As a family business owner, you may dream of one day handing your company over to the next generation. But have you considered the role that your management team will play in the transition?

“There can be no successful transition if the success of the business is not maintained,” says Ricci M. Victorio, CSP, managing partner at Mosaic Family Business Center. “A key element is making sure that you have secured the talent that has made your business thrive. It’s not just the family that is vital to an organization’s success. You have to retain your key managers, the talented people who really make your business work.”

Smart Business spoke with Victorio about how to involve your management team in the transition of leadership.

What role should the management team play in a successful transition?

Your management team needs to be able to run your business if you are no longer there, for whatever reason, while the next generation is maturing and learning about the business. You have to consider the gap that exists between the current owners and the next generation.

The first step in the process of passing the business along is to lock in a vision of what you see for the business’s future, then communicate that to the executive managers so that everyone who makes that business successful can be enrolled in the vision. The managers then see that, yes, ownership is thinking about their future and that there is a place for them. This is a significant step toward retaining the key managers that are such an important asset to your business’s success. You don’t want them departing at your retirement, leaving the next generation starting from scratch.

What challenges does senior management face when a leader departs?

Many owners are hierarchical in the way they manage, in which case senior managers learn to respond to the owner telling them what to do. But then what happens when the owner is no longer there? Managers won’t feel comfortable turning to the 30-year-old son, who’s never been in charge of the business, to now make those decisions.

You have to create a learning curve and find ways to develop the management team so that the company won’t be crippled when the owner is to longer there to make those key decisions, and the next generation is not completely ready to take the reigns. With the proper planning, key managers will know their expanded roles and who should be making the decisions once the owner departs, letting everyone feel reassured that the company can keep going.

How can a coach help facilitate the process?

A coach can spend time with the management team while the owner is still there, and alongside the next generation that is being groomed, to teach them to work together as a leadership team. This process also gives everyone the opportunity to clarify the core values of the organization and get comfortable in the kinds of decisions they’ll need to make based on those values.

In many companies, managers have a close working relationship with the owner, but may not have that relationship with one another. A coach can help unbind them so tightly from the owner and get them to start working together as a collaborative team.

The coach also works with the owner and managers to develop a charter. Here, the owner can define the vision of the succession plan, the agenda for regular team meetings and the objectives of what everyone is going to hold each other accountable for during the process. Part of this process involves identifying areas that managers will be taking over, but where they may be struggling. Some examples include communication, problem-solving, mentoring, how to deal with controlling personalities, conflict resolution and how to better conduct employee review sessions to create a dialogue between the manager and direct reports.

By addressing these issues before management takes on new roles and responsibilities, a coach can make a difference in the quality of the business environment, morale and, ultimately, bottom line profitability.

What are the dangers of failing to plan for a transition?

A drop in productivity is inevitable if you haven’t planned for that transition. If the person at the helm isn’t prepared for his or her new role, employees will become confused about who is really in charge. When people aren’t sure about whom to talk to about the important decisions, soon, someone with a higher pay grade will take over to tell them what to do. But employees won’t necessarily trust that person.

In this kind of confusion and unclear leadership structure, it’s inevitable that conflict will ensue and key people will leave the company. To avoid that, you have to identify and prepare new leadership, and get everyone used to the transition before it happens.

By empowering your leadership team as a group, you’re not putting all of your hopes on one person, because that could create resentment throughout the rest of the group, as well as stress for that one person. Instead, you’re enlisting a collaborative team that can check on each other and hold each other accountable. That way, if one person gets sick or leaves the company, the business will not fall apart. And generally, you won’t have to worry as much about people leaving when you enroll them at this level of leadership.

Who doesn’t want to be acknowledged and empowered and really feel that they are making a difference at work? That is really what this process is about.

Ricci M. Victorio, CSP, is managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952.

Published in Northern California

Gary Ryals has a successful career as a Navy SEAL, serving three tours in Iraq and Afghanistan. But he was looking for something more, something that would, at some point, help him into a new career. He found that something in UCLA Anderson’s Executive MBA program.

