gain.

Many companies put together a laundry list, and then don’t move forward, fearing the cost and scope. However, if you prioritize the most critical items, you might be able to resolve the few problems that are causing most of the pain.

Then, reach out to a provider with the skills and abilities, as well as the offerings, to help you overcome your top challenges. It’s important for all parties to keep the larger list in mind because it could affect the software solution decision. Each resolution is a piece of the puzzle, and you want to avoid having to revisit it later once you’ve moved on.

Curtis Verhoff is a systems integrations and applications manager at Blue Technologies. Reach him at (216) 271-4800, ext. 2251 or cverhoff@BTOhio.com.

Save the date: Discover how your office technology can connect your business at our Aug. 20 Synergy Showcase. Meet us at the Q to see for yourself. Visit http://bit.ly/12PbQOd for details.

Insights Technology is brought to you by Blue Technologies