Offering a package of compensation and benefits that will attract and retain the executive talent an organization needs can be a challenge. While qualified retirement savings plans, such as 401(k) plans, are among the most attractive benefits an employer can offer, highly restrictive federal regulations and tax laws limit the deferrals highly compensated employees can make to these plans. That makes them much less appealing to executive-level employees.
“It’s a big problem,” says Mark J. Dorman, president of Dorman Farrell LLC. “Executives want to save for retirement on a tax-deferred basis like other employees, but they simply can’t under the qualified plan rules. However, there is a solution: nonqualified deferred compensation (NQDC) plans. Because nonqualified plans are not governed by the same rules as qualified plans, they offer employers much greater flexibility in accommodating the retirement savings needs of executives.”
Smart Business spoke with Dorman about NQDC plans, and why companies should consider offering them to their executives.
How many types of NQDC plans are there?
There are two basic types of plans. The first is an elective deferral plan, which works like a tax-deferred savings plan. The employee typically a highly compensated executive elects to defer a portion of his or her compensation back to the employer, to be paid at some point in the future. The second type is called a Supplemental Executive Retirement Plan (SERP), in which the employer makes a legally binding agreement to pay additional compensation to the employee at some point in the future usually at retirement.
What kind of company is best suited for a NQDC plan?
Nonqualified deferral plans work best at companies that have highly compensated employees making $110,000 a year or more. These are the companies that are likely to be running into problems with nondiscrimination and deferral limits in their 401(k) plans. If a company has executives that are able to contribute less than they would like and proportionately less than other employees can contribute they are probably a good candidate for a nonqualified plan.
What are the benefits of offering a NQDC plan?
There are benefits to both the company and the employee. The employee has an opportunity to defer compensation beyond what he or she is able to defer in the company 401(k) plan. Nonqualified plans are also less restrictive for participants in other ways. For example, there are no contribution limits and minimum withdrawal requirements at age 70-and-a-half.
For the employer, the obvious benefit is being able to offer a really attractive benefit to executives. And, there’s a lot of flexibility on the employer end, too. For example, the employer can make discretionary contributions to reward select employees.
What are the risks of a NQDC plan?
One of the key requirements for a nonqualified deferred compensation plan is that there must be a substantial risk of forfeiture for the participant. If this requirement is not met, the IRS will deem the benefit to be ‘funded’ and immediately taxable to the participant. The two primary risks to the participant are that the deferrals are subject to the claims of creditors of the company and if there is a change of control at the company, the new owner may choose not to honor the nonqualified plan agreements.
How are NQDC plans financed?
There are three basic options. The first is to simply pay benefits out of future cash flow. Of course, that’s the riskiest option it requires the company to have sufficient profits or earnings to pay future benefits. If a company wants to informally finance their plan, money can be set aside to pay future benefits. The prevailing methods used to informally finance plans are taxable investments, such as mutual funds and tax-favored investments like Corporate Owned Life Insurance (COLI).
What should an employer do to get started?
Companies considering implementing a nonqualified deferred compensation plan should first enlist the help of experienced professionals. An experienced executive benefit consultant, along with the company’s accountant or attorney, can walk you through all of the details and decisions that must be made. There are a lot of moving parts initially but once the plan is up and running, the administration is really quite simple.
A well designed and thought out plan, will take into consideration the following items: plan financing, plan implementation and communication. This process usually takes between nine and 12 months. These plans tend to be in place for a long time. It’s important to do it right the first time.
Mark J. Dorman is the president of Dorman Farrell LLC. Dorman has more than 20 years of experience in the financial services industry and assists public and private Northeast Ohio employers with their executive benefits and retirement asset management needs. He also works with business owners on business succession strategies. Reach him at (330) 725-0501 or firstname.lastname@example.org. Dorman is a Registered Representative of and offers securities, investment advisory and fee-based financial planning services through MML Investors Services, Inc. Member SIPC. Supervisory Office: 1660 West 2nd Street, Suite 850, Cleveland, Ohio 44113-1454. Phone: (216) 621-5680. CRN201206-135767
In the old days, a handshake agreement between an employer and an employee was good enough to seal the deal. But in today’s environment, doing business that way is no longer a good idea, says John Krajewski, the managing partner of Stark & Knoll Co., L.P.A.