“The largest thing driving me was the desire to be exposed to issues outside of the defense industry,” says Ryals, who currently serves as the Executive Officer of a San Diego-based SEAL Team. “The intent was to prepare myself for a potential career transition, and to broaden and diversify the way I think.”

Smart Business spoke with Ryals about how an executive MBA can transform your thinking and help you lead in ways that you have never imagined.

What was your experience like in the classroom?

The program excels in two dimensions. First, the professors and academics are amazing; you’re provided the opportunity to study with brilliant professors. You are learning every day from people who are world-class, internationally recognized experts. They are on such a high level and you have incredible exposure to them.

The second dimension is that you are with an older, more accomplished peer group, typically in the 37- to 40-year-old age range. Your classmates frequently are people at the director level, who have started companies, or who are or have been in C-level positions. For example when you’re talking in finance class about firms taking their stocks public and the mistakes that are made, there are students who have already made that mistake and can contribute their experience.

The depth of experience in the student body is incredible and you can learn a lot from both them and the professors. I chose UCLA because it offered a really strong brand that I knew would be helpful in advancing my career, but it was much more powerful than I expected.

How have those relationships forged in the classroom carried over into your career?

It’s a cliche that your network is your net worth, but it’s true. Especially as you transition and move into new spheres, it’s the networks established through school or other organizations that really help catapult you. I’ve had alumni call me because of my military and specials ops background.

And in the three years since I graduated, I’ve leveraged that network quite a bit. I’ve started a leadership coaching and consulting business, and, despite having no advertising, I’ve received multiple jobs through my Anderson peers.  In addition, the Executive MBA Career Services program reaches out to graduates and is always helping them to find opportunities.  I hear from someone at the school — and not just in a mass e-mail — a couple of times a quarter, saying, ‘I saw this opportunity and thought of you,’ or ‘I’d like you to come up to a leadership luncheon.’ There are a lot of opportunities and the school continues to stay really engaged with students after they graduate. The UCLA network is really very supportive.

How has your executive MBA impacted your current position?

Previously, I was very experience based. I was an instinctive leader and decision maker. I was much more anecdotal. I would visit sites and talk to people and make decisions. That’s part of leading and managing, but it’s also peering beyond the first level of perception of the problem.

As you progress into higher levels of organizational management, you get to a level where you can’t know everyone. You really have to start being a data-driven decision maker, and UCLA prepared me very well for that with a very rigorous program. It taught me how to model different decisions, how to look at decision trees, how to model economic factors, how to be metrics oriented and to really look at what the numbers show.

By teaching us how to do a deeper analysis, measuring results and failures, putting numbers to paper and trying to quantify where things are going, I became a data-driven thinker. The program changed the way I think.

How did the program help you differentiate between leadership and management?

One of the things that the program is really good at, in addition to technical skills, is leadership development. A lot of people are seeking that transition from being a technical manager to a broader leadership and management role. Managing is about managing systems, being very focused on controlling a system to produce a consistent product and meeting specific goals.

UCLA provides this, but the program also stresses a leadership development side that is very solid. Leadership is about anticipating changes, seeing opportunities and leading your people and your organization through that change. It’s not just about having those technical functional management skills, but also really being able to lead a group of people across an organization and across different units within that organization to achieve an outcome. UCLA is really at the forefront of trying to develop these additional skills. The school offers 360 reviews, executive coaching and frequent lectures and mentoring with senior business leaders. The Anderson EMBA program prepares people to lead as well as manage an organization.

Gary Ryals, MBA, is the Executive Officer for a San Diego-based SEAL Team. He can be reached at

Published in Los Angeles

It amazes me that corporate America still hasn’t learned not to manage people. That’s just one practice blocking the path to effective leadership.

