Meredyth McKenzie

Tuesday, 26 January 2010 19:00

Protecting your company

Most employers work hard to make sure that they follow the law when it comes to their human resources policies. But if an employee alleges that a policy was breached, the result could be an employment practices claim against the employer, resulting not only in financial loss but in loss of reputation.

Claims can cover a broad spectrum of actions, including sexual harassment, retaliation, wrongful termination and discrimination because of race, religion, age or gender, and provide for relief to the employee.

“Damages can include compensatory damages, such as replacing the money the employee should have received, and punitive damages,” says Tom Hams, managing director and EPLI national practice leader at Aon Risk Services Central, Inc. “These cases can also take up a lot of time and can be very emotional for those involved.”

Smart Business spoke with Hams about how employment practices liability insurance (EPLI) can help protect your company against employment practices claims.

What key things should business owners understand about EPLI?

Business owners should be cognizant of their duties under the policy. They should understand the definition of a claim, know when they’re supposed to notice a claim and who these notices should be sent to, and know what their rights are in regard to selecting legal counsel. There can be problems if a business owner agreed to use a panel of counsel within the insurance policy but then hires a different firm during litigation and incurs costs without alerting the insurance carrier. Owners should also understand what isn’t covered. There has been a fair amount of litigation around wage and hour claims, such as overtime pay or failure to pay for meal times or breaks. These are not traditionally covered under an employee practices policy. This is a difficult risk to underwrite, an expensive claim to defend and is often deemed uninsurable under public policy.

What should be included in a good EPLI policy?

There should be a broad definition of loss, including punitive damage coverage with favorable venue wording. This language requires the carrier to look at any jurisdiction that has a nexus to the claim, policy, insurer and insured to see if the law in any applicable jurisdiction is favorable to providing insurance for this type of claim. Policies are drafted broadly in this way to make it difficult for insurance carriers to find a way to raise an insurability concern.

Business owners should obtain as much control over selection of counsel and settlement authority within the retention/deductible as possible. There should also be broad notice capabilities so the insured doesn’t get caught with late notice arguments. Large companies have a much greater frequency of claims. But smaller companies run into notice difficulties when they do not understand the breadth of the definition of the claim. Smaller business owners should seek to obtain an appropriate period of time to get a claim in to the carrier before any policy provisions are violated and should acquaint themselves with the definition of claim under their policy. There should be a broad definition of wrongful acts so that a wide array of activities is addressed by the policy, including a broad definition of workplace torts and, ideally, third-party coverage.

What are the concerns with EPLI policies?

These claims are very intentional in nature as far as the alleged activity. EPLI policies are designed to cover activities such as sexual harassment, retaliation, race or gender discrimination, or hostile work environment. But some states have issues against allowing insurability of intentional acts. Clients in states with these insurability concerns, however, can use ‘wrap’ policies, often obtained from Bermuda insurance carriers, to provide coverage for punitive damages and intentional acts.

Some also fear that purchasing coverage may make it more likely that employees will bring claims or that the claims will be larger. There is no evidence, however, that this is the case, and in some instances, the presence of an insurance carrier can take the emotion out of the case for plaintiffs and make them realize they are not as much going to seek revenge against their employer as they are going to have to go to battle with an insurance carrier.

What is the typical cost for EPLI?

It varies widely based on what type of deductible the business is willing to take. And because employee headcount is a big determining factor of cost, it is hard to make any generic statement regarding pricing.

However, premiums have not increased, even in this economy — they’ve stayed flat or decreased slightly. So, business owners might think that the price for EPLI would be too high, but that’s not the case. While larger employers have purchased EPLI for a fairly long time now, it is important for companies with fewer than 5,000 employees to consider purchasing the coverage while pricing remains inexpensive, because smaller companies run a greater risk of exposing their balance sheets to a catastrophic loss from an EPLI claim than large employers and are more likely to get value from the risk management services provided by carriers through the coverage.

What steps should business owners take if they are hit with an employment practices lawsuit?

Business owners should reach out to their broker if coverage is in place to consult on his or her duties, as far as the policy and claim process. They should also quickly determine the ability to either use a panel of counsel assigned by the insurance company or select their own counsel. It’s critical to get this legal advice immediately, because there’s a brief window of time after receiving a claim where the tiniest mistakes can make a huge difference. For example, a business owner may fail to hit time periods with regard to litigation or take some internal action in relation to the claimant that dramatically increases exposure on the overall claim.

Tom Hams is managing director and EPLI national practice leader at Aon Risk Services Central Inc. Reach him at (312) 381-4561 or

Tuesday, 26 January 2010 19:00

Business gems

Many people expected a dramatic increase in the number of businesses going bankrupt when the economy turned sour in late 2008. The general slowdown in the economy, which many thought would (and, in fact, did) cause loan defaults, coupled with a credit “crunch” that continues even today, was expected to lead to a wave of bankruptcies. The increase occurred, but was not nearly as large as expected. There have been more debt restructurings, out of court workouts and non-judicial sales of assets in order to avoid bankruptcy.