“In handshake deals, people tend to forget over time what was agreed to, and they may have different understandings of what was agreed to. If a boss leaves, the employee may find himself with an agreement with someone who is no longer there,” says Krajewski. “I highly recommend that you have written documentation to protect both the employer and the employee.”
Smart Business spoke with Krajewski about how employment agreements can protect your business and the types of provisions that should be included.
Why should employers have certain employees sign employment agreements?
Say you have an employee who announces he’s leaving and that he’s taking the company’s largest client with him. Is there something you can do to stop this? The answer lies in whether there is an employment agreement in place.
All it takes is one time, and when employees have worked for a company for several years, they can really hurt it when they leave unexpectedly, taking employees or customers with them or taking ideas or inventions they had been working on for that employer. It is much more economical to have an employment agreement from the start, than to end up in a lawsuit when the employee leaves.
Who should an employer enter into employment agreements with?
Employment agreements could cover anyone, although they typically apply to a company’s key executives and its sales force. Salespeople need agreements because it’s easy for a competitor to come in to the marketplace and poach them, knowing they already have a backlog of customers. And an employer should have agreements with executives because they have intimate knowledge of the business and would be in a position to damage the company should they leave.
Employment agreements should be signed at hiring, because it’s much more difficult to do later in the employment relationship.
What provisions should be included in an agreement?
The first is a term provision, in which the parties agree to the term of employment, and this often renews annually. As the employer, you want to include termination provisions that would allow you to terminate for cause, such as conviction of a felony, a material breach of agreement or not performing duties as assigned. From the employee perspective, he or she wants it to include an agreement that if the employer doesn’t think you’re doing your job, it must give you notice in writing and a chance to cure the behavior.
You should also include a duties provision, which puts in writing what is expected from the employee. This can be a tricky area to negotiate, because employers want to define the duties as broadly as possible, while employees tend to want to more narrowly focus their assigned duties. Some employers assume that they are paying employees and they should do whatever they’re asked, and that is generally the case. However, the difficulty can come, for example, when an employee is working in Akron and may not be willing to move to another community to continue doing the job.
Can an employment agreement prevent a departing employee from competing with the former employer?
Having an agreement in place can protect you from the potentially damaging actions of a former employee. If an employee says he’s leaving and taking his biggest client, you can prevent that if you have a covenant not to compete, a restriction that states an employee cannot compete with the company within a certain territory.
Employees don’t like that because it can prevent them from staying and working in the community, but having a non-compete protects the company. Alternately, you may not want to prohibit competition, but you may want the agreement to state that employees cannot take clients with them.
There are different levels of restrictions that you can put in place. The broadest is prohibiting employment with the competition within a certain radius. A less burdensome option is that they can’t divulge confidential information, they can’t solicit other employees to go to the competition with them and they can’t solicit customers to go with them to a new company.
Agreements should also include protection of proprietary information that belongs to the employer, which could include any type of information from which the company derives economic benefit.
Who should draft these agreements?
I recommend getting a professional to draft an agreement that fits your particular circumstances. Documents off of the Internet may be good enough in some states, but in Ohio, if the restricted territory is too broad, or the terms are too long, the court may not enforce the agreement because it finds it unreasonable.
The bottom line is that problems and disputes between an employer and employee can often be avoided by dealing with these issues at the inception of the relationship. It’s much easier to negotiate terms at that time than to negotiate the terms of termination later, which could end up in court.
John Krajewski is the managing partner of Stark & Knoll Co., L.P.A. Reach him at (330) 572-1308 or email@example.com.
No matter how much you trust the other party, you should never sign a contract without reading it and having an adviser review it. The days of doing business with a handshake are over, and the provisions contained in your contract can make all the difference should litigation arise out of that contract, says Courtney Hill, a senior attorney at Theodora Oringher Miller & Richman PC.