Why are so many managers afraid to hire people who are smarter than they are? I suppose it’s human nature to be afraid of the comparison, and fearful of being seen as less astute, less creative, less experienced and less … managerial.

In reality, shouldn’t your job be to hire people smarter than you are? Isn’t it easier to supervise people who don’t need a lot of managing?

Think of it this way: If the owner of the company hires managers less smart than he or she is, and each of those managers does the same, pretty soon you have a pretty “dumb” company. I call it “dumbing down” the organization.

Does your organization have a culture of “defer-up” when decisions are to be made? If you are making way too many decisions in your organization, even having the last word on smaller decisions that mid-level managers and employees themselves could be making, something’s wrong with the culture in your workplace.

A “defer-up” culture absolves people of making decisions ? and keeps them from getting results. The people that will be dealing with the issue should absolutely have the most say in solving the matter.

Build your dream team

A more evolved idea is to hire the smartest people you can find. In fact, build your dream team ? with the folks that have the strengths you may lack, and have each manager do that down the line.

So if you or anyone in management gets hit by a bus, the organization will be just fine.

Verne Harnish, an author I enjoy, said it best. “A business is simply people doing activities. You lead people and manage their activities. You don’t manage people.”

Most bosses don’t really get this simple rationale behind effective leadership.

As I said earlier, it astounds me that corporate America still hasn’t learned not to manage people. One manages his or her environment, manages equipment maintenance, or manages a budget, but one cannot effectively or realistically manage people.

Why don’t bosses get it?

Maybe it’s because we label so many positions as “managers.” These “managers” frequently resort to bossing, pushing or the worst offense, managing by intimidation.

People don’t like to be managed. Just as teenagers bristled under parental management, as adults, they hate it more.

Instead of thinking of managing people, consider improving equipment, processes, work environment, benefits, human resource programs, etc. Then hire great people. The rest will take care of itself.

Herb Kelleher, the famous CEO of Southwest Airlines once said, “I’d rather have a company bound by love than by fear.” He’s absolutely right.

And then mentor …

There’s nothing like being a mentor or a coach to your employees. I think it’s the icing on the leadership cake.

When you help an employee achieve a goal or coach them to be better, you are giving far more than your time or experience. You are paying your time and experience forward and establishing trust and personal connection. I have found employees appreciate this above almost everything and anything else you can do as a manager.

For example, an employee came to me a couple of years ago, embarrassed that she had never had a checking account. She was a single mother with three kids. Impressed with her frankness and desire to learn, I took her to the nearest bank where she opened a checking account. While we were there, we also talked about establishing credit, and she decided to take the additional step of applying for a credit card.

I’m excited to say in the last few years she bought her first car and then her first home. I can’t tell you how rewarding this process was to watch unfold and knowing you played a small part in it.

Mentoring can most certainly extend to helping someone achieve their career goals, even if that means they end up leaving your organization.

David Harding is president and CEO of HardingPoorman Group, a locally owned and operated graphic communications firm in Indianapolis consisting of several integrated companies all under one roof. The company has been voted as one of the “Best Places to Work” in Indiana by the Indiana Chamber of Commerce. Harding can be reached at For more information, go to

Published in Indianapolis

I don’t profess to be a sales expert, but in working closely with CEOs for the past 20 years, I have in too many times witnessed that no one is managing sales. Every company needs to have someone managing the sales process. It is a process and a numbers game, and we rely on sales for growth. As the CEO, you need to oversee the management of the process to realize the results. It is about holding people accountable, which I know is easier said than done.

Companies I have worked with tend to have a sales force made up of customer relationship management people rather than new business development people. There is nothing wrong with that, but companies need both. It is hard to find salespeople who excel at both new business and current customer relationships as they often require different skill sets, but it is possible to manage your salespeople to do both.

