Businesses and individuals managing employee retirement plans need to understand their Employee Retirement Income Security Act of 1974 (ERISA) obligations and the liabilities associated with plan mismanagement.
“Plan fiduciaries must act prudently. They must do things such as diversifying investments to minimize risk, and they must always act in accordance with plan documents, as long as those plan documents comply with ERISA,” says Kerri L. Keller, a partner at Brouse McDowell.
“There are certain actions that plan fiduciaries must never do. These include using plan assets for personal gain or for business purposes,” she says.
Smart Business spoke with Keller about the role of a plan fiduciary and how to comply with ERISA requirements.
Who is a plan fiduciary?
A plan fiduciary can be any business or individual who exercises discretion, control or authority with respect to plan management. It can also be any business or individual who manages plan assets or exercises discretion or control with respect to the disposition of plan assets. An ERISA fiduciary also can be those businesses or individuals who provide investment advice to a plan, or are responsible for plan administration.
Examples of plan fiduciaries are the named fiduciary or plan administrator, such as the employer or plan sponsor. But sometimes third-party service providers, investment managers and advisers, insurance brokers, and officers of the employer or plan sponsor can be deemed plan fiduciaries.
What are the responsibilities of a fiduciary?
Every plan fiduciary has a duty of loyalty, a duty of prudence, a duty to diversify and a duty to act in accordance with the plan documents. Plan fiduciaries should know that they could incur personal liability for breaching any of their ERISA-imposed responsibilities, obligations or duties.
This personal liability can require a plan fiduciary to pay back to the plan any losses that result from a breach of fiduciary duties, and to give back any profits that the fiduciary may have made from using plan assets. Fiduciaries must act solely in the interest of the plan participants, and for the exclusive purpose of providing plan benefits and defraying reasonable plan expenses.
Are all employer actions considered fiduciary actions?
No. Certain business actions are not considered fiduciary actions, such as the employer’s decision to establish a plan, what features to include, and the decision to amend or terminate a plan. In other words, when an employer acts on behalf of its business, it is generally not acting in its capacity as a plan fiduciary.
However, actions taken to implement these decisions can transform a business or individual into a plan fiduciary. Fiduciary actions generally include exercising discretionary functions over the management of a plan and its assets.
What are the obligations and liabilities associated with plan mismanagement?
For starters, ERISA fiduciaries can be liable — even personally — for breaching any of the responsibilities, obligations or duties imposed by ERISA. If a fiduciary breaches a duty to the plan, he or she may be required to personally pay back any losses to the plan and restore any profits made by the use of plan assets. A court also can order any other relief that it deems appropriate.
What would be an example of a breach?
A breach would occur if a business owner used plan assets to finance a purchase of equipment to open a new division. The business — and the owner in his or her personal capacity — would likely be required to pay the plan back and disgorge any profits that were made by the improper use of the plan’s assets. As previously stated, a plan fiduciary must act in the best interest of the plan and its participants — not in the best interest of the employer or owner.
The IRS, the Department of Labor, and the Department of Justice all have a role in ERISA oversight. These are the agencies that will generally perform compliance investigations and enforce penalties against the plan or plan fiduciaries. ●
Insights Legal Affairs is brought to you by Brouse McDowell
Companies that have looked into using the IC-DISC (Interest-Charge Domestic International Sales Corporation) provisions of the tax code, intended to help U.S. companies compete internationally, might remember that the incentive essentially reduces the top federal tax rate on income from certain qualified goods and services from 39.6 to 20 percent.
“Partly because it is thought of as a manufacturing and export incentive, many companies have dismissed the IC-DISC. Many more have misinterpreted the rules, which actually do not require manufacturing or exporting,” says Amit Mathur, CPA, director at WTP Advisors.
Pete Chudyk, head of the tax consulting practice at Maloney + Novotny LLC, says “We have helped many companies realize that the definition of ‘qualified export’ sales for IC-DISC purposes is explicitly based on use outside of the U.S., and does not literally require the exporting of goods.”
Smart Business spoke with Mathur and top accounting firms about five IC-DISC myths that lead to business owners missing or underutilizing the valuable government incentive.
Myth 1: Products must be exported.