The lower than expected number of bankruptcies can be attributed to several factors, including the costs of bankruptcy (particularly when compared to other alternatives). A second cause is the so-called “amend, extend and pretend” practices of some lenders: amending loan documents to eliminate defaults and extend the date of reckoning. Many incumbent lenders, finding no new lender looking to refinance the borrower, and unwilling (or unable) to realize the loss resulting from a liquidation, have chosen to wait to see if the economy and/or credit environment will improve.

As a result many companies continue to struggle, unable to fix problems or find new lenders. There are many opportunities for purchasers to step in and purchase these distressed companies at fairly good prices to try and turn them around.

“There are a lot of bargains out there, and a well thought out acquisition of a distressed business creates a real opportunity to see a significant upside,” says Shawn M. Riley, managing member of the Cleveland office of McDonald Hopkins LLC. “But one has to be willing to take on the additional risk of turning around the business, and have the resources and knowledge to do this.”

Smart Business spoke with Riley about what makes a distressed merger and acquisition unique and key things to know if you want to undergo this type of transaction.

How are distressed mergers and acquisitions different from traditional ones?

A distressed business has some type of problem that still needs to be fixed. The company may have too much debt, or is not operating profitably. In a more traditional deal, profits are already being generated by the business. The buyer is looking to improve operations, increase profits, and then ultimately sell the business. There are typically no profits in a distressed deal — it mainly involves turning the business around to make it profitable and then selling it at a future date.

What are some of the risks and benefits of distressed mergers and acquisitions?

There is always the risk that the problem identified is not the actual problem, or that there are additional problems not identified. Another would be that the buyer miscalculates the amount of negotiation required with the other constituencies, such as the lender or trade creditors. That requires more time and perhaps even more cash to close the deal, thus increasing the overall cost and impacting the ultimate return.

On the positive side, these opportunities are much more available than traditional mergers and acquisitions because of the current business cycle and the lack of available credit.

How can you take advantage of these opportunities, and what should you know about distressed mergers and acquisitions?

There are two different types of potential purchasers. First, business owners in a particular industry ought to be out looking for additional businesses in that same industry that may be struggling and have lenders willing to accept a discount on their debt. That will allow the acquiring business to grow by adding sales and ultimately creating a much larger business. Second, it offers private equity firms an opportunity to deploy capital in a segment of the mergers and acquisitions market that is still active.

A buyer needs to be sensitive to the fact that these businesses are not going to be profitable immediately. There is a problem there that needs to be fixed, and a buyer has to approach due diligence with that in mind. Understand what the problem is, how to fix it, how long it will take and how much additional money might be needed, and then factor that into the deal price.

What preparation is needed for distressed mergers and acquisitions?

A buyer needs to identify and analyze the root of the problem with the business it is acquiring. A purchaser goes into the deal knowing that there is a problem that needs to be fixed, but has to identify that problem immediately, analyze the root of it, and determine how to fix it. That is very different than a traditional deal, where a purchaser goes into it assuming that the business is profitable and making money, and just needs to improve the operations or profitability.

There are also additional negotiations that need to occur with other interested parties that do not typically occur in traditional deals. In a traditional deal, a buyer is not terribly concerned about what trade creditors think, because the assumption is that they will be paid in full, and the business will continue to operate with no interruption. It is also assumed that the lender will be paid in full, and it is only a matter of bringing the lender in at the last moment to get the appropriate releases signed.

In a distressed transaction, the assumption is that one or both of those groups will not be paid in full. So the lender may be required to release its claims and security interests for less than 100 percent of what’s owed. It is also possible that the trade creditors to the business are going to be paid less than 100 percent, and therefore have to be brought into the negotiations, whether individually or as a group. These elements impact the way the deal is actually consummated. Is it a straight asset sale, with no judicial oversight, or is it a bankruptcy sale, done through the supervision of the bankruptcy court?

Shawn M. Riley is a managing member at the Cleveland office of McDonald Hopkins LLC ( Reach him at (216) 348-5773 or

Tuesday, 26 January 2010 19:00

Bad behavior

Employment litigation is on the rise, with many cases dealing with workplace misconduct in the form of harassment or discrimination. The recession has incited our already litigious society to the point where employees will sue over misconduct instead of simply leaving the company.

Employers need to take action promptly once a complaint is received, conduct a thorough and fair investigation, and take action against the harasser to warn other employees that misconduct is not tolerated.

“If you don’t conduct an investigation, the behavior could become worse and involve other employees,” says Charles Huddleston, a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. “There can also be a lot of time and money involved in employment law cases, and it can generate a lot of ill will and bad publicity for your company.”

Smart Business spoke with Huddleston about developing policies concerning workplace misconduct and investigating incidents.

How are workplace misconduct complaints received?

Complaints can come directly from the victim or from someone who has seen or heard about the incident. Anybody in a management position should report an incident if they see it or hear about it. If it’s not passed on to the appropriate people and the harassing continues, the company will be held responsible.

Anywhere employees are undertaking activities for the employer can be considered the workplace, including a reception area, a business trip or client delivery. The mere fact that harassment or discrimination is occurring off the normal worksite does not immunize you from liability or relieve managers from taking steps to stop it if it’s seen or known.

What is involved in a misconduct investigation?

