Thinkers solve problems.
Mark Zuckerberg found a better way to connect people with friends and family through Facebook. Larry Page and Sergey Brin invented a better way to search the Internet by creating Google. Steve Jobs showed us a better way to obtain and listen to music through the invention of the iPod.
None of these examples happened by luck. Each of these great thinkers spent a lot of time working to perfect their ideas. Great thinkers are not born, they are made.
To create great products and services, you have to develop the habit of expanding your thought processes and critical thinking skills. Why? Because the human mind tends to be lazy. It tends to repeat the same thoughts unless it’s trained to explore new ideas. Great thinkers put in the effort to analyze things in new ways and not accept the norm.
We live in a negative society where bad news trumps good news and the potential downsides of an idea outshine the potential rewards. It takes a lot of effort to retrain our minds to focus on the positives and the solutions rather than the ramifications of a failed idea.
Becoming a great thinker requires an investment of time; there are no shortcuts. You have to be organized and plan for it. Take time to think about the problems unique to your business or industry. Work through the pros and cons of any idea, looking for a way to make it work. Study competing companies and leaders and gain an understanding of how they think. It’s also helpful if you always do your heavy thinking in the same location, and it doesn’t have to be anything fancy. Some people do their best thinking in the shower or over a cup of coffee at a cafe.
But there is one major pitfall to avoid: Don’t equate change with new thinking. Just because you are changing something does not mean you are being a creative thinker. There might be several “accepted” ways of doing something within your industry, and changing from one of the accepted ways to the other isn’t doing anything different. The goal is to identify new ways of thinking and as a result, find a new solution to a problem that no one has thought of before.
Finding these unique solutions won’t be easy, but success never is.
Innovation can be elusive. And there’s a reason for that. It’s not easy. Innovation is something that many companies seek. When innovation is accomplished, success typically follows. But what truly makes a company innovative? Is it the number of patents held, the ability to make a revolutionary change to a service or product, or is it creating something that is the first of its kind?
An even harder question than what makes a company innovative is, how is innovation itself created? To help answer this question Smart Business took a look inside Rockwell Automation, a more than $6 billion company solely focused on automation.
Rockwell is divided into two main segments — the Control Products and Solutions Group, and Architecture and Software Group. Scot Tutkovics works in the Architecture and Software Group as the vice president of engineering for Control and Visualization, which is the largest business unit in the company. He his responsible for roughly 1,000 engineers spread out in Milwaukee; Cleveland; Phoenix; Mission Viejo, Calif.; Montreal; Singapore; Dalian, China; and Katowice, Poland.
“We are responsible for the heart of our integrated architecture,” Tutkovics says. “We go to market with products, but also through services. We sell configurable, programmable systems to solve any number of business problems that people have, largely in the manufacturing space, but also in entertainment such as amusement parks, and some automation on ships for pumps. Manufacturing is our bread and butter, though.”
Rockwell has received acclaim for its ability to innovate year after year. Both Forbes and Thompson Rueters named the company a top innovator, and within the past two years the company has led Northeast Ohio in patents produced, and was second in the state behind only Procter & Gamble.
Here’s how Tutkovics and Rockwell Automation keep the innovative juices flowing.
Create a culture of innovation
While Rockwell was named the regions top patent producer a year or two ago, the company has not slowed down today. It continues to drive innovation through patents, but that’s just one of the measures of innovation, not the only measure.
“The culture of innovation goes all the way to the top,” Tutkovics says. “Our CEO is somebody that believes in this greatly and talks to all of our engineers regularly about it.”
The company has a yearly celebration of innovation where it recognizes engineers that not only were awarded patents throughout the year, but also the ones who submitted ideas even if their idea came up short of a patent.
“One of the reasons innovation has been so successful is we recognize the engineers for doing this kind of work and coming up with the great ideas and following through by putting them into products,” he says. “Recognition is a big part of it and we make sure that’s a priority of our company.”
Innovation is the lifeblood of Rockwell. The fact that the company continues to drive innovation into its products and stays state-of-the-art allows it to make the world’s most successful customers, and that customer success results in customer loyalty.
“If they keep coming back to us it grows our business and allows us to pump more and more development dollars back into innovative design,” he says.