Perhaps the most widely held IC-DISC misinterpretation is that a company must export a product and sell to a foreign customer to qualify for benefits.
While the product generally must be ultimately used outside of the U.S. — without being further manufactured by another party inside the U.S. — there is no requirement that the product be exported, or that the customer be foreign. In some cases, the product may even return to the U.S. For example, an Ohio auto parts maker that sells to General Motors Co. can claim benefits if the parts are incorporated into a car GM builds in Mexico. A special component rule allows these parts to qualify after being incorporated into another product abroad that returns to the U.S.
Mike Trabert, a partner at Skoda Minotti, says “Any closely held manufacturer or distributor should examine where the ultimate use of their products occurs. While they may not consider themselves ‘exporters,’ significant and easy to implement tax benefits may be available.”
Myth 2: The taxpayer must manufacture the product.
Closely held distributors and brokers, as well as the final manufacturers, of any U.S.-made product are eligible for IC-DISC benefits for any given qualified sale or lease. Unlike the Domestic Production Activities Deduction often enjoyed in tandem with the IC-DISC — both benefits can be claimed — manufacture by the taxpayer is not required.
Myth 3: Business operations will be disrupted.
A popular misconception is that using an IC-DISC will require a new entity to sell qualified exported goods in order to obtain the tax savings. This fear of having to alter contracts, logistics, payments, etc., is totally unfounded. There is actually no effect on cash flow or any other business operations from using an IC-DISC. Other than receiving a commission from the related operating company and immediately paying a dividend back to the company, or its owners, the IC-DISC typically does not perform any activities whatsoever.
Myth 4: IC-DISC benefits are limited to $10 million of qualified sales.
No limitation exists on the amount of qualified export sales that can generate IC-DISC benefits. Originally, the IC-DISC provided a deferral benefit, and the amount that could be deferred was related to only $10 million of qualified export sales.
Myth 5: IC-DISC commission is 4 percent of export sales or 50 percent of export income.
IC-DISC savings result from allowable commission paid to an IC-DISC, generating an expense at ordinary rates (39.6 percent) with the same amount typically being paid from the IC-DISC to its shareholders as a dividend, taxed at dividend rates (top rate 20 percent). Many believe this commission amount is limited to 4 percent of export sales or 50 percent of export taxable income.
In reality, each qualified export transaction can use either of these basic methods, or a host of other methods explicitly encouraged in the regulations that can be more beneficial. Some methods even allow loss transactions to generate a commission. ●
Insights Tax Incentives is brought to you by WTP Advisors
The Jan. 1, 2014, implementation date of many insurance provisions and mandates under the Affordable Care Act (ACA) is rapidly approaching, leaving employers to wonder just how the ACA is going to impact them and their benefit offering.
“As employers explore their health insurance options for 2014 and receive renewal rates from their carriers, some may see an increase that is higher than what they may have expected,” says Marty Hauser, CEO of SummaCare, Inc. “This increase can be attributed to several factors mandated by the ACA. Employers should familiarize themselves with these changes so they understand the reason for premium costs and can decide what is best for their employees and business.”
Smart Business spoke to Hauser about the changes in rating and underwriting under the ACA that will impact premium costs next year.
What do insurers use to determine rates for employers and how will that change?
Currently, rating is based on a number of factors including age, gender, health status and geographic location. Preexisting medical conditions and prescription use are also used to determine rates.
In 2014, rating is limited to age, smoking status and geographic location. Guaranteed issue also goes into effect, meaning that insurers cannot deny coverage because of a preexisting condition or rate-up for high-risk groups. Simply put, insurers can rate a group based on fewer factors than in previous years.
What else is changing in rating that will impact premiums?
Age bands, which are ranges of ages that determine premium amounts, are used to determine a group’s rates, and today these are set at a 5-to-1 gender-based ratio.
Beginning in 2014, age bands can have a maximum ratio of 3-to-1, and these age bands are separated into three groupings: one single age band for children ages 0 through 20, one year age bands for adults ages 21 through 63, and one single age band for adults ages 64 and older.
It’s important for employers to understand that under the ACA these ratios are uniformly mandated and regulated across the country for each carrier in order to level the playing field when it comes to group insurance premiums.