Investigations should be done promptly, thoroughly and fairly. The severity of the complaint will often determine how promptly the investigation should be handled. Investigations can be unpleasant and, many times, tend to drop to the bottom of people’s lists, particularly if the harasser is someone you know or like or it’s the boss. But every day you don’t take care of it could mean another day that the harassment or discrimination is continuing, and possibly getting worse, if the charge turns out to be true.

You also need to thoroughly investigate the complaint, and make sure all employees who may be involved are interviewed. If the complaint is accurate, odds are this wasn’t the first incident with the harasser, so you need to take time to seek out other potential victims to help build a clearer case.

You should have a trained investigator involved, mainly from the human resources department. Having more than one person involved allows for a fair investigation. If one investigator works closely with the harasser, he or she can step down from the investigation. If the harasser is someone with power and you want to make sure the investigation is handled fairly and the victim is able to tell his or her side of the story, then you may need to bring in an outside investigator; often the company brings in its outside legal counsel to handle the investigation in this situation. It’s also good to have at least one female involved, because female victims will be more comfortable talking to other females about an alleged incident.

Many times, victims will come forward to report an incident, but don’t want to do anything about it. You need to communicate that some sort of investigation needs to take place to stop the misconduct from happening. You should develop a strong anti-retaliation policy so that nothing can happen to the victim after reporting an incident.

How can you develop good policies and procedures to prevent workplace misconduct?

Policies should tell employees who to report incidents to and that all complaints will be investigated. Having policies in place and a good record of investigating, and taking actions to stop misconduct, gives employees no excuse to not report misconduct.

You need to make sure your policies are up to date and include employment law changes from the last several years. Supervisors and managers should be trained, as well as investigators, at least every other year so they’re up to date on the policies and any law changes. Investigators also need extra training on how to properly interview people to try and track down the facts to prove or disprove the allegation.

What action should you take following an investigation?

The severity of the conduct will determine how severe the punishment will be. You don’t always have to fire somebody, but you can take steps to try and change the person’s behavior before further actions are taken. The employee could receive counseling, have reprimand placed in his or her file, and have his or her behavior monitored by the victim and others working closely with him or her. The harasser can also receive extra training on appropriate workplace conduct and language. The employee should be terminated if the behavior continues or the initial incident was too severe.

What are the benefits of putting proper policies in place against workplace misconduct?

Having the proper policies in place and a good track record of investigations gives you a better defense if someone complains. If no report was made by the victim, it can actually give you a legal defense to certain claims. It can also send a message to your employees. The first time someone is reprimanded for harassment, even if it’s not made known publicly, people hear about it and know this is taken seriously.

The number of complaints can actually go down if you put the proper training and education in place, and if you create an environment where workplace misconduct is not tolerated.

Charles Huddleston is a shareholder with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Reach him at (404) 221-6536 or

Tuesday, 26 January 2010 19:00

Karen Conger on MCOs

Navigating a workers’ compensation claim can be quite confusing. You may question if the claim is valid or if the treatment is necessary, or you may not understand much of the medical terminology. By working closely with a Managed Care Organization (MCO), you should be able to answer all these questions.

Your MCO should be able to help you understand if the injury and allowed condition(s) “make sense,” based on the injured worker’s job description and description of the injury. Your MCO should take care of all medical management and assist in returning your injured workers to work as soon as possible, and keep you informed regarding progress in the claim. Since all state-funded employers in Ohio are mandated by law to use an MCO, you should make sure that the one you choose provides you with all these services.

“It gives employers the medical experts and expertise at their fingertips,” says Karen Conger, CEO of Ohio Employee Health Partnership. “The MCO helps the employer through all of the medical components of a workers’ compensation claim, and works with the providers returning injured employees to work.”

Smart Business spoke with Conger about the role an MCO plays in a workers’ compensation claim and how to choose a good MCO.

What are the benefits of using MCOs?

You have access to medical experts who are involved in every aspect of the claim, from the date of injury to date of closure. A good MCO will contact and educate you to explain what’s going on medically with the injured worker, and will work to be sure that appropriate medical care is provided in order to help injured workers recover and return to work as soon as possible.

Over time, you should see a reduction in your premium to the Bureau of Workers’ Compensation (BWC), as well as fewer days that injured employees are out of work.

What kind of interaction takes place between the MCO, employer and injured worker?

MCOs are neutral parties, and work with employers, providers and injured workers to improve medical care and return employees to work. A good MCO coordinates all medical aspects of a workers’ compensation claim, and is responsible for reviewing every treatment authorization for reimbursement. A case manager is assigned to each claim to help everyone navigate through what can sometimes be a confusing medico-legal system. MCOs provide identification cards to injured workers, to be presented when visiting their treating physicians. You need to make sure your employees know whom to contact at your MCO, and encourage any injured worker to talk with the MCO case manager about any questions because it is important that the injured worker takes an active role in his or her recovery.

What are some key things employers need to understand about using MCOs?

You should understand the MCO’s role regarding medical management and payment of providers. Your MCO should be communicating with you on these aspects. Work with your MCO long before an injury happens to make sure everything goes smoothly when needed. In this regard, workers’ compensation is a lot like health insurance. You may not know what’s on your health plan until you need it, but you know it’s there. With your MCO, it’s better to know ahead of time whom to contact if an injury happens.