“You really need to make sure that what you and the other party are agreeing to is in writing,” says Hill. “Should you find yourself in a situation where the other party isn’t complying with the agreement, and it’s not in writing, you’re going to have a long road to hoe and a lot less protection than if everything is in writing.”
Smart Business learned more from Hill about what kinds of provisions every contract should include and how using them correctly can protect you in case of litigation.
What provisions should a business owner include in contracts?
Indemnity clauses are very important. With an indemnity clause, one or both parties agree to compensate the other for damages arising from the contract. If you are a business owner and you are sued or have to pay damages because of a contract between you and Party X, you want to make sure that X is the party that is actually liable for the liability or loss arising out of that contract. An indemnity clause ensures this. And, of course, you would want to try to make that indemnity clause as broad as possible. It is also wise to back up the indemnity clause with an insurance requirement so that if you have to exercise the indemnity clause, you can be sure there is money to support the payment of any damages, loss or liability.
On the other hand, if you are Party X, you need to know what you are agreeing to indemnify you want to make sure that it is a narrowly tailored indemnity clause so you’re only on the hook for loss, liability, or damages you actually caused.
An indemnity clause can be a very effective tool and it is important for both parties to pay attention to what they are agreeing to do.
What other provisions should be addressed in a contract?
An arbitration clause may be important, depending on whether you prefer to arbitrate any dispute that may arise out of the agreement. Arbitration can be very beneficial because it’s quick and, therefore, less costly than long, drawn-out litigation. However, make sure you flesh out the arbitration clause by including the venue for arbitration, what rules will apply to the arbitration, the number of arbitrators that are going to be chosen, how the arbitrator should be selected, any discovery that the parties want to have and any appeal rights that you want to retain.
Also, attorneys’ fees and cost provisions are very important to include. In litigation or arbitration in California, the prevailing party doesn’t automatically recover attorneys’ fees; in most cases, the only way you can recover attorneys’ fees is by contract, so including an attorneys’ fees provision is a good idea.
You can also designate the venue for litigation, which can be a very effective tool by making litigation more difficult. If one party is in California and the other is in New York, you can state that if the party in California is going to sue, it has to go to New York to do so, and if the party in New York is going to sue, it has to come to California to sue. That makes it more difficult and more expensive for the party filing the lawsuit, so it will think twice about doing it.
How important is it to include a termination provision?
Termination provisions are important as they define the abilities of the contract parties to terminate the contract. Normally, there are three termination types found in contracts: termination without cause; termination with cause; and immediate termination for cause. However, some countries have laws that prevent you from terminating the contract, even if you have cause, so pay attention to the laws where the other party is located. You can designate the law you want to apply to the contract, so it may be important to designate California law.
Can business owners write and review contracts on their own, or should they engage an adviser?
The parties can prepare a letter of intent document setting forth the business terms. They should certainly set out what they envision the terms of the contract to include. However, it should then be handed over to a lawyer to draft the actual agreement that is going to be executed.
Many business owners just sign a contract without reading it or really understanding it, especially if they trust the party on the other side. Then they find themselves in a bad situation because they used a form contract, the relationship falls apart and they’re in litigation with a signed provision that’s going to be used against them.
Especially with newer businesses, owners may not want to incur what they view as unnecessary costs of retaining an adviser. It may cost a little more up front to have a good agreement in writing that is reviewed by an appropriate party, but it’s going to be less costly in the long run should litigation arise.
If you have an agreement that has good contract provisions, that litigation is going to be a lot easier and quicker to resolve, and a lot less costly.
Courtney Hill is a senior attorney at Theodora Oringher Miller & Richman PC. Reach her at (310) 788-3575 or firstname.lastname@example.org.
If you, as a business owner, neglect to execute a business plan using life insurance, your family could be left with a lot less than the true value of your business interest while you were alive. But it could be equally bad if you fund a business plan with life insurance, but never go back to review and update the plan, says John Blatt, CLU, ChFC, CFBS, CLTC, a financial advisor with Skylight Financial Group.