In addition to the change in rating factors and age bands, the ACA requires certain fees and taxes from health insurance companies based on the insurer’s membership.
The first fee, called the patient centered outcomes research trust fund fee, went into effect last year at a cost of $1 per family member and increased to $2 per family member this year. The fee is collected to help fund the Patient-Centered Outcomes Research Institute, which will assist patients, clinicians, purchasers and policy-makers in making informed health decisions through research.
The second fee, called the transitional reinsurance program fee, is effective from 2014 through 2017 at a cost of $5.25 per family member per month or $63 per family member annually. This fee will be assessed against both insured and self-funded group health plans in order to stabilize premiums in the individual market for the first three years the marketplaces are in effect. These fees will be used to make payments to carriers that cover high-risk individuals in the individual market.
The third fee, called the marketplace user fee, goes into effect next year at a cost of 3.5 percent of policy costs. The marketplace user fee is meant to cover administrative costs of policies on the health insurance marketplace.
Finally, the annual health insurer industry fee begins next year at a cost of 2 to 2.5 percent, increasing to 3 to 4 percent in 2015. This fee is an excise tax to fund some of the provisions of the ACA.
In addition to the new fees, health plans are still subject to the 1.4 percent state premium tax.
How can employers offset some of the expense of their health insurance next year?
While there isn’t much employers can do about the new rating factors or fees imposed by the ACA, they can help offset their premium costs by working with their insurer or independent insurance agent to make sure they are offering the right coverage for their employees and budget. ●
Insights Health Care is brought to you by SummaCare, Inc.
The U.S. is very much a national economy — even small businesses aren’t restricted to their hometown communities. Many companies don’t know that certain activities give rise to filing requirements for income, payroll and/or sales taxes in other states.
At the same time, it’s no secret that states are having trouble making ends meet, so they are using creative ways to find companies doing business from out of state.
“States essentially are looking to find new sources of tax revenue, without increasing taxes on the folks in their own state. It’s really easy to tax the people who don’t vote for you,” says Brad Greenberg, a director of tax in SS&G’s Chicago office.
Smart Business spoke with Greenberg about being proactive with your state tax filing requirements.
How would a business know if it had a filing requirement in another state?
There are more than 11,000 taxing jurisdictions in the U.S., whether states, cities or counties. With state and local tax filing requirements, the keyword is nexus — a minimum physical connection, often through sales or delivery trucks, attending a trade show or having contractors service a machine you sold.
If you make sales to a state, you probably have a responsibility to remit sales tax. However, if your activities are restricted to sales, you may not need to pay income tax. Payroll taxes are more black and white — if you have an employee based out of another state, you’ll have a payroll tax requirement.
If your employees are working on a project in another state, depending on the length of time and that state’s tax requirements, you may need to withhold state income taxes. Rules are so varied that Congress introduced legislation for a 30-day minimum rule. In addition, some states use a concept known as economic nexus to determine filing requirements, such as Ohio’s commercial activities tax, or if you sell $500,000 or more to California, even over the Internet.
What are states doing to find businesses?
States are cross-referencing taxpayer information from various departments to generate lists of companies that are remitting payroll taxes, but aren’t remitting sales or income tax.
Then, states send out letters. One is an audit or assessment that says ‘you’ve been doing business in our state. We think you should be filing sales and/or income tax returns.’ Any business receiving this letter needs a professional to investigate whether or not a filing requirement existed. If one does, you must file returns; if there isn’t, the adviser can help explain why filing requirements don’t exist.
The other kind of letter is a nexus questionnaire, which asks about your business activities. Don’t ever try to fill out one of these yourself. They are written to create more taxpayers for that state. Tax professionals can help ensure you answer the questionnaire completely and accurately, truly reflecting your business activities, without leading the state to believe there is a filing requirement.
Why is it helpful to be proactive?
You want to sit down with your tax adviser and take a close look at your multi-state activities to recognize any issues. If you happen to be doing business in a state where you potentially owe tax, there are mechanisms to minimize your liability, interest and penalties. Your accountant can ask the state for a voluntary disclosure agreement. If you voluntarily come forward, you’ll likely have a shorter look-back period, and in many cases forgiveness of penalty.
What if the business provides services?