R&D spending within Rockwell is north of $200 million a year and a lot of that goes into developing innovative products.
“Within our product development process we have stage gates that we go through to make sure that we’re not violating some other company’s patent, but also to capture ideas that are unique that we should be protecting,” Tutkovics says.
“Secondly, an engineer may have an idea that may be applicable to something else in the company. We have the ability for them to submit those ideas.
“Then we have a regular review committee that’s made up of the most senior engineers in the company and they make sure the idea is vectored into the right area of the company.”
The third area of focus Rockwell uses to generate new ideas is innovation workshops. These workshops are for hot topic areas, and there are usually several based on requests from the company’s customers.
“These workshops bring together the best minds in the company and they talk through new ideas and things that can add value for our customers,” he says. “Many times they output ideas that may get patented.”
Creating a culture of innovation isn’t easy, but if you put the right ingredients together and continuously work to improve products or services, you can achieve it.
“The first thing you need to create is a culture in which those types of innovative ideas from the population have an avenue to be voiced,” he says. “Secondly, the real game changers are the innovations where people come up with a new idea and way of doing something. You have to create a culture where that is valued and people understand that’s something the company wants them to do.
“Creating the recognition, creating an understanding of the value, and then providing the avenue for people to communicate those ideas are the keys.”
Company vs. customer
Innovations can come from numerous areas that generate ideas, but two of the biggest are in-house innovations and those that come from customers. There has to be a balance between the two.
“A lot of the features that we put in products are a lot of what our customers are asking for,” Tutkovics says. “But at the same time, customers only know their specific area, and one of the great values a company like Rockwell provides is we not only serve automotive, we serve many industry segments.
“Since we have the ability to look across so many different industry segments, we start to see them in ways that maybe someone in a single segment wouldn’t see, and that allows us to suggest ways of solving problems differently.”
Rockwell serves markets that by their very nature are much more conservative and risk-averse than a consumer market would be. Not everybody wants the latest and greatest innovations.
“We have to make sure that we’re turning that innovation not just for innovation purposes,” he says. “In a consumer market, people will buy something just because it’s new and it’s cool. In our markets, new and cool might get you in the door and start the conversation, but new and cool better turn into something tangible for the customer.”
Recognize your innovators
What helps drive innovation at Rockwell and motivate the engineers is the amount of recognition the company gives to those employees. Rockwell has an annual dinner that it does in multiple locations around the world to recognize engineers for various levels of innovations.
“Without the company really stepping up and showing that level of commitment to innovation, it really becomes lip service,” Tutkovics says. “It’s great to say the words, but people are smart enough to understand you have to put your money where your mouth is. You have to live what you’re saying, and I’m proud to say that’s something Rockwell does.”
Having state-of-the-art products and being known for having the highest quality products in the industry not only makes it a great place to work, but people are proud of the fact that they have something to contribute to at Rockwell.
“All of that results in increased employee engagement, and as engagement goes up productivity goes up,” he says. “That’s a real driving force for people to know that the work they are doing means something and is recognized. Without that recognition it just becomes a place to go to work every day and that’s not a place you want to stay long-term.”
How to reach: Rockwell Automation, (440) 646-7900 or www.rockwellautomation.com
Our sales staff members are a vital component to our bottom line. Constantly upgrading their skill set will not only help us have a premier sales team, but will provide invaluable opportunities for them for their entire careers. At Clark-Reliance, we have a myriad of ways that we offer ongoing education to our employees.
Clark-Reliance University offers a series of online courses and interactive training that develop “soft” skills like leadership, coaching and management, and “hard” skills like technology, welding, machining, design and engineering. We offer a multi-tiered approach to our training, blending “in-house” training with training from partners like local universities and technical schools.
“Natural born salespeople” just don’t exist. Effective selling is still a skill that must be developed. Sales training can help aspiring salespeople develop and practice the skills they need to succeed and increase their confidence level or take a seasoned salesperson and refine and update their skills.
Many are untrained
What we have learned is that there are many people in sales who have never received professional sales training. While they may be proficient at their trade, all sales professionals should be properly trained not only in the presentation, but the process of sales.
When a sales person stands in front of a potential customer, being prepared with product knowledge and a PowerPoint presentation is not enough. Training directly translates into results in the field. These components will help any salesperson in any industry:
■ Sales people need to gain a better understanding of the relationship between the buyer’s decision process and the selling process. Buyers generally adhere to a specific process.
■ Sales people need to understand the proper sequencing of sales presentations.
■ Sales training will provide improvement in the overall sales call planning. A clear commitment objective for every sales interaction is important.
■ Seek to achieve dramatic improvements in questioning and listening skills. Have your sales staff practice asking open-ended questions so you can draw out the customer’s needs from those questions. Open-ended questions can help sell the salespersons’ expertise.
■ Develop the ability to differentiate from the competition.
■ Form a common selling language between everyone. Develop an understanding of the sales sequence, common objectives, etc.
■ Make sales presentations based on solutions to the agreed upon needs of the customer. Your solutions need to address solving customer problems.
■ Increase ability to effectively gain commitment from customers. If you understand and have done a needs analysis you can gain a commitment to make the sale.
■ Document best practices of a core sales presentation. This important step documents the “best of the best.” You can incorporate some of your selling system, like commitment objectives, into your customer relationship management system. We use the customer relationship management system to capture specific accounts and contacts and to track sales opportunities and projects. In addition, a salesperson can plan their entire workflow on a daily basis.
Investing in formalized sales training is imperative and should constantly be evaluated, updated and reinforced. Quarterly sales meetings can be a venue to fine-tune your selling system. In the end, a sales training program will increase the efficiency and productivity of a sales person. This investment will help organizations remain sustainable and competitive in the long run.
Matthew P. Figgie is chairman of Clark-Reliance, a global, multi-divisional manufacturing company with sales in over 80 countries, serving the power generation petroleum, refining and chemical processing industries. He is also chairman of Figgie Capital and the Figgie Foundation, a member of the University Hospitals Board of Directors, corporate co-chairman for the 2013 Five Star Sensation, and chairman of the National Kidney Walk.
Rick Solon is president and CEO of Clark-Reliance and has more than 35 years of experience in manufacturing and operating companies. He is also the chairman of the National Kidney Foundation Golf Outing.
Heading into the third quarter, M&A activity in July continued to lag expectations with 15 percent fewer deals than a year ago, though the total value of deals increased by 27 percent. Fundamentals to support an active second half remain in place, namely eager buyers, a surplus of cash earmarked for acquisitions and a healthy capital markets environment.
The public equity markets rallied, gaining 4 percent in July, with broad market indices up over 15 percent year-to-date. The credit markets remain active, with lenders competing aggressively for quality deal opportunities. Aggressive financing structures and terms seen during the first half are expected to carry over even with an uptick in deal flow given the scarcity of deal flow in the marketplace. Senior leverage surpassed the 2007 high, reaching 4.7 times EBITDA in July, according to Standard & Poors Leveraged Commentary & Data.
July was an active month for private equity. Penda Corp. completed the acquisition of The Fabri-Form Co., a heavy-gauge thermoformer of engineered components and industrial packaging solutions. Cleveland-based Resilience Capital Partners and Littlejohn & Co. are co-investors in the Portage, Wis.-based Penda, a leading supplier of thermoformed accessories for the light truck market and tier one supplier of components to the automotive market. Post-acquisition, the company will operate as Penda Fabri-Form Corp.
Cleveland-based The Riverside Co. closed three deals, picking up Blue Microphones Inc., a leading innovator of microphone technology and design; ProSites Inc., a medical and dental website design firm; and Simcro Limited, a manufacturer of animal health-delivery systems located in New Zealand.
Taking advantage of market dynamics favoring sellers, Linsalata Capital Partners of Mayfield Heights announced the sale of The Tranzonic Cos. to Silver Oak Services Partners LLC. Cleveland-based Tranzonic manufactures consumable personal care products and has additional facilities in Tennessee, Nevada and Florida.
In strategic buyer news, CCL Industries Inc., of Toronto, acquired the Cleveland-based Office & Consumer Products and Designed & Engineered Solutions businessesof Avery Dennison Corp. in a $500 million transaction. The transformational acquisition is the largest in CCL’s history, expanding its Label Market sector with an entry to the North American durable goods market, and will take revenue above $2 billion for the first time.