“Any number of events should trigger a review of life insurance, such as a business being sold, a new owner coming in, a change in health status, the business borrowing money or the death of one of the owners,” says Blatt. “Policies can also become obsolete, and failing to review them could result in diminished policy value or, in some instances, complete loss of coverage.”
Smart Business spoke with Blatt about how to identify your insurance needs and the consequences of failing to periodically review policies.
Why plan with life insurance?
In many small to mid-sized businesses, the owners should have life insurance on themselves and other key people. It’s advisable to have a binding buy-sell agreement that obligates the surviving owner(s) to buy the deceased owner’s share with the payout from the life insurance. This business arrangement guarantees that when an owner dies his or her family receives the deceased’s value of the business in one lump sum. The surviving owners are free to carry on the business without the involvement of or interference from the deceased’s family members.
If you are a sole proprietor and there’s no market to sell your business, when you die, the business dies with you and your family gets nothing. For some small business owners, life insurance may be the only way to guarantee that your family will receive the value of your business at your death.
What other events should trigger a review of your life insurance policy?
There are different reasons to review coverage. One example is an improvement in health. If you were initially diagnosed with Type 2 diabetes, you may be charged more for your life insurance because of that condition. However, with a change in diet and lifestyle it’s possible your health could improve and then it would make sense to go back and see if you can get a lower price on your policy. Another might be due to a change in the form of business entity, such as a regular C Corp. becoming an S Corp.
Coverage type is another reason. For instance, with some term insurance, coverage is temporary and premiums are level for a predetermined number of years. Oftentimes people buy these term policies, and when they get toward the end of the level premium, they decide they want the coverage to continue for a longer period of time. In that event, they have to apply and qualify for a new term policy. If their health has changed for the worse, this may be a problem.
Fortunately, good term policies may have a conversion feature that allows you to exchange a fixed premium term policy to a permanent policy. This conversion feature allows the insured to make that change without answering medical questions. In the event that your health has declined since the time that you bought the term policy, the conversion guaranteed can still extend the policy for a longer period of time.
As mentioned before, the death or disability of an owner should trigger a review. But even if none of these major events has occurred, it’s still a good idea to review the policy annually because of constant product improvements and innovations.
What are the dangers of not reviewing your policy?
Policy assumptions and performance are constantly changing and, without proper review, many policies may fail to do the job for which they were originally intended.
For example, you could buy a policy, put it aside and then your health deteriorates. You find out later that you can’t continue the policy as initially planned because you didn’t pay attention to it and adjust the premiums when the performance lagged. The need for coverage may last longer than the coverage.
What are the benefits of periodically reviewing your policy?
Depending on your policy, you may be able to buy coverage now for less than you could 10 years ago. Let’s say you have a 10-year level premium policy and you’re eight years into it. You only have two years before the premium is going to start going up every year. You might find that you can buy the same coverage for a very similar premium today and get an extension of another 10-year period. That’s valuable if you bought the policy at age 30, and realize that you’re almost 40 and still need coverage for another 20 years. In that case, it’s smart to try to extend that for a lower premium.
In addition, the value of the business usually increases over time and you may need to increase coverage to cover that value.
How can a business owner best determine his or her life insurance needs?
Consult with a professional insurance advisor. Some business owners feel they can do it on their own and they mistakenly focus on price rather than duration of coverage. They may be thinking that cheaper is best and that life insurance is like car insurance, where you go with the lowest quote because many of the policy provisions are similar.
With life insurance, policies could be vastly different depending on the type of policy, the policy provisions and how long you want it to be in effect. Things change, someone becomes disabled, and suddenly the cheapest policy you bought 10 years ago is no longer the best policy for you now, but it’s the only one you can get and you’re stuck with it.