A professional services firm can perform work for out-of-state clients on site or virtually. The income tax filing requirements depend on whether the states in which you perform the work, and where your customers are located, apportion income based on where you provide the service (‘cost-of-performance’ method) or where the customer realizes the benefit of the service (‘market’ method). So it’s important to keep good records with respect to where employees are working on each client engagement. The rules are complex and differ from state to state.
You don’t want to be subject to the hassle of audits or filing back tax returns, or to face penalties and interest. An accountant with a strong background in state and local tax can help manage these risks. ●
Insights Accounting & Consulting is brought to you by SS&G
The Kaiser Family Foundation recently released a study that stated premiums available on state-based health insurance exchanges would be lower than expected. In Ohio, rates cited were even lower than the national average, with costs for the second-lowest silver tier plan at $249 compared to $320 nationally.
However, Ohio Lt. Gov. Mary Taylor had earlier announced that individual premiums were expected to increase by 41 percent.
Smart Business spoke with William F. Hutter, CEO of Sequent, about whether the Patient Protection and Affordable Care Act (ACA) will succeed in driving down health insurance costs.
Do the rates cited in the Kaiser study mean costs are going down?
Possibly for a couple of years — we’ve still not seen the community rating prices for small group coverage, and just maybe the lowest prices were illustrated in the Kaiser study. The rates indicate a very low and attractive premium structure. It’s unlikely these rates will be sustainable after 2016 because carriers don’t know the real cost of insuring this group yet.
In addition, the paper didn’t address complex tax implications for both the company and employees that must be considered for total cost. For example, the new taxes on insurance premiums paid by carriers, but collected from employers, are a protection for the carriers. The tax will be set aside to help carriers offset the real cost of coverage for the first two years. After that, the exchange carriers will be on their own, with no government subsidy.
What impact will these rates have on businesses and their health care plans?
One of the leading actuarial firms, Milliman, has an analysis tool to help any company dig through the ‘play or pay’ considerations. Having completed more than 250 separate analyses, Milliman reported it made sense to ‘pay’ for only two of those companies. However, it’s difficult to access the individual total costs relative to plan designs.
What do the delays mean for 2014?
This is a practice year for everyone; 2014 is a penalty-free zone. With the rollback in enforcing penalties and a delay in reporting incomes for the affordability test, people think they are off the hook regarding ACA requirements. But everything else is going forward, including a big increase in taxes.
Unfortunately, the early testing on the exchange, scheduled for early September, was delayed. The Department of Health and Human Services also delayed the deadline to sign final agreements on health plans that will be available to consumers on the exchanges, which might have occurred because some insurers have been hesitant to sign up.
Many people anticipate there may be massive technology glitches relative to the exchanges, including a brewing concern in the technology arena about confidentiality and Health Insurance Portability and Accountability Act (HIPAA) compliance. The system is going to be large and unwieldy.
Who is going to buy insurance from the exchanges?
Even with the individual mandate — which still could be delayed by the government — beginning next year, most people will not be making changes regarding their health care, whether they have insurance or not. If you haven’t purchased coverage because you’re young and invincible, you’re not going to purchase coverage now with minimal individual mandate penalties in the first year.
The people who will be truly interested in participating are the most needy — those who cannot afford other coverage because they are ill and not working.
As for businesses, depending on the average income per worker, some might drop plans and let employees go to the exchanges. Businesses with fewer than 50 full-time equivalent employees will not be penalized when penalties are assessed in 2015. So, they could drop coverage, give everyone a $4,000 raise and let employees buy their own insurance. But companies need to remember that giving a raise to buy exchange coverage causes everyone’s taxable income to increase. Therefore, the employee pays more in taxes, the company pays more in taxes and the increase might bump income over the subsidy limits.
It’s still very difficult to predict what exactly is going to happen because there are so many unknowns. ●
Insights HR Outsourcing is brought to you by Sequent
Cascade Capital Awards 2013 -- Sales Growth (tie)
Venture Products Inc.
When blight struck Japan, it left thousands of dead pine trees all over the country. While removing the tree limbs and trunks was a fairly routine procedure, a number of stumps were on steep or uneven terrain, making them difficult to remove. That’s when Venture Products Inc. stepped in with its compact tractors and commercial grade attachments.
Since Ventrac tractors have the ability to operate on 30-degree slopes with a stump grinder attachment, it made easy work of removing the tree stumps other machines weren’t able to reach.
Ventrac was finally able to gain traction in a market that had been a tough nut to crack — with competition from Kubota, Shibaura, Iseki, Yanmar and Baroness.
Today, more than 75 percent of all Ventrac power units exported to Japan are sold with a stump grinder attachment. Since that time, additional market opportunities such as slope mowing have increased in Japan. The company’s products are also now distributed in South Korea, Taiwan, Singapore, Malaysia and Indonesia, thanks to the foothold achieved in Japan.
Today, in addition to the Asian markets, Venture Products exports to more than 20 countries including Sweden, Australia and Canada.
Led by Dallas Steiner, CEO and president, Venture Products is driven by its passion for quality products and its vision to be a strong contributor in the global market. It has seen consistent growth in annual revenue since 2009 of 93 percent. ●
How to reach: Venture Products Inc., (330) 683-0075 or www.ventrac.com
The use of cloud computing is surging in the business world. Against such a backdrop it only makes sense that companies would want to emulate this model with their phone services — that is, make themselves available no matter their location. While traditional phone services have been slow to respond to the requests, VoIP providers are jumping at the opportunity.
“Telecommunications is a 100-year-old technology,” says Alex Desberg, sales and marketing director at Ohio.net. “Things have changed, and now it’s more important than ever for customers to get through to businesses quickly and effectively.”
Smart Business spoke with Desberg about how innovation is reshaping the telecommunications landscape and why it’s so important to always be available to customers.
How is innovation changing the telecommunications landscape?
Businesses are looking for different characteristics associated with their phone system that will help set themselves apart from their competitors. This goes beyond just having a business phone system designed to answer calls or put people in voice mail. In terms of innovation, these can be simple changes or complex changes — it depends on what the business is looking for.
How are companies integrating their telecommunication features into their business model?
Cloud computing is becoming very popular. People are pushing their data away from their facility so it is available anywhere. However, they haven’t done this with their phone system because of traditional phone service capabilities. This is starting to change. Now, instead of being subject to the capabilities of a phone system, businesses are dictating how they want to communicate with their customers.
Why is it so important to be readily accessible to customers?
Customers have short attention spans, and they want to be served quickly. They don’t have the time to leave a voice mail message and wait for someone to respond a half-day later or the next business day.
Much like the traditional way of finding a business in the Yellow Pages, if the first company didn’t answer, you’d simply call another one. A lot of consumers are doing that now because time is money. If they can’t immediately reach the person that they want to talk to, they will move on. You don’t want that to happen to your business.
How is VoIP helping incubated businesses that are not as moveable as they might think?
Business incubators are starting to crop up all over the place. Such entities support the development of entrepreneurial companies through an array of business support resources and services. When the companies grow and need to move out of the incubator, they realize that they can’t easily take the phone number that they’ve been using to conduct their business transactions.
Now VoIP providers are working with incubators to provide VoIP services that can be moved quickly and easily with a business when it’s ready to graduate from an incubator and expand its footprint.
Why is reducing system duplication becoming such a big trend?
Reducing system duplication is particularly popular with businesses that have multiple locations. When such businesses start pushing data out to the cloud and they are remotely accessing the information, they realize that every facility they own doesn’t need a server or duplication of other resources like phone systems.
It makes sense for these businesses to have centralized communications. Everyone accessing the phone system can share centralized voice mail and four-digit dialing between locations. Not only does this make sense economically, but also from a unity standpoint in terms of a single telecommunications presence. ●
Alex Desberg is sales and marketing director at Ohio.net. Reach him at email@example.com.
Insights Telecommunications is brought to you by Ohio.net
Do you hire multiple agents for every renewal and shop for the lowest price? Do you spend countless hours each year reviewing the same business information with several agents? If you answered yes, you may be making simple insurance marketing mistakes.
“Business owners need to have a strategic plan for marketing insurance, part of the plan is a defined marketing and renewal process,” says Parker Berry II, CIC, executive vice president at SeibertKeck.
Smart Business spoke with Berry about common misperceptions regarding the insurance renewal process and how to make better use of your time and resources.
Why not purchase the policy with the lowest price?
Saving money may seem great, but it also could mean gaps in coverage. Every carrier’s policy differs in language and coverage offerings. The variables in the policy language and how the coverage is structured will greatly influence the cost of the policy. Sometimes the least costly policy has the right coverage, but not always.
Many times the least expensive policy has more constrictive language, including warranties that the insured must adhere to for coverage to respond in the event of a claim, such as having certificates of insurance for all subcontractors or that claims notifications have to be made within a specific time period for coverage to be provided. There are a number of other examples where a policy may restrict coverage. These can be removed or adjusted, for a charge, which would vastly improve the claims experience.
Always review the policy to make sure it is complete before switching based on price.
Should you shop insurance companies every year?
In the long run, businesses that shop their insurance every year looking to beat down their cost of insurance are doing themselves a disservice. When an underwriter sees the same submission to quote a business, year after year, from multiple agents, the underwriter will become less interested in quoting it. They assume that if they do write the insurance, they have a great opportunity to lose it the following year because it will be marketed again. It is beneficial to build a relationship with your agent and carrier; this allows them to get to know your business and business practices and can assist at the time of a claim or renewal.
Should you have multiple agents quote your insurance?
You should not use more than two agents to quote your insurance at any one time. When you have three or more agents involved in the quoting process, the amount of time the business owner and staff has to commit to answering underwriting questions, allowing time for loss control visits, etc., becomes overwhelming. By limiting yourself to two agencies to quote your insurance the process should be more manageable and effective. It is helpful to have a market selection between the agents, this helps streamline the quote process.
How can you find a knowledgeable agent?
Industry associations sometimes endorse an agency because of their familiarity with the industry. Sometimes the agency has a program specific to that industry as well.
Also, reach out to people you trust, such as your industry peers or another service provider like your banker, attorney, accountant or payroll provider.
Can I keep my current carrier, but change agents?
Business owners may wish to do a request for services (RFS) to determine who they want to represent their insurance needs. An RFS does not involve the marketing of your insurance. It is a process where the business owner may learn of the services and capabilities of multiple insurance agencies. Upon completion, the business owner will make their choice of agency and assign the policies to them to review, adjust, market and service.
Avoiding common misconceptions of the insurance renewal process can greatly reduce time, costs, and stress spent and created at your annual insurance renewal. Being strategic about selecting your agent and quoting your insurance can help you build a strong insurance team around your business, ensure the correct coverage is in place and provide competitive marketplace pricing. ●
Parker Berry II, CIC is executive vice president at SeibertKeck. Reach him at (330) 867-3140 or firstname.lastname@example.org.
Insights Business Insurance is brought to you by SeibertKeck
Cascade Capital Awards 2013 -- Technology Sales Growth winner
Michael P. Teutsch
If there is one matter that can prey on the minds of business leaders, it’s a bottleneck in the accuracy and delivery of time-sensitive documents, especially invoices. Etactics Inc., launched in 1999, helps eliminate those bottlenecks and helps clients improve cash flow.
In the health care field, where paperwork is growing by leaps and bounds, Etactics’ services include delivering, editing and tracking insurance company invoices and patient statements — clients include hospitals, physicians and billing services.
The company also assists hospitals in managing their charity implementation policy, by providing software solutions that automate tasks that had once been done manually.
On the company website, the customer access and patient access portals are being updated continuously to provide an advanced electronic delivery and online payment system for clients.
During the past year, under Michael P. Teutsch, president and general manager, Etactics processed nearly 31 million transactions on behalf of its more than 2,000 clients. The company measures growth by revenue, profit and number of transactions processed.
Etactics also enhanced its clearinghouse software system last year, enabling the company to provide clearinghouse services for small to midsized hospitals.
But the efforts to grow don’t stop there. The company has enhanced its presence in cloud computing and strengthened its HR functions through its relationship with its professional employer organization.
Since 2008, Etactics has grown its annual revenue by 39 percent and its employee base by 61 percent. The company employs 36 full-time and eight part-time employees. It also expects to hire two to three full-time employees in the next several months. ●
How to reach: Etactics Inc., (330) 342-0568 or