What kind of information needs to be laid out for the relationship between the MCO and employer to be successful?

Be aware that MCOs can also help you create a safer environment to prevent injuries. MCOs can educate your supervisors and employees. MCOs can review injury records and track trends in your work environment. For example, if one department tends to have a lot of specific injuries on a certain day, you can work with the MCO to investigate possible causes and solutions.

You can also work with the MCO to set up an aggressive but safe return-to-work program. With workers’ compensation you have both medical and indemnity (lost wage replacement) expenses. Working with your MCO to make sure the injured worker is back with modified duty will impact your indemnity expense. It’s also medically better for the injured worker to be at work instead of at home, worrying about paying bills and wondering about whether he or she still has a job. Develop your return-to-work program with your MCO’s help prior to a claim occurring.

You can also work with your MCO to find a quality health provider to suggest to injured workers. An employee is able to go to any physician who is BWC certified, but many times your employee will not know where to go right after an injury has occurred. Working together with the MCO on this can make a big difference in the quality of care your injured workers receive.

Make sure that your MCO is one of your first touch points once an injury happens. The sooner you let the MCO know that the injury has occurred, and get on top of it, the better it is for everyone.

What should you look for in a good MCO?

You should ask yourself four questions when choosing an MCO:

  • Does the MCO understand my company and what I do?
  • Does the MCO give me timely information when an employee is injured? You should choose an MCO that will communicate with you in whatever format is best for you, whether that be through the Internet, on paper, or by phone.
  • Can the MCO case manager meet with you in person and come out to your site to see exactly what your employees do?
  • Does the MCO put an emphasis on safe and timely return to work for the injured worker?

Karen Conger is the CEO of Ohio Employee Health Partnership.

Saturday, 26 December 2009 19:00

Penny-wise, pound-foolish

Most companies have been faced with tough employment decisions during the past year, from staff, pay and benefit reductions to other cost-cutting measures. Before making these tough choices, you need to look at how they will impact your business, including employee morale, long-term costs and future staffing issues.

“You have to evaluate your personnel and consider whether a reduction in staff will compromise the quality of services you provide,” says Ellen Kamon, senior attorney at Theodora Oringher Miller & Richman PC. “Look at restructuring and economizing in some creative ways, instead of just downsizing. Some options include hiring or salary freezes, raising employee contributions to health care premiums, salary reductions, restrictions on company travel policies or having employees play dual roles. That way you keep people on without having to compromise staffing.”

Smart Business learned more from Kamon about how to develop legal and consistent employment practices and make sure all employees are classified properly.

What risks do you face by not evaluating employment decisions properly or not having consistent employment practices in place?

Making the wrong employment decision can have a long-lasting economic impact on your business. It will cost you more money in the long run. You will not be able to compete in the market if you terminate people who are critical to your business and cannot keep up with demands as business picks up.

You could face lawsuits, audits and labor board investigations. Wage and hour disputes can very quickly turn into class-action lawsuits. For example, a terminated employee may go to the labor board to say he or she was not paid properly and did not say anything while employed. This person was actually improperly classified. Other employees might catch wind of this and get involved, as well, which can become quite costly. You need to work quickly to resolve any job classification problems internally before you have other employees making similar claims.

How can you develop legal and consistent employment practices?

You need to develop a business plan and work with your attorney or human resources consultant to evaluate your business to resolve employment issues. Companies sometimes try to make this easier by having a financial person serve in the HR role, since it’s tied to payroll, but this can present challenges. Financial people bring a different philosophy to the job and concentrate on saving the company money. They may not systematically evaluate employee classifications and you can run into disputes, lawsuits and audits if employees are not properly classified.

Companies should perform self-audits to make sure all employees are classified properly and paid correctly. This involves going through all job classifications to make sure each employee fits the requirements. This should be done on a continual basis to make sure you’re classifying correctly.

You need to openly communicate these practices to employees and have someone available to answer any questions. All practices should be clearly printed in an employee handbook so they have a reference point.

What are the different job classifications and how can you avoid liabilities and penalties for improper classification?

The first is independent contractor versus employee. This depends on the degree of control you exert over the person. If a person is told when to come to work and what to do, he or she is an employee.

The second is exempt versus nonexempt. Someone who is nonexempt has to be paid minimum wage and overtime. An exempt employee would be an executive, administrative person or a professional, and his or her salary would be equivalent to no less than two times the state’s minimum wage for full-time employment. That person also has to be primarily engaged in duties that meet the definition of exempt work for more than half of their work time.

What must be considered to avoid California Labor Code violations when you terminate an employee?

You have to make sure the terminated employee is paid everything he or she is owed the day of termination. This includes earned but unused vacation time and wages earned. You also have to consider paid time off, which is a combination of sick and vacation time. Any paid time off that has been earned but unused should be paid at the time of termination. There are penalties for every day you do not pay somebody what you owe him or her, which can be quite expensive. You have to make sure the payment matches your policies for vacation and sick time and paid time off.

What are some employment considerations you should be aware of when the economy does start to turn around?

You will need to evaluate staffing needs and determine how you will move forward. Maybe you have to hire more people, offer other benefits or bring back benefits that were taken away during the recession. You have to constantly evaluate, because you need to be competitive once again. Keep an eye out as it starts turning around, because you don’t want competitors to take away your valuable people.

Ellen Kamon is a senior attorney with Theodora Oringher Miller & Richman PC. Reach her at or (310) 557-2009.

Saturday, 26 December 2009 19:00

Planning ahead

Finding the money to pay for medical expenses can be difficult, but investing in a health savings account can help ease the burden.

HSAs are triple tax preferred — money goes into the account tax free, is spent tax free and grows tax free — and funds can be used for any qualified medical expense.

“The great thing is that these accounts are owned and controlled by the account holder,” says Marti Lolli, product manager with Priority Health. “They operate like a personal checking account and include similar features, such as debit cards.”

Smart Business spoke with Lolli about how to take full advantage of an HSA.

How do HSAs work?

You must be covered by a high-deductible health plan (HDHP) in order to be eligible for an HSA. HSAs are available through banks or credit unions and come with typical bank account features.

These accounts are not associated with a particular employer or health plan and are owned and operated by the account holder, so even if you’re drawing unemployment, you can use an HSA to pay for your health insurance premium and other medical expenses. HSA money also rolls over, so it can be used for medical expenses today or in the future. In addition, HSA dollars can be used to pay for your spouse’s and dependents’ expenses, even if they are not covered under your medical insurance.

And because decisions on how to spend the money are made by the account holder, not an insurance company or other third party, you need to keep all receipts in case of an audit by the IRS. You need proof that you are spending HSA money on qualified medical expenses, such as deductibles and copayments, dental and orthodontia services, and vision services, including glasses and corrective surgery.

What are the risks associated with HSAs?

One is not putting enough money into the account. Accounts are capped per year by the government, and because you cannot exceed that maximum contribution, you can’t catch up later if you failed to put in money when you could. The most you can contribute for 2010 is $3,050 for single HDHP coverage and $6,150 for family coverage.

Contribute enough to cover your projected yearly medical expenses. If you don’t spend the money but also don’t put in enough, you won’t have enough when you retire. Most financial advisers say that, because of the triple-preferred tax status, an HSA is the first place money should go after you contribute enough to receive your employer’s full 401(k) match since HSA dollars can pay for Medicare premiums tax free.

Another risk is failing to receive preventive care, even though many HDHPs cover this at 100 percent. All medical expenses are covered under high-deductible plans, but the plan can’t pay for anything until that deductible has been satisfied. You could increase your risk of disease down the road by avoiding screenings now.

What are key things employers need to understand about HSAs?

Employers are nervous that employees will stop receiving care because services are paid for out of pocket with high-deductible plans. But when employees are paying, they’re more likely to get appropriate care. Studies also show that people with chronic conditions who hold HSAs take better care of themselves.

Employers also worry that these plans won’t change the trend of health care spending, but the reverse actually happens, as premiums continue to be about 30 percent for HDHPs. The premium increase is also smaller each year than it typically is with other plans, so many employers contribute part of the savings into employee HSAs.

Many employers hesitate to offer HSAs because they cannot get that money back. If an employer puts money in an employee’s HSA on Jan. 1 and the employee terminates on Jan. 2, the employer cannot recoup the funds.

One solution is to spread contributions over the year, but what if that employee has a big ER visit on Jan. 2? A recent change in the Federal Registry allows employers to prorate contributions over the year but advance money to help employees with a medical emergency. Employers should create a policy that specifies this option is available and outlines how employees can access that contribution sooner and then apply it uniformly across all employees.

Employers can allow employees to put pre-tax contributions into the HSA bank account through a payroll deduction process. The employer must sponsor a Section 125 plan (also known as a Cafeteria Plan) and reference the option for employees to contribute money tax free. Employees then simply make a contribution election, which can be changed at any time.

What do employees need to understand about HSAs?

Employees need to compare health insurance plan designs if they have more than one option. For example, if an HDHP is offered as a benefit design along with another design, calculate which option is best for your family. Determine your premium costs under all options, then look at your expected health care needs and factor in the out-of-pocket costs associated to those services (deductibles and copayments), and how much your employer is contributing. And if the HDHP with an HSA makes the most sense for you, discipline yourself to contribute to the HSA every pay period.

While you have to be careful how you use your account because of audits, at the end of the day, it’s your money, and you can spend it how you want for medical expenses.

Marti Lolli is a product manager with Priority Health. Reach her at (616) 464-8233 or

Saturday, 26 December 2009 19:00

Fifth Third Bank on retirement plans

Retirement plan fiduciaries play an important role in plan management, but they also face risks along with those responsibilities.

Mitigating those risks requires constant due diligence, proper documentation of all processes and adherence to basic conduct standards, as fiduciaries who do not follow these standards may be held personally liable for losses to the plan. They may also have to restore any profits made through improper use of plan assets.

“Ongoing due diligence, prudent processes, documentation and consistency are fiduciary best practices and will mitigate any potential areas of risk,” says Stephanie M. Spaccarelli, vice president and regional managing director at Fifth Third Bank.

Smart Business spoke with Spaccarelli about the responsibilities of fiduciaries and how to create good relationships among fiduciaries, plan providers and plan participants.

Who is considered a fiduciary?

A fiduciary is any person who exercises discretionary authority or control over the administration or management of an employee benefit plan or its assets.

The Employee Retirement Income Security Act requires that every employee benefit plan have at least one named fiduciary so that participants know who is responsible for the operation of the plan. The named fiduciary can be identified by title or by name, and could be the employer or an administrative committee appointed by the board of directors. The employer as a named fiduciary may hire outside professionals to manage some of these responsibilities.

What key things should someone be aware of when taking on fiduciary responsibilities?

Fiduciaries should be concerned about:

  • Due diligence in the selection of service providers and/or consultants
  • Fee and expense structures
  • Oversight
  • Operational and compliance procedures

These responsibilities include acting solely in the interest of plan participants and their beneficiaries.

Fiduciaries must carry out their duties prudently, follow the legal plan documents, take responsibility for diversifying their plan assets and pay only reasonable expenses.

What risks does a fiduciary face, and how can that person mitigate those risks?

One of the biggest areas of risk is potential fiduciary liability. Most individuals who are plan fiduciaries do not realize that they can be held liable for losses to the plan.

The best way to demonstrate that those responsibilities have been carried out is by properly documenting processes. It’s important to conduct ongoing due diligence that ensures continuous monitoring, evaluation of administrative fees and the overall effectiveness of your plan in providing retirement benefits.

How can a fiduciary create strong relationships with plan providers?

Designing an effective retirement plan can be a daunting task. Plan sponsors are often confronted with complicated rules, an overwhelming array of choices, and the requirement to evaluate and understand plan costs.

Employers with plans of all sizes need someone who can offer objective knowledge and support to help make informed decisions on how to structure a competitive, cost-effective retirement plan.

A good partner should help minimize fiduciary burdens and liability that the plan sponsor may incur, as named fiduciary, by using a documented process for reviewing asset options. The partner should also use innovative approaches to plan design, recordkeeping and administration.

In addition, partners can help when new laws and legislation are enacted, which can have a widespread impact on a plan and its participants. Fiduciaries need to ensure that they are working with a person who can help them make educated, rational decisions in response to these changes.

How can a plan sponsor, as named fiduciary, communicate with plan participants and create relationships with them?

Reaching out to the employees participating in the plan is not always easy, and a plan sponsor needs help so that employees may achieve their retirement dreams. The employer should work to develop and implement a comprehensive education and communication plan. This education program should offer dynamic and engaging content in the form and time frame that the employees desire.

A fiduciary should also provide participants with tools to help achieve retirement readiness by offering options to help build their portfolios and prepare for the future. Plan participants often lack the knowledge and may fail to proactively manage their accounts. A solution endorsed by the recent Pension Protection Act is the utilization of a managed account solution.

By uniquely blending these approaches with personalized plan data and leading industry knowledge, a managed account program can create risk-controlled, competently designed retirement solutions, which can help optimize plan outcomes for both the plan sponsors and plan participants.

Stephanie M. Spaccarelli is vice president and regional managing director at Fifth Third Bank. Reach her at (513) 534-0696 or

Saturday, 26 December 2009 19:00

Health check

Wellness programs are an important way to get your employees energized and involved in maintaining healthy lifestyles. They’re also a good way to manage your health care costs and lower health insurance premiums and deductibles. The programs are designed to give some type of incentive, typically monetary, for meeting certain health requirements.

But before you start implementing your program, you need to make sure it’s compliant with many of the health care laws.

“You run into some large financial penalties if you do not comply with these laws,” says Nick Tomlinson, an associate with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.

Smart Business learned more from Tomlinson about making sure your wellness program is compliant with the various statutes.

What compliance issues are associated with wellness programs?

The two big ones are the Health Insurance Portability and Accountability Act (HIPAA) and the Genetic Information Nondiscrimination Act (GINA). The HIPAA rules make sure you’re not discriminating against the least healthy of people, those who would benefit the most from wellness programs.

GINA has a broad prohibition against the collection of genetic information. This affects wellness programs because many use health risk assessments (HRAs) to collect medical information on members. The HRA should not contain any information regarding family medical history, because that is considered genetic information under GINA.

What penalties do you run into by not complying with these statutes?

Penalties for employers who violate GINA range from $50,000 to $300,000, as it is a violation of Title VII of the Civil Rights Act. GINA also has a built-in penalty for health plans. There is a $100 fee for each day and each participant that a plan is not compliant. For example, if you’re noncompliant for 10 participants for 10 days, you’ll receive a $100,000 penalty. There is a $500,000 cap on this. So it can go on for a while and adds up fairly quickly.

How can you make sure your wellness program is compliant with the nondiscrimination rules?

You’re subject to the nondiscrimination rules if your plan is part of a group health plan and has certain participation incentives. One way to comply is to allow everyone to participate in the program, regardless of the end result. For example, you offer employees a monetary incentive for participating in a health fair, regardless of the outcome.

However, you have to worry about discrimination if your plan requires members to maintain certain metrics to receive an incentive. You can engage in benign discrimination but have to meet five crucial steps.

  • The incentive must be no more than 20 percent of your contribution to the health plan.
  • The program must promote health or prevent disease and must be available to all similarly situated individuals in the company.
  • You must provide a reasonable alternative for employees who cannot meet the metric due to a health condition. For example, an employee with diabetes may not be able to meet the body mass index requirement, so you can provide an alternative standard so that person can participate in some form and get the same incentive.
  • You have to communicate this alternative to program members. You don’t have to tell them what it is, but they at least need to be aware of it.
  • All members need to be able to qualify for the incentive at least once per year.

How can you make sure your wellness program is compliant with GINA?

GINA was passed in May 2008, but the regulations were issued at the beginning of October 2009, so everyone is concerned about it now. GINA defines ‘genetic information’ as the testing of an individual’s genetics through means such as a blood test or by providing family medical history. While your plan might be compliant with the nondiscrimination rules, it may not be compliant with GINA. For example, you offer employees incentive for completing an HRA. You’re not discriminating, but the HRA might be full of questions related to family medical history.

There are two ways to make your program compliant. The first is to take out all genetic or family history questions from your HRA and still offer an incentive for taking it, sans these questions. But you have to be careful about the questions you’re asking. You may not be directly asking about family medical history, but a question might lend itself to revealing this type of information. For example, asking someone if they’ve ever been tested for a certain disease might reveal some genetic information. You have to tell employees to not reveal any information related to family medical history when completing the HRA.

You can also offer an HRA that includes family history questions, but it can’t be tied to an incentive. How you implement the wellness program is also key, and you can work with your attorney or third-party administrator to make sure you’re compliant with the rules.

The GINA regulations are still evolving and cover a broad area, including employment-based decisions. You need to be communicating with your vendors to make sure your plan and program are compliant with the new regulations, especially as the new plan year rolls around.

Nick Tomlinson is an associate with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Reach him at (404) 221-6537 or

Wednesday, 25 November 2009 19:00

Searching for savings

As business owners search for ways to save money while conducting their year-end tax planning, uncovering deductions is frequently a path to follow. But if you’re not able to use deductions, there are other ways to reduce the taxes you owe.

“Tax rates in 2009 are still relatively low, but there are strong indications that the rates will go up,” says Cathy B. Goldsticker, CPA, MST, member and co-practice leader of the tax services practice at Brown Smith Wallace LLC. “If rates increase, you may benefit more by not reducing your taxes in 2009. Anticipated law changes may present a different and preferred strategy to help reduce your tax burden.”

Smart Business spoke with Goldsticker about considerations for year-end tax planning and how to take advantage of credits and deductions, while considering the effects of tax law changes.

What are some key considerations when doing year-end tax planning?

You need to understand your cash situation and have a handle on planned spending versus money needed in reserve for growth and development. You can realize tax savings with strategic spending, but only if the spending does not have an impact on the financial stability of the company.

So, the first step is to assess your financial strength with respect to your current cash position, cash to be received and cash requirements in the next 12 to 15 months. That will help you decide on a tax strategy.

Also, you need to determine where you will be spending money to grow and then determine if you can spend it in a way that provides tax benefits. This provides double the bang for your buck. You also need to manage the timing of that spending. Do you want to spend that money and deduct something now, or defer spending and deductions until the near future when the tax rates are higher?

What are the tax benefits of federal and state tax credits?

Credits are very valuable because they can reduce your tax liability dollar for dollar. One type of credit is the foreign tax credit, which credits your federal tax bill for any taxes paid to a foreign country. Another type is the rehabilitation tax credit, which is available if you’re renovating, restoring or reconstructing certain older real estate.

The research and development (R&D) credit, in which the government gives you a tax incentive for doing research on new and innovative technological products, is also very beneficial. The R&D credit is based on the salaries incurred and related research expenses. We are still waiting and hoping R&D credits are extended through 2009.

The rehabilitation and R&D credits do require advanced planning to claim against income taxes, so make sure you have the proper corresponding documentation to support credits, such as adequate recordkeeping of project drawings, engineering reports and activity logs.

Missouri is very generous with its credits. You are able to resell these credits and turn them into immediate cash. You can use Missouri credits against your state tax to reduce your tax burden. This situation is beneficial to both the buyer and the seller. In contrast to state credits, federal credits cannot be sold. Federal credits can reduce taxes for the company incurring the activity but cannot be transferred without penalties.

Selling state credits is a relatively easy process. You find a buyer, fill out the appropriate paperwork and send it to the state. A correction is then made to the owner information listed in the state records. Many institutions, such as banks, can help you through this process.

How can capital expenditures provide tax benefits to businesses?

One way is through ‘bonus depreciation.’ Businesses are able to write off half the cost of new equipment or furniture in the first year, plus the amount you would have received under the normal depreciation rates. For example, let’s say you purchase a $100,000 item. You can write off $50,000 in the first year, plus you depreciate the remaining $50,000 over the tax life. You can get an amazing deduction in the first year under bonus depreciation. 2009 is the last year to write off taxes from bonus depreciation for furniture, equipment and other capitalized items unless this tax provision is extended.

You can also write off new or used business assets up to $250,000 through the Section 179 expense, as long as expenses don’t exceed $800,000. This will be reduced to $125,000 in 2010 unless this tax provision is extended. For example, let’s say you purchase $600,000 worth of equipment. You receive an initial $250,000 Section 179 deduction, with an additional bonus depreciation write off of 50 percent of the remaining amount. You can then write off that final remainder over five or seven years.

For 2009, how much estimated income tax does a business need to pay to avoid penalties, while not spending cash unnecessarily?

If you’re a C corporation and reported a loss or no income in 2008, you probably did not owe 2008 taxes last year. Therefore, you won’t have anything on which to base a 2009 estimate; you will have to pay the current tax amount to avoid any penalties.

There are special rules starting this year for S corporations, limited liability companies and other small businesses whose owners have less than $500,000 of 2008 income. If eligible, no penalties will be incurred if the lesser of 90 percent of the previous year’s or current year’s tax amount is paid in equal installments over the current year.

But if you’re not eligible and your income is high, you have to pay 110 percent of the previous year’s tax amount for timely estimates to avoid penalties. If your income is low, you pay 100 percent of the previous year’s tax or 90 percent of the current year’s tax to avoid penalties.

Cathy B. Goldsticker, CPA, MST, is a member and co-practice leader of the tax services practice at Brown Smith Wallace LLC. Reach her at (314) 983-1274 or

Wednesday, 25 November 2009 19:00

New resolutions

Many of your employees this month are developing professional and personal goals for the coming year, and many of their personal goals deal with wellness.

By developing a corporate wellness program, you can help your employees achieve these goals and reap numerous benefits for your company, including decreased health care costs and increased productivity.

“The key to having a successful wellness strategy is identifying the health needs of your population, selecting the appropriate interventions and evaluating your success,” says Kristine Sapak, manager of member and corporate wellness at Priority Health.

Smart Business spoke with Sapak about how to create a wellness strategy and build that into a successful corporate wellness program.

How do you begin to build a successful wellness strategy?

The first step is to assess the population. You need to look at your resources, budget and needs. Do you need to reduce absenteeism? Do you need to reduce health care costs? Look at your goals and assess what you’re trying to accomplish. Are you trying to improve the health of your work force, or are you trying to improve their health by X degree in X year? Employees also need to assess their health status and look at their health risks, needs and interests to determine if they need to be doing something more. Employees also need to be educated on how to affect their health risk.

Then you have to start looking at changing behaviors. You may think employees are solely responsible for changing their behaviors, but that’s not the case. You also need to think about changing your corporate culture to support their efforts.

Does your company encourage walks on lunch breaks? Do you encourage people to go to the doctor for care? Do you have a culture that embraces tobacco cessation and is supportive of people who want to quit? Do your company-sponsored meals include healthy options?

The final step is to evaluate. Employees have to look at where they are on a regular basis and determine if they’re improving. Have they decreased their health risk or maintained their status? Have they improved their quality of life? You also need to evaluate your wellness program through participation, the overall health risks of the population and employee feedback.

What are some key things you need to do to create a successful wellness strategy?

The Wellness Council of America recommends that you:

  • Concentrate on senior-level support.
  • Create a cohesive wellness team that can help administer the program, give feedback and reach into different areas of the company.
  • Collect data to help drive your health efforts.
  • Craft an operating plan. You have to decide where you’re going, what the goal is, who will be involved and what the budget is. The key is to look at wellness as a business strategy.
  • Choose appropriate interventions for the population.
  • Create a supportive environment. Carefully evaluate outcomes.

You should work with your health plan and determine whether you want to imbed a wellness program into your health plan with benefit design coverage or offer it in conjunction with the plan. The two should mirror each other and work together.

You should also look at other community organizations, such as health departments or groups that can provide various services to your employees. Don’t take everything on; instead, get in the mindset of partnering with those around you. Take advantage of these resources, including community walks and runs.

How can you use incentives to encourage employees to participate in a wellness plan?

You need to find incentives that will engage employees and drive participation. Incentives should grab people who wouldn’t normally participate and help those at a healthy status maintain that status. People are so busy that they sometimes need a small reward to encourage them to take time to focus on themselves.

Examples of incentives include cash, reduced insurance premium, contribution to a health savings account, gift cards, merchandise, a paid vacation day, contributions to 401(k) accounts, discounts and subsidies.

How do you evaluate the program to make sure you’re getting the intended results?

You first need to look at participation. People talk with their feet, so you have to find out if they are attending programs. Then you ask for feedback. Find out if the programs drove employees to make health changes, taught them something new or provided them with actionable information.

Then use that feedback to modify your programs. You can look at programs embedded in the benefit design and compare them against claims to see if you are maintaining or reducing health care costs.

How can you make your program flexible to adapt to changes in your business?

Like most business plans, you look at it every year, re-evaluate and make tweaks as appropriate. A wellness program should be flexible enough to meet business demands. You may find that as your business is growing, you want to incorporate more technology into the program. Or you adopt a health coaching program if employees want more one-on-one intervention. There are a lot of options to use different communication methods to reach and educate people in different ways.

Kristine Sapak is the manager of member and corporate wellness at Priority Health. Reach her at or (616) 464-8766.