ThyssenKrupp Elevator AG acquired Cleveland-based Edmonds Elevator Inc., a provider of elevator maintenance, repair and modernization services, strengthening its service business in the U.S. Edmonds is the second U.S. acquisition so far for TKE in 2013.
Kaman Industrial Technologies Corp., a subsidiary of Kaman Corp. announced it was acquiring Cleveland-based Ohio Gear & Transmission Inc. Ohio Gear distributes mechanical power transmission equipment, bearings and electric automation systems, as well as fabricates specialized gearing products for diverse industries.
Deal of the Month:
Health care M&A continues at a robust pace, with the Ohio market seeing its share of the action. Parma Community General Hospital Inc. announced its agreement to merge with Cleveland’s University Hospitals Health System Inc. Ongoing Medicare reimbursement pressure was a key driver in the hospital’s decision. Parma employs 2,000 people and has 500 physicians on its staff.
Any business that leases anything for an extended period of time — generally, more than one year — will be impacted by a proposed new accounting standard.
“This may appear arcane to some, but the new rules will have a major impact on the reported financial position of many companies. It has been estimated that this may add hundreds of billions of dollars to the existing liabilities on businesses’ balance sheets nationwide,” says Gerald Weinstein, Ph.D., CPA, a professor and chair of the Department of Accountancy at the John Carroll University John and Mary Jo Boler School of Business.
“Therefore, it is likely that your firm’s financial statements will be affected. At a minimum, expect to see changes in the ways in which leases are being conceived of for recognition and measurement purposes,” says Weinstein.
Smart Business spoke with Weinstein about what the proposed accounting standard would do and how businesses can prepare for the change.
What do you need to know?
Under existing Generally Accepted Accounting Principles (GAAP), leases that are in essence purchases of all of the inherent value of a leased asset are capitalized. Capitalization requires both that the leased asset and related liability for future lease payments be recorded onto the balance sheet. GAAP dictates use of four indicators, any one of which is considered evidence of a so-called capital lease.
Leases that do not meet at least one of the four criteria are operating leases, and are not capitalized. Operating leases are accounted for by expensing the lease payments as they accrue. An example is leasing an office inside an office building owned by another entity.
An operating lease is generally favored by businesses, as it makes the accounting simple in that it avoids recording the liability and depreciating the underlying asset. Further, not booking a liability can improve a company's debt related ratios. Users, however, would prefer to know about all liabilities the entity has and hence want these liabilities booked. These cross-purposes are being resolved in the proposed standard by essentially requiring all leases to be capitalized.
What will the new standard change?
What defines a lease as a capital lease is changing under an exposure draft (ED) issued jointly by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) on May 16, 2013, and the four indicators noted above will no longer apply. Everyone will be affected if this becomes a final standard in 2014.
All leases, with one exception, would be recognized with a lease liability for the present value of the payments, which must be made over the lease term. As lease payments are made, the effective interest method is to be used to accrete the liability. An asset would be reported and written off to expense over time.
The ED defines the manner of write-off. It depends on the type of asset of which two are defined. A Type A asset is personal property whereas Type B is generally real property. Type A assets are amortized on a straight-line basis unless another method better represents the pattern of use. For Type B leases, the amortization would be the difference between the annual straight-line expense and the interest incurred on the liability.
The most notable change in terms of the direct financial impact is that what has previously been accounted for as an operating lease will now be treated as if it were an owned asset, even if title to the asset will never transfer to the lessee. An office suite leased inside an office building would be accounted for as a balance sheet asset and subject to annual amortization.
What is the exception?
Lessees can elect a policy wherein leases with a maximum possible lease term including options to renew of 12 months or less, are accounted for using a method like that currently available for an operating lease.
How is a leased office akin to an asset purchase?
Leases are being redefined as a contract that conveys the right to use an asset for a period of time in exchange for consideration. The contract must depend on the use of an identified asset and convey the right to control its use. The use of the asset can be either explicit or implicit, such as the lease of a floor of a building. ‘Right to control use’ is slightly different from existing GAAP, which calls it the ‘right to use’ an asset.
Why should you care about recording such a lease as an asset?
Companies should be concerned because booking the asset also means booking the liability. For most businesses, this will have a negative impact on solvency ratios, including debt to assets and debt to equity. This change in the standards could cause your bank loans that have covenants requiring certain solvency ratios to go into technical default.
What can you do to be ready?
Companies should determine which leases they have that will now need to be capitalized, prepare pro forma financials, and determine the impact your solvency ratios. If the new accounting rules cause your debt ratios to deteriorate, consider contacting your lending institution to see if you can re-negotiate the covenants.
While the final standard may undergo some tweaking, changes to lease accounting have been in the works since 2005 and professional accountants expect the standard to be finalized in its current form. The comment deadline on the ED is Sept. 13, 2013.
Gerald Weinstein, Ph.D., CPA, is a professor and chair of the Department of Accountancy at the John Carroll University John and Mary Jo Boler School of Business. Reach him at (216) 397-4609 or Weinstein@jcu.edu.
Insights Executive Education is brought to you by John Carroll University
There are many Voice over Internet Protocol (VoIP) providers out there, some large and some small. In the case of telecommunications, bigger is not necessarily better. Small providers tend to be more nimble and are able to customize and innovate in order to help their clients grow.
Also, independent VoIP providers can lend a personal touch, says Alex Desberg, sales and marketing director at Ohio.net.
“Most small and medium-sized businesses want to work with a local company. Companies don’t want offshore support,” he says. “They want someone who is in their backyard. Someone who is in the same time zone and easy to relate to.”
Smart Business spoke with Desberg about changes in the VoIP landscape, the differences between providers, and the importance of customer service and support.
How has the VoIP landscape changed in recent years?
In recent years, the marketplace has changed. AT&T and some of the other big players are now offering VoIP services. While the corporate giants have marketing dollars behind them to push their products, it is the smaller, more flexible companies who are pioneering new technologies.
Companies looking for an apples-to-apples replacement for traditional phone systems might be satisfied with a traditional provider.
However, business leaders that want to make a change to VoIP typically prefer working with agile companies that are trailblazers and provide service at the local level.
What are some of the differences between VoIP providers?
Companies interested in VoIP services have two options: They can either choose a big provider with pre-set packages or work with a small, innovative company that is willing to invent solutions from scratch.
For example, many organizations want to integrate their customer relationship management system with their phone system. Unless you work with a provider willing to break the mold and try new technology, it’s likely that you’ll receive a one-size-fits-all model that might or might not be a good fit.
How important is customer service and support?
The service standpoint is what truly makes VoIP providers stand out. Either they are readily available, hands-on and willing to help navigate technological challenges, or they take the stance of expecting a business to be the one that makes accommodations, fitting the company’s telecommunications needs into inflexible packages.
The majority of small and midsize businesses have a telephone system that they set up years ago and haven’t made any changes to since. Such a system might work fine and it serves their purposes — they don’t need anything special.
However, there are other organizations that want to streamline their data and communications in order to be more efficient. That’s when it’s important to have a more dynamic provider that is pushing the envelope and striving to offer new services.
How should a business go about evaluating its telecommunication needs?
Businesses tend to have an IT manager or communications director put together an annual plan for servers, software, licensing, etc., but telecommunications companies will often wait until the contract is set to expire or there are budget cuts.
Under this scenario there is not enough time to investigate what services are out there that might be beneficial. Businesses tend to shoehorn themselves into what they find at the last minute within the budget, rather than figuring out what makes the most sense from an operational perspective, which may not be the best way to approach your telecommunication needs.
Alex Desberg is sales and marketing director at Ohio.net. Reach him at email@example.com.
To find out more about Ohio.net’s VoIP solutions, visit www.ohio.net.
Insights Telecommunications is brought to you by Ohio.net
Business and product names, logos; unique product designs, shapes, utilities, functions; and other proprietary manufacturing methods can comprise a significant portion of a company’s potential revenue and intellectual property (IP).
Protecting IP is a critical component of a sustainable business strategy. However, many companies don’t take the steps necessary to fully guard the ownership of these properties, leaving them vulnerable to encroaching competitors and/or missing out on sources of revenue generation.