Laying the foundation for new business development

Recognizing that CEOs need help overseeing the sales process, the development of what I label an Accountable New Business Program, accomplishes five important steps for success: First, it identifies for the CEO how much new business activity is needed based on the company’s sales metrics to ensure the company will meet its year-end sales goal. Second, it lays the foundation for a new business development process and implementation milestones. Third, it establishes a target list of prospects to pursue. Fourth, it provides tools like a script, prequalification survey and sample prospecting letters. Fifth, it includes prospect profiles and contact reports so the CEO can verify and manage progress-to-goal and make adjustments as needed. Even armed with this information, most CEOs have a difficult time managing accountability.

Marketing’s role in the sales process

Most CEOs have heard of the sales funnel process that uses Awareness, Interest, Desire and Action (AIDA). Marketing’s job is make the brand known within the marketplace —the awareness quotient of the formula. Research has proven that when brand awareness is high, new customer acquisition is high. Prospects want to associate with top brands in the marketplace. If the brand is not known, a prospect cannot give it purchase consideration.

Marketing can also assist with the second quotient by maintaining and growing interest through frequent and meaningful messages or touches with prospects. This activity can help to build brand recognition and value, increasing brand reputation.

In addition, marketing can equally assist the sales team with the third quotient to transition interest into brand preference. Getting to a position of brand presence takes an understanding of what brand has market dominance and what needs to occur to get the market to take a risk and buy your brand. That leads us to the fourth and final quotient —action. Marketing can help the sales process by presenting the marketplace with offers that elicit action.

Here’s the catch: Marketing works in tandem with new business development efforts. They both need to be performing at a high level. If marketing is doing its job and sales is not making new contacts, thus filling the funnel, whatever marketing is doing will have less success.

Likewise, if sales is doing its job but there is no marketing effort to build awareness and help maintain the sales funnel, whatever sales is doing will have less success. Research has proven that when the two work together, sales success is exponential.

If you struggle to manage and hold your sales team accountable to results, I would recommend you hire someone to help manage this for you. That’s what I am doing.

Kelly Borth is CEO and chief strategy officer for Greencrest, a 20-year-old brand development, strategic marketing and digital media firm that turns market players into market leaders. Borth has received numerous honors for her business and community leadership. She serves on several local advisory boards and is one of 25 certified brand strategists in the United States. Reach her at (614) 885-7921 or, or for more information, visit

Published in Columbus

When McDonald’s Corp. bought Donatos, something new was added to the mix, and Jane Grote Abell remembers it well.

“I never knew what it was like working in fear until we were under the Arches,” she says.

Business was off in 2002-03. McDonald’s tallied a record low for its stock. Rumors hit the streets that Donatos would be sold off or closed.

Abell was senior vice president for development/franchising and human resource chief, having worked for the family business since she was 11 years old. And she wanted to continue to work at Donatos.

“I tried to maintain focus on what we needed to do in the restaurants to serve our customers and keep our doors open,” Abell says. “It was a very painful time in my life.”

One time at 3 a.m. she needed inspiration, so she turned to a copy of the poem, “Desiderata,” that her father Jim Grote had given her a few years earlier.

“I don’t know why, but a light came on,” she says. “‘Desiderata’ is about how to live your life. I remember sitting back in my chair saying to myself, ‘Wow. All of the times I had talked to our managers about not working in fear I was doing it myself.’”

Her human resource background was telling her that when the leader starts working in fear, the entire company picks it up.

“They feel it,” Abell says. “It’s intuitive. Everybody starts working in fear and you become paralyzed. You can’t make decisions, and you become paranoid. It became a fear of not being about to carry on our mission and promise the way that we believed we could. Unfortunately, although I should say fortunately looking back at it, I think it was a great learning experience for me.”

The next morning, she began to change her thinking so she could lead the company through tough economic times and onward, diversifying its portfolio and increasing the number of franchises. Here are some of the keys to Abell’s success to overcome the fear factor and get the 5,000-employee company back on track.

Communicate to alleviate fear

Any type of change can cause fear. To address those fears, it requires a lot of communication and being able to put the human aspect into the company.

“Employees need and want to know the people they are working for, so for me, it was about putting the face behind the brand again,” says Abell, now chair of the $189 million Donatos Pizzeria LLC. “I spent 90 percent of my time out in the stores with our people, putting the heart and the soul back into our business again. I think the most important thing you can do in these cases is be visible and be transparent as you possibly can.”

Not having a person behind the brand name can have a negative effect on employees. This perception needs to be reversed.

“People will be working for a paycheck instead of for their passion, a career, what they really wanted to do in life,” she says.

Communication needs to be rooted in the culture of the company.

“I think culture is the most important thing that you can stay close to or manage because it really is a shadow of your leader,” Abell says. “I was the chief people person, and you can imagine the shadows that cast.

“Unfortunately, if you don’t trust your environment, and you don’t trust the people that you work for, then it’s easy for good people to start working in fear.”

Let employees know that you hear their concerns.

“If people don’t trust that you’re really going to listen or that you’re looking out for their best interests as well as the best interests of the company, they’re not going to tell you where the pitfalls are,” Abell says. “They’re not going to say, ‘Oh, that’s a great vision. I’m going to work toward it. But here are all the obstacles in between.’

“They’re not going to tell you those things, so you have to have humility and be able to sit around a round conference room table so there is no power or authority and employees can really express themselves and trust the environment to say, ‘We can do this but here are all the obstacles.’”

Resolving the concerns about major changes pays big dividends. Among the first to voice support likely will be longtime employees who still believe in what the company stands for and still carry the torch for it.

Maintain open communication, even in hard times. Such was the case in 2002 when Donatos decided to pull out of the Atlanta market, closing 23 sites.

Being proactive in terms of helping employees helps put the company in the best light possible when eliminating positions.

“We set up a career fair and called other restaurants,” Abell says. “We had four or five companies at an expo, and all our managers attended. We had every manager employed by the end of two weeks. We also gave them severance packages. We had our hourly associates given severance packages, as well. We all spoke to our managers in a meeting before the restaurants closed so they could hear it from us and not hear it on the street.”

Lead through change

Donatos was bought by McDonald’s in 1999. Abell and her father bought it back in 2003. In both cases, the changes required strong leadership to keep the business going. Abell has identified the traits a leader needs to be successful: character, conviction, courage and compassion.

When you have a strong leadership corps, fear won’t become a problem.

“First, you have to have leaders in your organization that have strength of character ? honesty and integrity,” she says. “You can always do what you say you’re going to do, but doing it when you say you’re going to do it is important.

“Be a place where you can bring your principles to work with you, and that you can be yourself. That’s character, and it’s really being authentic with who you are, all the time, at work and at home. That’s a really important trait for a leader.”

The second trait, conviction, is about having passion for what you do and loving what you do ? or you may as well not do it.

“I tell our managers that if you really don’t love serving people, if you really don’t love coaching and teaching the hourly associates, then that’s OK; you can’t work here,” Abell says. “You have to love it. If you don’t wake up excited about your job, then this isn’t the right place for you. I encourage people to find what their passions truly are. You have to really love what you do in order to be successful.”

The third trait is courage, which can take many forms.

“Too often, people have character and they’ll have conviction, and they’ll have passion, but they don’t have the courage to do anything about it,” Abell says.

“I believe in having the courage to dream, the courage to act on that dream, the courage to confront others, and the courage to be confronted, which is a more difficult one sometimes.

“A really big one is the courage to see your current reality,” she says. “It’s being honest in where you’re at as a business. Have the courage to listen to people. Have the courage to love. We’re in the people business. If you don’t love people, then you really probably shouldn’t be in the people business.”

The last trait is compassion. Compassion is being able to put yourself in the other person’s shoes, being able to be approachable and having the ability to listen to other people and their perspectives on an issue.

“One of the best pieces of advice that has been given to me over the years is that in business, you can take away a person’s job, but shame on us if we ever take away their dignity,” she says. “That goes back to making the tough decision, but doing it with a balance of your head and your heart and being compassionate when you do it.”