John Blatt, CLU, ChFC, CFBS, CLTC, is a financial advisor with Skylight Financial Group. Reach him at email@example.com or (216) 592-7313. Blatt is a registered representative of and offers securities, investment advisory and fee-based financial planning services through MML Investors Services, Inc. Member SIPC. Supervisory office: 1660 West 2nd Street, Suite 850, Cleveland, Ohio 44113-1454. Phone: (216) 621-5680. CRN201204-133514
Some businesses are still using T1 lines, while others have moved on to broadband. Now, there’s wideband, which will allow business users to download data at up to 50 Mbps per second, says Taylor Nipper, director of marketing at Comcast.
“With the faster speeds available through a wideband connection, you’ll spend less time waiting and more time being productive,” Nipper says.
Smart Business spoke with Nipper about how using a wideband service can cut costs and send productivity soaring.
What are the benefits of wideband over broadband and DSL?
First and foremost is the download and upload speed capabilities. A full T1 is 1.5 Mbps, DSL is typically 3 Mbps, and the typical business broadband is 12 MG per second. But with wideband technology, businesses can download files at up to 50 Mbps and upload at 10 Mbps. That’s more than 30 times faster than a T1 line, which is traditionally the phone company’s fastest pipe.
A lot of businesses have historically used a T1 connection for the Internet because it was the fastest available, then broadband came along and offered a faster pipe, but, until recently, it was capped out at 6 MB to 12 MB. Now, with the new wideband technology, that throughput can be increased to 50 Mbps and, in the future, will have the capability of increasing to 100 Mbps. The new technology uses channel bundling, which allocates more channel space for the downstream and upstream. Internet over cable uses spectrum, and there are more channels allocated for the Internet.
How can wideband grow with a business?
The advantage of wideband technology over a traditional T1 line or DSL is that it is scalable and future-proof. With traditional phone company technology, you have to keep adding multiple T1 lines, which is infinitely more expensive than growing with a broadband or wideband connection and can require a long time to deploy.
With wideband, you aren’t physically adding lines. Because it’s through a cable modem device, that device can deliver multiple speeds depending on the service you subscribe to. There’s just one installation, and you could start out with 12 Mbps and, in the future, increase it as needed with a simple phone call to your provider.
How is wideband technology future-proof?
Increasingly, the trend is for businesses to rely on hosted applications, meaning that the data is not hosted on-site, it’s hosted elsewhere. You traditionally see that with sales force automation tools, customer relationship management tools and financial reporting.
Many businesses are now backing up and storing their data off-site. Any business that is using hosted applications, and more and more are going that route every day, is going to need faster Internet services to be able to get the most out of those applications.
What kinds of businesses could benefit from this high-speed technology?
Wideband is ideal for any data-intensive business that needs that kind of speed and is looking for an alternative to the slower, more expensive T1 line. With download speeds up to 50 Mbps, a business could download a 1 G file in 2.5 minutes, as opposed to a typical T1 line, which would take three hours and tie up the machine while the file is downloading. With wideband, it’s so much faster; you can get it in minutes and go on to the next project.
The service is ideal for the health care industry, for example, to transmit X-rays. Ad agencies that transmit large graphic files could also benefit from the high speed, and real estate agencies that send out big files find it useful, as well.
For any business that needs high-resolution files and has lots of data needs, it’s an obvious choice once you see the advantages of the higher speeds through the time you save and the resulting higher productivity. It’s also a good choice for any business that’s growing. If you have 20 employees today but are going to have 50 in the future, with all those users on the Internet, you’re going to need that kind of throughput.
What other things should a business look at when choosing a provider?
You have to look at what other services come with the package, such as business tools built in to streamline communication. Security features are also available, which guard against viruses and spyware, and some offer full-featured Web hosting plans. When a business is looking for an Internet provider, it needs to look at everything that is included in the service.
What would you say to business owners who say they can’t afford a higher-speed connection?
There are different price points at different speeds. Wideband technology is new and unique, and it’s vastly more affordable than most other options. Also, a wideband connection is a better value, providing additional services to the package such as security tools and Web hosting, which provides additional savings over using a third party to provide that service. A business owner really needs to shop around and find out what’s included in the service other than just the speed.
Taylor Nipper is director of marketing at Comcast. