National (1572)

The laws of physics tell us that what goes up must come down. The reverse is true in today’s interest rate climate. Rates that have stayed low — among the lowest they’ve been in U.S. history — for such an extended period of time will soon begin to climb.

“This is a topic that gets commentary daily in the news,” says Jon Park, chair and bank leader of Westfield Bank. “It’s easy to think that it’s just noise and that things will stay this way forever. But it won’t, and companies should take precautions now against the inevitable increases in interest rates.”

The impact rate increases will have on borrowing money is obvious. But your company also could be impacted in other, more unexpected ways.

Smart Business spoke with Park about what you should expect from the coming rate increases, and how you should prepare.

When will rates start to rise and how large might the increases be?

Experts have predicted stable rates for now, with increases beginning in 2015. Once the Federal Reserve begins increasing short-term interest rates, they will likely climb at least 2 percent over a period of 18 to 24 months.

Interest rates work in cycles. The current 0.17 percent short-term rate (one month LIBOR) is considerably lower than its 20 year average of 3.27 percent. When rates have been artificially held low for too long, they will go up. It’s like tension in a spring that has to release.

Are there ways a rate hike can impact businesses that they might not expect?

Increases in interest rates will reduce the profitability of businesses in general. Though new borrowing will still occur, loans will be more expensive. Some companies are able to pass on these costs as price increases, like utilities and other businesses that are equipment-intensive. Many businesses will need to prepare for the increased cost, as the rising rates squeeze the profit margin for themselves, and their clients or vendors.

Another unexpected consequence is that the market value of commercial real estate could slowly begin to decline. The formulas used to determine a property’s worth are based on the positive cash flow the property generates, and interest rates are one of the biggest components of the formula.

What should businesses do to prepare?

Ask your bank to convert variable-rate term and real estate loans into fixed-rate loans. Many businesses have been borrowing at variable rates because it has been cheaper. Converting to a fixed rate will cost more in the short term, but will protect against future interest rate increases.

Approach your bank about re-pricing your fixed rate commercial real estate loan. Normally these loans are re-priced at five-year intervals. You may have several years before hitting the re-pricing threshold. Negotiating to re-price the loan now could secure that fixed interest rate for another five years.

You can also purchase an interest rate swap that will allow you to convert from a variable-rate loan to a fixed-rate loan. Ask your banker about the cost and terms involved to swap rates.

Finally, consider extending the term and/or renewal extension options of any real estate lease. Higher interest rates will eventually translate into higher rent payments, since interest expense is one of the largest cost components for real estate investors and landlords.

Are there other ways companies should prepare themselves from an operational perspective?

Finance your expansion now. If you need to buy a new drilling machine or update your computer system, take advantage of these low interest rates prior to the expected rise.

It is a prudent time to consider your process for accounts receivable. When interest rates are low, many companies aren’t as strict about payment terms. But as interest rates rise, it will be more important to collect your cash quicker and extend your payables longer. Plan ahead and implement the right strategy now.

This is a good time to make sure you have trusted financial advisers on your side to help you prepare for the coming interest rate hikes.

Jon Park is chair, bank leader, at Westfield Bank. Reach him at (800) 368-8930 or

Insights Banking & Finance is brought to you by Westfield Bank

Before year’s end, taxpayers need to talk with advisers about their personal tax situation — wages, interest income, dividend income, capital gains, pass-through income from a business and other deductions. This preliminary road map can be used to make appropriate decisions.

“Years ago, I went through a projection with a client. We didn’t move the needle on their taxes much, but the client’s wife said, ‘I feel so much better knowing in December exactly what’s going to happen in April,’” says Patricia Rubin, CPA, director of assurance services at SS&G.

By reflecting in December, taxpayers have time to plan ahead, she says.

Smart Business spoke with Rubin about maximizing year-end planning.

Alternative minimum tax (AMT) is always a big topic. How can you plan around it?

This year, Congress formalized and stabilized many AMT issues. You should do an annual calculation to determine whether AMT will apply to you. A taxpayer must calculate taxes using the regular method and then recalculate following AMT rules and pay the higher amount. AMT rules are similar to regular tax rules. However, under AMT certain items are not deductible in computing taxable income, such as state and local income taxes.

Certain taxpayers will find themselves in AMT every year, but 2014 could have different results as regular tax rates have increased.

How can you reduce taxes with year-end planning?

Donating appreciated stock to a charity is one option, and taxpayers can deduct this under either tax system. If you bought a share of stock for $1,000 that is now worth $10,000, the charity gets $10,000 and you don’t have to pay capital gains on the difference while also claiming a deduction for $10,000. There’s also charitable giving of cash and non-cash items. If you’re cleaning out your closet, make a list. You cannot deduct without specifics on the thrift shop value of donated items. You also can time payments of your state and local taxes — bunching them up and paying them in 2013, or deferring into 2014.

What are some new taxes this year?

These are a little harder to plan for, so consult with your adviser to understand if, and how, these taxes affect you. In addition to the higher tax rates, there is a new 3.8 percent Medicare tax on certain net investment income, as well as a 0.9 percent Medicare tax on earned income. Both of these new taxes apply only if the thresholds have been exceeded. The first year, you need to understand which items are subject to the tax.

In addition, there is a phase out of itemized deductions if your income exceeds the threshold amounts.

What year-end planning is available for a business owner working in the business?

The income of a business owner with an S Corporation, LLC or a partnership passes through to his or her individual return, making tax planning critical.

Make sure your retirement plan maximizes the value to you and your employees, to take advantage of planning opportunities. You can accrue what you’re going to fund into the plan in the current year and pay it next year.

Two depreciation items may be significant. Under Section 179 of the tax code, you can deduct purchases of property, plant and equipment up to $500,000. As the law stands, it drops down to $25,000 in 2014. Also, you still can get 50 percent bonus depreciation for new equipment, which is scheduled to sunset in 2014.

Other items to capture are a health insurance credit for those with less than 50 employees and a self-employed health insurance deduction, which might apply to a shareholder in a closely held company.

Overall, the promise of tax planning is to let you know what’s coming, properly plan for the appropriate deferral of income taxes and reduce your overall taxes. You may not have all three, but year-end tax planning always helps avoid surprises.

Patricia Rubin, CPA, is director of Assurance Services at SS&G. Reach her at (440) 248-8787 or

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


It used to be that buyers would send out purchase orders with standard terms and conditions, and sellers would ship the product with invoices containing their own conditions. Now that more business is conducted online, conditions are agreed to by click-wrap — clicking a box to accept the terms of the website.

That causes problems when employees wind up agreeing to terms that greatly benefit the seller or supplier to the detriment of the purchaser, says Todd C. Baumgartner, a partner at Brouse McDowell.

“For whatever reason — it might be psychological — there is a lot less negotiation with terms and conditions on websites. It’s important to know what you’re agreeing to, and negotiate if you need to protect your interests,” Baumgartner says.

Smart Business spoke with Baumgartner about how to handle click-wrap agreements and potential problems when they’re agreed to without proper review.

How are differences resolved when buyers and sellers have different terms?

The Uniform Commercial Code has standard rules to follow when that happens. But what’s occurring now is that, General Electric, for example, uses a website instead of putting terms and conditions on the back of invoices. There is no paper going back and forth. GE has the clout to pull that off — companies will just accept the terms in order to be GE’s supplier. But you can negotiate terms and conditions on websites.

A 2002 case, I.Lan Systems Inc. v. Netscout Service Level Corp., demonstrates what can happen with these click-wrap contracts. The buyer, I.Lan Systems, negotiated an extensive software license agreement with all sorts of protections. However, whenever there was an update to the software, it was downloaded from a website by the IT department. Every time that happened, they downloaded a new license agreement that voided the prior one. The new agreements were skewed in favor of the software company, stating that it was not responsible if the software crashed the computer system. When that happened, there was fairly extensive damage, but the court ruled the software company was only liable for the original purchase price.

It’s critical that companies understand every time an IT employee clicks these buttons, they’re getting a new software licensing agreement whether they realize it or not.

What’s the best way to deal with click-wrap agreements?

Don’t just click boxes. Have the head of the IT department review everything, and set up a policy in-house with appropriate procedures so these matters are presented to the right decision-makers.

If there’s something in the agreement that’s not acceptable, depending on your leverage, you can tell the software company you’re not doing click-wrap updates or negotiate an agreement covering the updates.

Click-wrap agreements are not necessarily a bad thing for the buyer or seller, but it’s important that it’s mentioned in bold at the bottom of your invoice or purchase order that the terms are on the website. The seller also needs to keep track of the terms and conditions it had. Then, if a company comes back later and claims it didn’t understand the terms, or didn’t know what was agreed to, sellers can produce what was on the website two years ago.

What sort of problems can arise years later?

Many times disputes are about specifications that the product was supposed to meet, and if it didn’t meet those specifications, what damages might be involved. As a supplier, you want to limit your consequential damages to replacing the product. A buyer will argue that it lost revenue as a result of the defective product. If the agreement doesn’t have the proper damage limitation, it’s going to be a problem for the supplier.

Are purchase agreements done differently online?

Essentially they’re set up the same way; it’s just that people are less likely to negotiate something that’s on their computer screen. Companies will still ask for changes to terms and conditions on a website, but the number of requests for changes drops substantially. Everyone’s classically conditioned to review a contract in Microsoft Word line-by-line; as businesspeople we’re still catching up with the fact that websites can be changed.

Todd C. Baumgartner is a partner at Brouse McDowell. Reach him at (440) 934-8113 or

Insights Legal Affairs is brought to you by Brouse McDowell

If there is one casualty of our increasingly frenetic business lives, it’s the decline in time devoted to simply think, listen, inspire and create. After all, can any business thrive without a healthy infusion of fresh ideas and creative thinking?

In the late 1980s, friends, beach enthusiasts and retail-industry veterans Bob Emfield and Tony Margolis took the aforementioned time to embrace their love of Florida’s Gulf Coast — going so far as to fashion a fictional, luxuriously clothed character symbolizing their appreciation for the idyllic tropical lifestyle. They created Tommy Bahama. 

Emfield and Margolis understood what their creation ate and drank as well as how he spent his free time as part of a quest to live life as one long weekend. Their lives and the lifestyles of countless consumers changed when the following idea surfaced: “Why don’t we dress this guy?” 

A chance meeting between Margolis and fashion designer Lucio Dalla Gasperina resulted in a newly formed management trio ready to introduce Tommy Bahama to the national retail landscape.

Though the three founders shared leadership responsibilities, another man stood virtually above the rest.

“At every meeting, we always added a fourth chair for Tommy,” Emsfield says. The invisible presence reinforced the notion that all business decisions had to be based on the question, “What would Tommy do?” — a brand marketing play absolutely brilliant in its ingenuity and simplicity. 

Take the first step

Emfield says there is always a window of opportunity, but Emfield’s own window may never have opened if he and Margolis hadn’t taken the time to be creative visionaries on a grand scale. 

Of course, isn’t creativity ultimately the cornerstone of any successful business? Creative thinking has been responsible for many of the images, brands and cultural icons we take for granted today.

The publishing industry gave us Scarlett O’Hara and Rhett Butler; the food and beverage industry gave us Coca-Cola; the health care industry gave us penicillin; and the entertainment industry gave us Mickey Mouse.

Ask yourself if you are doing enough

Menswear’s Tommy Bahama has certainly earned its place on this list of truly inspired accomplishments. This also raises a very important question: As a business leader, are you doing everything possible to create environments where your teams can think creatively and speak openly? Absolutely no organization can afford to miss out on an inspired thought or imaginative concept that may revolutionize its business.

Though all three founders retired in 2008, Emfield’s ongoing passion for the brand is apparent — and, metaphorically or not, Tommy himself is never far from his side. As Emfield puts it, “There’s a little bit of Tommy in all of us.” 

If a “beachcomber” is defined as somebody who looks for valuable things at the seashore, then Tommy Bahama founders Emfield, Margolis and Dalla Gasperina are arguably the three most imaginative beachcombers of all time — finding extraordinary value in the coastline by cleverly looking beyond the sea shells and spare change. 

So is Tommy Bahama real or imagined? Just ask the millions who have bought into his ongoing search for the endless weekend, and the answer is clear. Like Virginia and Santa Claus — I dare say, there too is a Tommy Bahama. ●

Speaker, writer and professional storyteller Randall Kenneth Jones is the creator of and the president of MindZoo, a marketing communications firm. For more information, visit 

With Randall Kenneth Jones on LinkedIn
Follow Randall Kenneth Jones on Twitter @RandallKJones




When trying to learn about an individual, many companies turn to online background checks. However, this could be a mistake as much of the available information may not be fully verified, which is why many businesses turn to a licensed investigator to help provide a more complete and accurate picture.

Smart Business spoke with Theresa Mack, CPA, CFF, CAMS, CFCI, PI, a senior manager at Cendrowski Corporate Advisors LLC, about working with a licensed investigator to help your business uncover the information you need.

Why hire a licensed investigator?

Most online or database-driven background checks are actually ‘record checks.’ In other words, data from records are compiled and the quality of the source information is not thoroughly verified.

This cursory check may be sufficient in some cases. However, depending on the information found, the nature of the background check, the check’s intended use and the access to confidential/proprietary information that a potential employee may have, a complete background due diligence investigation by a licensed investigator may be warranted.

An investigator uses multiple resources to verify data accuracy and corroborate information. Thus, background due diligence investigations help reduce the risk of client reliance on false information.

How do investigators perform background due diligence activities?

An investigator generally works on a six-step methodology: prepare, inquire, analyze, query, document and report. This methodology is highly applicable to background investigations. An accurate and comprehensive investigation is based upon existing, determined and verified information, leaving no rock unturned.

Investigators will tailor their activities to suit the needs of their clients, which typically include attorneys, businesses and individuals. Client needs will define both the records checked by the investigator and the type of documents that can be released to the investigator and the client.

Where does an investigator begin?

An investigator often begins by examining open-source information, which refers to sources that are overt and publicly available. These are available through online data warehouse applications, which house data from disparate sources.

Open-source information includes public documents that are created throughout a person’s lifetime, allowing the investigator to follow a paper trail leading to a complete history of the individual being searched. These may include court filings, property tax documents, vehicle registrations and social media sources. Open-source intelligence is a form of intelligence collection management that involves finding, selecting and acquiring publicly available information and analyzing it to produce actionable intelligence.

How does an investigator evaluate sources?

Any record is only as good as the chain of events involved in its creation. Online record checks simply provide information on an individual. Investigators go further by evaluating the veracity of the source data.

Record maintenance, storage and dissemination procedures can often impact the accuracy of the information. Typos, misprints and mistakes introduced by human error can also affect the accuracy of records. These latter items are often seen on personal credit reports, criminal convictions and even civil litigation histories. While these are official records, they can contain errors nonetheless.

Processes for updating records can also compromise the accuracy of information, as records are only as accurate as their frequency of updates. Some records are never updated and may provide stale data if the user is unaware of this underlying issue.

Finally, the method that data warehouses employ for acquiring information critically impacts information integrity. For instance, the provider may have purchased information from a secondary source. In such an instance, it is essential that the provider have accurate retrieval processes and is knowledgeable about handling special data items.

An investigator evaluates each of these issues over the course of conducting background due diligence activities.

Theresa Mack, CPA, CFF, CAMS, CFCI, PI, is a senior manager at Cendrowski Corporate Advisors LLC. Reach her at (866) 717-1607 or

Insights Accounting is brought to you by Cendrowski Corporate Advisors LLC

You spent hours working on a new contract for your business, negotiating terms and swapping drafts of the agreement. But time was of the essence and in your rush to get started on the real work, once the terms were set, you and the customer neglected to exchange signatures on the contract.

The project started well enough, but then circumstances changed. The customer wants out of the deal and claims that there is no contract. You want to hold the customer to the agreement. That’s when you realize you don’t have a signed copy of the contract. What now?

Smart Business spoke with Christopher Dean, an associate at Novack and Macey LLP, about how to enforce an unsigned contract for services.

What is a services contract?

A services contract is, as the name suggests, any contract for the performance of services, as opposed to the sale of goods.

Does the distinction between services and goods matter?

It does. Almost every state has adopted a version of the Uniform Commercial Code (UCC), which contains provisions applicable to the enforcement of an unsigned contract. The UCC, however, generally applies only to the sale of goods, not to the provision of services.

If the UCC doesn’t apply, is the contract claim dead in the water?

Not necessarily. An unsigned services contract can be enforced in certain circumstances. The biggest hurdle is proving that a binding agreement exists, despite the absence of a signed contract.

Ideally, you’d have a fully signed document — it is close to irrefutable evidence that you and the customer agreed to the terms of the contract. But even if you don’t, the existence of a contract can be shown in other ways. The trick is gathering as much evidence as possible to show that a contract was formed.

What sort of evidence is useful?

Evidence will differ from case to case. Generally speaking, however, any writing tending to show that an agreement had been reached will be useful in proving that a contract had been formed.

For example, emails, memoranda, notes or even text messages might contain admissions from the customer such as, ‘We’re fine with these terms;’ or an unsigned copy of the contract with a note reading, ‘Here’s the final version.’

Of course, a writing signed by the customer is best, but even a writing by you concerning the contract can have some value. This is particularly true if it was the type of writing that invited — but did not result in — an objection from the customer, such as an email from you to the customer confirming the terms of the contract.

Is there any other evidence that might be useful?
Testimony from people with knowledge of the contract negotiations also may be useful. Testimony, however, is often treated with skepticism, especially when given by someone with a personal stake in the outcome. The key is to be as specific as possible in describing the negotiations and discussions that led to the formation of a contract.

In addition, performance can be strong circumstantial evidence of the existence of a contract — the longer the performance, the better. So, if it’s the case that you performed for only a day before the customer attempted to get out of the contract, the performance may not be very powerful evidence. But if you spent six months performing under the contract without objection from the customer, the customer will have a harder time denying that a contract exists, particularly if you were paid for your efforts during the period according to the contract terms.

Christopher G. Dean is an associate at Novack and Macey LLP. Reach him at (312) 419-6900 or

Insights Legal Affairs is brought to you by Novack and Macey LLP

Problems with the launch of the federal health insurance exchange website are removing it as an option for many employers and employees this year.

“How can I advise someone whether to enroll in an employer plan or buy from the exchange when I can’t get on the exchange to make a comparison before the employer’s open enrollment period is up? For the 33 states with a federal hand in operating the exchange, it’s nearly impossible to get any data,” says Paul J. Baranowski, CLU, ChFC, team leader in Account Management at Benefitdecisions, Inc.

Smart Business spoke with Baranowski about strategies to consider in the wake of the problematic launch of the exchange.

How are health plans changing as a result of the exchange?

On the employer side, there’s a stronger move toward defined contributions, providing a set dollar amount and letting employees chose their plan. In the past, there was concern this approach might be too hard on employees with families. It’s easier now for companies to make this transition because the Affordable Care Act (ACA) can be cited as a reason for change.

For larger-sized employee groups, cost increases are still primarily driven by the group’s own claims experience. However, many small to midsize, fully insured employer groups are facing sizable premium increases due to insurers’ expectations of an influx of less healthy people coming on the books, pass-through ACA fees and less flexibility in underwriting methodology. These employers may have little choice financially but to move to something like defined contribution plans.

From a regulation standpoint, a defined contribution plan potentially sets up a method for allowing family members to get subsidies to purchase coverage through an exchange, once ACA is revised to accommodate this. Clients in the hospitality, restaurant and retail businesses are moving toward plans that are purposefully unaffordable — the plan meets minimum coverage requirements but is too expensive, so employees go to the exchange and get a subsidy. Because these industries have a high degree of turnover, the business risk of paying $167 for every month an employee is on the exchange is a fairly low liability.

Exchanges are also giving an extended life to employers putting in a health reimbursement account (HRA) underneath a high-deductible health plan. While employers need to be careful about some new restrictions, and the HRA has to be integrated with the medical plan, this can mitigate employees’ costs while reducing total employer fixed premium costs.

In addition, there’s a strategy that involves offering a plan with minimum essential coverage, which can mean providing unlimited preventive-care-only coverage. This would push employees to get coverage through exchanges and qualifies them for the subsidy.

When do you expect the problems with the exchange will be worked out?

It will take several years to bring stability and less complexity to the market. With all of the uncertainty, plus ACA medical loss ratio rules, carriers won’t take the risk of selling underpriced plans since they’re no longer allowed to recoup losses.

Unfortunately, this means no real price advantages just yet to employers purchasing health coverage, whether in or out of exchanges. There still isn’t any serious movement on affecting the cost of health services and changing behavior at the individual level, but at least there will be more plan choices to give to employees.

On the flip side, reform has several positive advantages. It’s a huge plus for people with preexisting conditions who had been denied coverage, particularly the many small business owners or sole proprietors who previously had to make tough life decisions, such as putting off retirement, because they couldn’t get a decent health plan. This also has closed the door on what once was a possible problem when switching employers.

Although some positives exist, nothing in health care is free — that’s being clearly demonstrated. As a result, even small employers need to explore all possible strategies, keep up on the continuous regulatory changes and be ready to consider doing something unconventional.

Paul J. Baranowski, CLU, ChFC, is team leader in Account Management at Benefitdecisions, Inc. Reach him at (312) 376-0436 or

Insights Employee Benefits is brought to you by Benefitdecisions, Inc.

Although some aspects of the Affordable Care Act remain uncertain, the act overall is driving the health care market to figure out ways to control costs and allow employers to continue to offer health plans, says Mark Haegele, director of sales and account management at HealthLink.

As a result, managed care companies are increasingly utilizing three tools —reference-based pricing, Domestic Centers of Excellence and narrow networks.

“Some of these concepts are still new, so an employer might tackle one thing at a time,” Haegele says. “Maybe you start with narrow networks, and then move into reference-based pricing or Domestic Centers of Excellence.”

Smart Business spoke to Haegele about how each strategy can drive down costs and the overutilization of health plans.

How does reference-based pricing work?

Within a managed care network, you identify facilities, procedures and/or services that have low costs and high quality, and then establish a plan design that drives plan members to them. If, for example, you’ve identified that

Provider A performs knee replacements for $5,000, then members who go to that provider have their costs covered at 100 percent. If a member goes to another more expensive provider, he or she is responsible for the difference. This schedule could cover a whole host of surgeries and procedures.

Reference-based pricing, which is cutting edge in both contracting and plan design, can have a major impact on costs.

What are Domestic Centers of Excellence?

With this model, you identify high-quality providers across the country to be the hub for a certain procedure type. For example, all transplants might go to the Mayo Clinic, while all knee, hip and shoulder replacements go to Mercy Springfield Missouri. The health plan promises to pay 100 percent for the procedure and the travel for the member and a caregiver, as opposed to just giving a deductible and coinsurance.

The value isn’t just with price points, but also aligning incentives. Providers are willing to offer preferred pricing based on the exclusivity and volume, and employers achieve savings on unit cost. In addition, unlike the traditional fee-for-service model, providers objectively review for appropriateness first. The contract includes a performance component to eliminate waste. So, Mercy, which performs 30 percent fewer back surgeries than the national average, keeps members from getting inappropriate surgeries.

Originally only used by large employers, this model has become more prevalent. Smaller employers can piggyback on either large employers or a managed care network that develops this for its entire block of business with specialized contracts.

How do narrow networks lower health costs?

Depending on your geography and population, you may be able to partner with your managed care network to customize your network. In a rural or smaller market, this may mean exclusively driving the members to one facility. In turn, typically the hospital will provide a better managed care contract.

You may get pushback from members who prefer one facility to another. The employer must convey that this is about looking at cost and quality to find the right facility, which then has an impact on premiums.
Narrow networks have been around for a while, but now managed care companies are starting to wire together narrow networks across a region to create a sub-network.

Can these strategies be used in conjunction with any type of health plan?

Although there is some overlap, you can use a combination of strategies, depending on your readiness for change. The difference is more of a degree of granularity — Domestic Centers of Excellence and reference-based pricing are broken down by procedures, while narrow networks are more geographic-centric.

Self-funded health insurance plans may use any of these tools. Fully insured carriers are now implementing narrow networks and referenced-based pricing. With the health exchanges, narrow networks should become more common as carriers look for ways to keep costs down.

Mark Haegele is director of sales and account management at HealthLink. Reach him at (314) 753-2100 or

Insights Health Care is brought to you by HealthLink


First, the Small Business Health Options Program (SHOP) health insurance exchange was delayed. That was followed by a delay in the release of community ratings for small group programs. On top of that, there’s confusion about whether businesses with less than 50 employees, which are not governed by the Affordable Care Act (ACA) mandate to provide health insurance, can utilize health reimbursement accounts (HRAs) to buy individual coverage.

“The ACA places significant limitations on HRAs, and they are the only vehicle these companies have to distribute dollars employees can use to pay for premiums. The question is whether businesses that are exempt from the mandate are impacted by other aspects of the ACA. There will need to be some guidance as to whether it applies,” says William F. Hutter, CEO of Sequent.

The delays and uncertainty have left small businesses with few options for health insurance at a time when they need to finalize plans for 2014.

“That inherently creates a violation of rules because there’s a 60-day notice requirement to inform employees of any plan changes,” Hutter says. “We think the notice will be interpreted so that companies might be able to make a plan change, but not a cost change — the employer would have to pick up any difference. But that factor also has to be determined.”

Smart Business spoke with Hutter about problems with the rollout of the ACA exchanges and how reform continues to affect businesses of all sizes.

Should the 19 million people who were told their coverage was terminated have been surprised?

That was known back in 2010; it was written about. Plans were cancelled because the ACA changed requirements for insurers and the plans they provide. Plans are not only registered on a federal level but also on a state-by-state basis. Each state has a department of insurance to oversee plans and rate structures. A carrier needs to meet new requirements under ACA and state mandates, but when a plan design is changed, it is no longer grandfathered. It has to be terminated or withdrawn, and a new plan is submitted and approved. Whether this will be true going forward is uncertain.

If you are self-insured, the opportunity to keep the same plan is greater. Companies that self-insure can continue their plans as long as they don’t make significant changes.

Are self-insurance plans exempt from many ACA requirements?

Yes, that’s why companies have been exploring the option of self-funding arrangements. It’s a strange set of rules, but you can choose to cover or not cover certain things as long as they aren’t considered minimum essential coverage requirements. However, you can’t do it in a limited way; you can’t decide to cover autism, but only up to $10,000 a year. You have to choose to not cover it or cover it completely.

What self-funding does is create more predictability for companies because they purchase a stop-loss policy to limit their liability. Health insurance costs will continue to rise because of an aging demographic. The plan design can help keep increases to 4 to 6 percent annually instead of 30 or 40 percent.

Is that option also available to small businesses with fewer than 50 employees?

It can be, although you can’t do it like a big company would because a small employer doesn’t have the numbers to mitigate the risk of large claims.

Self-insurance is a design plan issue. Being self-insured with a specific stop-loss point might work. If you have 30 employees, you can have a stop-loss of $10,000 each. Then you need to figure out your actuarial funding for it and reserve that amount to pay for claims and expected losses. If you have a healthy group, it makes sense.

Small businesses also can join a pool for health insurance. That’s a service HR consultants or chambers of commerce provide, through an aggregation model, for clients or members to get health care. They don’t provide health care but establish a contractual arrangement with a company that does.

But the problem with the ACA is that new information is coming so quickly, and it takes months to rethink your health insurance strategy. This will continue to be difficult for companies to work through.

Willliam F. Hutter is CEO of Sequent. Reach him at (888) 456-3627 or

Insights HR Outsourcing is brought to you by Sequent

Rules added through the Jumpstart Our Business Startups Act eliminate the prohibition on using advertising and general solicitation to court investors to buy securities in certain unregistered offerings. While this has created possibilities, it has also imposed conditions.

The Securities and Exchange Commission (SEC) requires companies that generally solicit investors to take “reasonable steps” to verify that all purchasers in the offering are accredited. But there’s no bright line test to verify accreditation, says Michael Lawhead, an attorney at Stradling Yocca Carlson & Rauth. “Reasonable steps” are objective determinations made by the company in the context of each offering and each buyer. The SEC has, however, provided vague, but important, guidelines.

Smart Business spoke with Lawhead about vetting investors.

How should companies conduct due diligence on potential private investors?

For an individual to be accredited, he or she must have an individual net worth, or joint net worth with spouse, of $1 million annually, excluding the value of the investor’s primary residence. The investor’s individual income must exceed $200,000 in each of the past two years, or $300,000 in the past two years with a spouse, and have a reasonable expectation of reaching that in the coming years. One way to verify income is to examine the two most recent years of IRS reported income, which can be obtained from the individual. Certification from the individual about future income is acceptable.

To verify net worth, look at bank statements, brokerage statements or similar documents that would show net worth for the past three months. Companies should also acquire written representation from the individual that discloses his or her liabilities.

A company could also obtain written confirmation from a registered broker/dealer or other service provider who can verify the purchaser is accredited.

A certification of accredited investor status can be obtained from an individual who invested in the company’s 506(b) offerings prior to this new rule being enacted.

What constitutes reasonable steps?

The SEC has laid out three factors companies should explore to qualify investors. One factor is the nature of the investor. Public information can be used to qualify investment companies, such as venture capital funds. Qualifying individual investors can be done by attaching a high minimum investment amount to the offering. A company could conclude that the buyer is accredited if he or she can pay it.

Another factor is the type of information available. Public filings and information from reliable third parties can be used.

The last factor is the nature of the offering. Investors gathered by third parties, such as placement agents, are likely to be accredited since the third party has screened them.

What’s a ‘bad actor’?

Essentially, a company will not be able to rely on Rule 506 if certain covered persons purchasing securities have been subject to disqualifying events.

Covered persons include the company making the offering, its predecessors, affiliates, shareholders invested at 20 percent or greater, directors and officers, and any person who has or will receive compensation in connection with the offering.

The list of disqualifying events includes criminal convictions, court injunctions and restraining orders in connection with securities offerings.

Companies are looking to law firms to develop questionnaires to investigate individuals. If using a placement agent, verify the agency has done due diligence.

What happens if there’s an oversight in the verification process?

A company won’t lose the benefit of the 506 safe harbor as long as it can demonstrate that it attempted a thorough investigation of potential investors. Not following the steps results in the loss of the safe harbor, but not the ability to conduct a private offering.

General solicitation is not as easy as placing ads and waiting for money to roll in. The burden of complying with these rules is the responsibility of the company making the offering. An improperly conducted private offering could, among other things, give investors a right of rescission, which means they could take their money back.

Michael Lawhead is an attorney at Stradling Yocca Carlson & Rauth. Reach him at (949) 725-4277 or

Insights Legal Affairs is brought to you by Stradling Yocca Carlson & Rauth