Treat other people the way that you want to be treated ? the Golden Rule.

“Whether they’re working for me or whether I’m working for them, I want to be in an environment where there’s trust,” Abell says. “That’s probably the most important thing about compassion.”

Once you are able to address the challenges that present themselves in managing people through difficult times, it’s critical to keep the rest of the ship on course through choppy seas.

“The wonderful thing about tough times is it makes you continue to improve and be innovative and to look as yourself differently and objectively,” Abell says. “When you’re an owner and you face tough times, you end up focusing on the long term, not the short term and an exit strategy. Then you’re going to make some decisions that help you for the long haul.”

Find new opportunities, perhaps even partnering with companies.

Donatos founded Jane’s Dough Foods during the recent economic recession to sell take-and-bake pizzas at Kroger’s. Some franchise partners took a different look and saw the products as competing with the restaurants. However, a solution was reached: Share the profits from the take-and-bake products with the franchise partners.

Jane’s Dough Foods is currently in 1,400 points of distribution.

“This is a wonderful and exciting opportunity ? so here we are running great restaurants, and I don’t say I’m running great restaurants, our managers run great restaurants, our people run great restaurants, and we also have the opportunity to expand our business through Jane’s Dough Foods,” Abell says.

“You have to be flexible with your plan,” she says. “You can’t just write a five-year plan and say this is where we’re going ? everybody charge ? without constantly taking a look at it. You’d like to say look at it every three months but in this state and environment, you’ve got to look at it every day.”

How to reach: Donatos, (614) 416-7700 or

The Abell file

Born: Columbus, Ohio

Education: The Ohio State University, majoring in organizational design and communications

What was your first job?

Working at the Thurman Avenue Donatos at age 11. I can’t say I remember getting paid. My dad taught us to work harder than anybody else. We worked in the summers. We worked on the weekends, after football games. It was our life, and I loved it.

What’s your definition of success?

I think success for me is intertwined between personal and professional ? that we’re able to grow our business and fulfill our destiny with our mission and keeping our soul and the spirit of Donatos alive through growth. Any time we don’t feel like we’re able to do that, then we need to retract and make sure that we’re able to grow, keep the light shining, keep the spirit alive and keep the culture healthy. That’s success to me. And it’s not about numbers, it’s not about bigness; it’s about doing it the right way.

What was the best business advice you were ever given?

Hire people who are smarter than you are.

What is the best business advice you can give?

Don’t let fear enter the culture, and to be aware enough to know it’s there. Allow people to make mistakes. And have humility.

Published in Columbus

If your key executives left, could your business continue to function, or would the loss cripple your company?

If the thought of losing your key people —whether to another employer or because of death or disability — keeps you up at night, a Supplemental Executive Retirement Plan (SERP) may be the answer, says Mark J. Dorman, president of Dorman Farrell, LLC.

“Finding and keeping talented difference-makers in an organization is tough,” says Dorman. “But, if your 401(k) or other retirement plans aren’t meeting the retirement income needs of your key people, SERPs can help you reward and retain those individuals.”

Smart Business spoke with Dorman about how SERPs can be a big win for both key employees and the company.

What is a SERP?

A SERP is a non-qualified plan, which means it is not subject to the same restrictive federal regulations and tax laws that govern qualified retirement plans, like 401(k), profit sharing and pension plans. SERPs work essentially like a private pension plan for each key employee for whom the employer wants to offer it. The employer makes a legally-binding agreement to pay additional compensation to the employee at some point in the future — usually retirement.

How does a SERP benefit both the employer and the key employee?

The key benefit for the employer is the ability to offer a really attractive future benefit to the employee — a benefit that makes the employee want to stay with the company. For example, if a business owner said to a key executive ‘I need you to stay with the company until age 60 to get the business where it needs to be,’ the executive may be reluctant to make that commitment. However, if the owner said ‘If you stay until age 60, I will pay you $X in annual retirement income between the ages of 61 and 70,’ suddenly the idea of staying becomes a lot more attractive. This incentive to stay with the company is often referred to as ‘golden handcuffs.’

Now is a good time to focus on executives’ retirement benefits. While government regulations have always restricted the deferrals highly compensated employees (annual incomes greater than $110,000 per year) can make to traditional 401(k) plans, what little they have been able to defer has likely taken a hit with the economic downturn and lackluster stock market performance. Executives are likely to have concerns about their retirement income and will find a SERP an appealing option.

SERPs also offer the employer a great deal of flexibility in designing the plan. Because they are not subject to the same regulations as qualified plans, the employer can pick and choose which employees are offered a SERP and design specific provisions. For example, the employer may choose to include a vesting schedule that vests the key employee over several years or, alternatively, requires the employee to stay for the entire term of the agreement to receive any benefit at all.

How do employers fund these plans?

SERPs don’t necessarily have to be funded at the time of the agreement. But if you don’t fund it, you create an unfunded liability on your books that you will have to pay out of future cash flow.

The vast majority of SERPs, particularly in private companies, are informally funded using either taxable investments, such as mutual funds, or tax-favored investments in the form of corporate-owned life insurance (COLI). The company owns, pays for, and is the beneficiary of the life insurance policy. The growth on the cash value accumulation is tax-deferred and used to the pay the SERP benefit, while the death benefit provides corporate cost recovery to the plan sponsor.

Here is an example of how a corporate-owned life insurance policy can be structured to fully fund a SERP: Assume an employer has agreed to pay a SERP participant $50,000 a year for 10 years between the ages of 61 and 70. The employer purchases a corporate-owned life insurance policy and uses the cash value accumulation to pay that benefit during those years, and takes a tax-deduction for the benefit during each year it is paid. Once the SERP benefits are fully paid, enough cash value remains in the policy that it stays in effect throughout the employee’s lifetime (even after leaving the company). When that person dies, the company receives the life insurance benefit tax-free, recovering the cost of the years of employer-paid premiums.

Are there any other considerations?

Yes. It is important for the employer and the employee to understand that one of the key requirements for non-qualified plans, including SERPs, is that there must be a substantial risk of forfeiture to the plan participant. If this requirement is not met, the IRS will deem the benefit to be ‘funded’ and immediately taxable to the participant. The primary risk to the participant is that the funds are subject to claims of the company’s creditors.  Additional planning is needed to protect the participants from a change in control and other factors that may threaten the security of their benefit payments.

What should an employer do to get started?

Companies should first enlist the help of experienced professionals. An experienced executive benefit consultant, along with the company’s accountant or attorney, can help you design a SERP agreement, determine appropriate financing and communicate with the key employee. The initial process usually takes between nine and 12 months. Once the plan is up and running, the administration is really quite simple.

Mark J. Dorman, CFBS, is president of Dorman Farrell, a member of the Skylight Financial Group . He has nearly 25 years of experience in the financial services and executive benefits arena. Mr. Dorman assists middle market privately held Northeast Ohio employers with their executive and employee benefit needs. He also works with business owners on the creation of business exit planning strategies. Reach him at (330)725-0501 or Dorman is a Registered Representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. Supervisory Office: 1660 West 2nd Street, Suite 850, Cleveland, Ohio 44113-1454, Phone: (216) 621-5680. Dorman Farrell is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies.   CRN201307-150122

Published in Cleveland

If you haven’t done a dependent eligibility audit of your health insurance plan recently, you may be paying for benefits for people who don’t belong on the plan.

“A dependent eligibility audit provides an inspection of an employer’s health and wellness plan to ensure that dependents who are enrolled in the plan are actually eligible to be there,” says Jamie Debenham, vice president of Neace Lukens.

While some of those people may be on the plan as an oversight, others may be intentionally enrolled, and that could be costing you money, adds Brett Vogelsberger, senior account executive of Neace Lukens.

“If an ineligible dependent is intentionally enrolled, it is probably because that person needs care, and that could increase your costs,” says Vogelsberger.

Smart Business spoke with Vogelsberger and Debenham about how conducting a dependent eligibility audit can help control wasteful spending and potentially reduce your premiums.

What type of companies can benefit from performing this kind of audit?

Generally, the companies that can benefit most are those that have more than 100 employees. But not all 100-employee-plus companies would benefit if they have mostly single employees with single coverage.

Employers that have a lot of employees with family dependent coverage are most likely to benefit from an audit. In those larger employer groups, it’s a fairly frequent occurrence that there is someone on the policy who isn’t eligible to be there.

How does a company begin the audit process?

The first step is to notify employees 30 to 60 days beforehand that you are going to do a dependent eligibility audit and give them the opportunity to voluntarily terminate ineligible dependents. This provides an amnesty period, without penalty, for employees to come forward and remove that ineligible person.

Next, identify a firm that has experience with audits. The firm will send a notification to your employees who have dependents on their coverage, requesting information. If the dependent is a spouse, the notification will ask for a federal tax form filed within the last year that shows both the employee and the spouse on it.

If there are covered children on the plan, the notification will request a birth certificate and a copy of a federal tax return.

If applicable, the employee will also need to submit a divorce decree stating that he or she is required by the courts to provide coverage to a child who is not residing in the home.

Getting the documents you need can be time-consuming, both because employees are reluctant to provide them and because they forget. You should allow for at least 90 days to complete the process.

How can you overcome employees’ resistance to providing personal information?

You need to assure them that everything is HIPAA compliant and that the information will only be used for audit purposes. You can also provide them with a secure e-mail address and ask them to white out financial information, Social Security numbers and other sensitive information from the documents.

But even if an employee is uncomfortable, he or she cannot refuse to submit the required documents. Because the plan is sponsored by the employer, the employer has the right to legally dismiss the employee if the enrollment application was fraudulent  or to remove the dependents from the plan for noncompliance with the documentation  requirement.

From an initial enrollment perspective, employers should ask for specific documents up front in order to prevent ineligible employees from being enrolled in the first place, especially when enrolling dependents.

What do you do if you find ineligible dependents on the plan?

The employee would be notified that the dependent will be terminated as of an effective date in the future. Before health care reform, those terminations were backdated. That has become more difficult to do because of the new rescission laws, which do not allow canceling the contract as though it never existed.

How can doing an audit benefit a company?

It will certainly benefit on premiums and also from the performance of the health plan as a whole. You benefit from claims not filed by an ineligible dependent, because generally, someone who is deliberately on the plan is going to be using the plan and creating claims and ultimately spending a lot of money. In addition, over a long period of time, because the claims would be coming down, that may ultimately result in better rates.

Employees may also benefit. Most companies ask employees to pay a portion of their premium, and if getting ineligible dependents off the plan improves premiums, that benefit is going to trickle down to them.

Some employers may be reluctant to pursue an audit because they don’t want conflict, especially if they suspect that a highly paid or key employee may have an ineligible dependent on the plan. But not removing that person could be a costly mistake.

What would you say to business leaders who say the process is expensive and time-consuming?

I would tell them about the potential savings, because that is going to directly hit their pocketbook. The audit may initially seem expensive, but not compared with the savings that you will get from finding ineligible employees. There are quite a lot of dollars involved, and a significant amount can be saved as the result of performing a dependent eligibility audit.

How often should an audit be performed?

For a company with high turnover, it should be done every year, or at least every other year. For a very stable company, once you’ve done it once, you may be able to wait five or six years before doing it again.

Jamie Debenham is a vice president with Neace Lukens. Reach him at or (216) 446-3312.  Brett Vogelsberger is a senior account executive with Neace Lukens. Reach him at or (216) 446-3304.

Published in Cleveland
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