Smart Business spoke with Karl W. Hauber, an attorney at Fay Sharpe LLP, about identifying and protecting IP to avoid costly legal lapses.
What do trademarks cover?
Trademarks are used to protect business and product names (i.e. words and phrases), logos, and in some cases shapes and colors that are used to identify a company and its named products or services.
There are common-law protections for using a name or symbol, but a mark not registered with the U.S. Trademark Office can cause issues. For example, a second entity can register the same name or mark. The non-registering first entity may be restricted with respect to future use and prevented from further expansion.
By registering, an entity can become the exclusive user of a trademark in association with particular goods or services, so as to develop source association in that mark. The customer goodwill and market association can become valuable IP, the rights of which may be licensed or sold outright.
How does a copyright work?
Copyrights cover software, website content, schematics, music, photos, literary and artistic works, among other things. Once ‘original works of ownership’ are secured in a fixed medium or recorded in some way, there’s an inherent copyright associated with that material and the manner in which it is expressed. Copyright ownership provides the rights to reproduce the work and to prepare derivative works based upon it.
Copyright registration with the U.S. Copyright Office provides additional benefits. Mainly it’s a public record of the copyright claim, enabling the applicant to seek legal remedies and initiate a lawsuit against someone who has copied material or is using it without authorization.
What can be patented?
The most common patent type is a utility patent, which protects unique devices and apparatuses, methods of manufacture, chemical compounds, formulas and drugs — collectively referred to as inventions. Generally, an invention is a solution to a technological problem and may be an apparatus or a method. Having patent protection provides the owner the right to exclude others from using, making, selling or importing devices protected by the patent for 20 years from the application filing date. Patent rights can be licensed, assigned and sold, which may provide monetary gains and revenue for the patent owner.
A company can be barred from patenting an invention. If the invention is on the market, or publicly known, for more than one year it’s barred from patent protection and deemed a contribution to the public.
In addition, design patents cover the shape of or pattern applied to a product — how it looks through ornamental design only. Design patents have a 14-year lifespan and different protection. The bulk of the design patent application is drawings and figures that accurately depict a product. Enforcing a design patent involves infringers trying to market a substantially similar design.
What are the pros and cons of trade secrets?
Sometimes companies have a unique manufacturing method, for example, so they protect it by keeping it secret. In contrast to patents, where a detailed description submitted to the patent office eventually becomes known to all, trade secrets must be shielded from the public. The lifespan of a trade secret is based on its secrecy and will last as long as it remains unknown to others.
Once a company has something it believes is secret, it must take active, detailed internal steps to maintain the secrecy. But if someone can reverse engineer a product, there’s nothing to stop him or her from doing so. Manufacturing methods, for example, sometimes can’t easily be reverse engineered, so are better candidates for trade secrets.
Who can help companies protect their IP?
Working with counsel knowledgeable in this area of the law can help parties get through matters concerning the best way to protect IP. It is beneficial for interested parties to be proactive with their IP counsel and openly discuss plans and future initiatives so one can avoid costly disputes with others’ intellectual property rights.
Karl W. Hauber is an attorney at Fay Sharpe LLP. Reach him at (216) 363-9212 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Fay Sharpe, LLP
Walking does not generally qualify as exercise. A movement or activity is not perceived as a stimulus by the body unless it is demanding. An activity that does not render a muscular failure — an inability of the muscle to continue, reached within one to three minutes — is not demanding.
Walking can be continued ad infinitum because there is no meaningful muscular taxation. If walking becomes impossible, it is because the subject has become sleepy, hungry, generally fatigued, ridden with blisters, injured or dehydrated.
The muscles, per se, do not fail. They can go on and on and on. And since they can go on and on, and they are never meaningfully challenged, overuse syndromes are proportionately probable.
There are exceptions. Walking may indeed be exercise for individuals whom find walking is all but impossible. In this instance of debility, walking is momentarily and meaningfully demanding. It is therefore exercise for these people — there will be an “exercise effect,” but is it appropriate for such patients?
In my opinion, it is not the best form of rehabilitation for these debilitated people. I would prefer that these people were performing specific strength exercise for the musculature that is required for walking; that remaining upright and gait training is included to regain the skill of walking after the muscles are conditioned enough to provide sufficient support.
The best exercise and the best physical rehabilitation are done with high-intensity and low-force exercise that tracks muscle and joint function. These compressive forces are nourishing and healthful to our joints and articular cartilage, as well as strengthening to muscle and bone.
Even with such a benign activity as walking, our stance limb may be exposed to 2.3 times our body weight with a brisk pace. Under normal conditions this is no great issue, but for someone with a functional leg length difference, someone experiencing back pain or a person with arthritic knees, excessive walking in the name of exercise will only exacerbate these conditions, while the compressive forces of slow-speed, strength exercise are far safer and more therapeutic.
I often hear the adjective: low impact. This term is used indiscriminately to imply low force. On the contrary, low impact does not indicate low force. Relatively high force is encountered without an impact. Forces occur and vary depending on the rate of change in movement. Thus, excessive force can be encountered merely by jerking your limbs around in the air (a gas) or water (a liquid) — not just against a solid.
Notice the deliberate heel strike of those on walking programs as they briskly march about the neighborhoods or in shopping malls. And if a so-called march fracture can put a soldier out of commission, just imagine the chain of events that might follow with an elderly man or woman: immobility, foot surgery to relieve bone spurs, increased danger of falling while maneuvering with crutches, infection subsequent to surgery, and on and on.
In reality, exercise is just as much a chore as brushing one’s teeth, making the bed, washing the clothes, mowing the grass, washing the dishes or taking a bath. It is an absolute requirement for a normal, healthy life, and must not be confused with recreation any more than flossing one’s teeth or scrubbing the kitchen floor. Not enjoying it doesn’t factor into the matter. It must be done.
I expect that some will read this and conclude that it is passé. People may feel this attitude toward walking overlooks the fact that the exercise physiologists and mainstream medicine now acknowledge strength training as an important component of exercise.
No, they don’t. Strength training is not a component of exercise. It is the exercise.
Ditch the steady-state, low-intensity activities. It is anti-exercise. It is empty exercise. It is counterproductive and can even be injurious.
Insights Health & Fitness is brought to you by Overload Fitness
The Internal Revenue Service (IRS) requires companies to file a Form 5500 to provide information about their benefit plans. If the company has 100 or more eligible participants that also means the benefit plan has to be audited.
“The 5500 form is an informational return filed with the Department of Labor (DOL) on an annual basis. It includes not only plan-specific information but financial information, which is where the benefit audit comes in,” says Danielle B. Gisondo, CPA, a partner at Skoda Minotti.
Companies are required to have an independent accounting firm conduct the benefit plan audit. Smart Business spoke with Gisondo about the audit process and how to choose a firm for the work.
What should you look for in selecting an accounting firm?
Find a firm that has benefit plan experience. There are accounting firms that audit only one or two plans throughout the year, but you want someone with a wide variety of experience auditing plans. Some firms don’t have a specific department for these audits, doing them as part of the overall accounting and auditing practices. Firms that specialize in this arena have a separate department and dedicated professionals.
Ask how many plans the firm audits, and the size of those plans. Check for membership in the American Institute of Certified Public Accountants Employee Benefit Plan Audit Quality Center. This ensures they have the required education and access to benchmarking and industry data that can be helpful for the audit work and throughout the audit process.
There are specific continuing professional education requirements from a benefit plan industry perspective, and the accounting is unique and definitely different than for a regular audit of a financial statement.
What do accountants look for in the audit?
They’re testing for contributions coming into the plan, making sure participants have proper amounts withheld from paychecks and money is deposited in a timely manner into the plan. Investment elections are reviewed; if contributions are to be deposited into five different mutual funds, accountants ensure money goes into the right funds.
Distributions also are tested, whether it’s money rolled over into a new plan or making sure a loan is repaid over the proper time period.
It’s really about testing samples of transactions into and out of the plan. Then financial statements are prepared for filing along with Form 5500.
Where do problems usually arise?
Many times it’s on the contributions side — a participant wanted 3 percent withheld but the plan sponsor or third-party administrator (TPA) withheld 5 percent. Some employers do not deposit employee withholdings on a timely basis with the trustee or custodian that handles the funds.
On the distribution side, there are situations where participants took out more money than they had vested in the plan and it didn’t get approved by the proper party at the TPA or plan sponsor.
What manpower commitment is required for the audit?
Depending on the company’s size, the firm will work with the human resources director or accounting department. If the accounting firm has a specific audit process, it should only require a few hours of pulling information together on the company’s part, while having someone available for questions when the audit work is being performed. Depending on the size of the plan, field work runs from one day to a week.
The entire process, starting with the request for information and ending with a completed financial statement, takes about four to six weeks.
Does the firm you use make a difference?
Both the IRS and DOL conduct independent plan checks, and could randomly look at completed 5500 filings and audits. If an accounting firm missed something — maybe the plan wasn’t compliant or didn’t have the proper amendments — those plans could be disqualified. Then all contributions going to the plan could be taxable, even though the plan is tax-exempt.
You definitely want a reputable accounting firm with experience doing benefit plan audit work; any mistakes could be costly.
Danielle B. Gisondo, CPA, is a partner at Skoda Minotti. Reach her at (440) 605-7132 or email@example.com.
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Companies can be held liable if they breach their fiduciary duties in managing employee benefit programs such as pensions, profit sharing, health care and 401(k) plans.
This risk remains even if you hire a third party to manage your plans.
“A lot of companies have hired these outside consultants to manage 401(k) and other pension plans in an attempt to mitigate exposure. In reality, they still have liability because they chose the consultant,” says Peter Bern, CEO of Leverity Insurance Group.
Smart Business spoke with Bern about what fiduciary liability insurance covers and how it fits with other business insurance policies.
Who is considered a fiduciary?
A fiduciary is the individual responsible for controlling the management of employee benefit plans, investment of funds, and controlling or disposing of plan assets. That includes consulting firms, attorneys, accountants and other entities that service pension plans.
A fiduciary is required to:
- Act solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them.
- Carry out their duties prudently.
- Follow plan documents.
- Diversify plan investments.
- Ensure plan expenses are reasonable.
The Department of Labor (DOL) was concerned about plan expenses in the 2012 issuance of a final regulation under the Employee Retirement Income Security Act of 1974 (ERISA). Workers lost significant amounts of retirement savings after the 2008 financial crisis, and the DOL sought to make fiduciaries more accountable for controlling fees and selecting appropriate investment options.
Companies can limit liability by giving plan participants control over investments in their accounts. However, they must be given a broad range of investment options and sufficient information to make informed decisions.
What is the company’s responsibility in hiring a third party to manage plans?
It’s important to have a documented process by which you rate and select a third-party service provider. Survey a number of potential providers, asking the same information and providing the same requirements. That will enable a meaningful comparison and give a sound basis for reaching your decision.
Whether you’re selecting the investments yourself or utilizing a third party, it’s important to provide employees with a sufficient number of options.
Does an ERISA bond protect you from liability?
An ERISA bond or employee dishonesty policy with ERISA compliance only protects you from theft, not from mismanagement of funds, programs, pensions or health plans — all of the major exposures that exist.
Business owners also might think they’re protected under directors and officers (D&O) insurance, but there are certain exclusions in those policies concerning fiduciary liability. D&O, employment practices and fiduciary liability insurance are often secured as an insurance package because if someone perceives that the business didn’t perform as well as it should and was mismanaged, you could potentially seek damages on the D&O and/or fiduciary line of coverage.
Of these aforementioned product lines, fiduciary liability insurance is the least expensive, and most cost-effective. Another line of coverage that should be secured in your insurance portfolio is employee benefit liability, which specifically protects benefits managers from mistakes and omissions made in the administration of various employee programs. These typically involve minor issues about proper filing and enrollment, but do not provide coverage against any problems related to investing.
In summary, some of the responsibilities of a fiduciary are vague — what does monitoring investments mean? Also, sudden swings in a turbulent stock market can bring risks to even the best of fiduciaries. Fiduciary liability insurance can help defend the reputation of the company and its management team.
Peter Bern is the CEO of Leverity Insurance Group. Reach him at (216) 861-2727 or firstname.lastname@example.org.
Insights Business Insurance is brought to you by Leverity Insurance Group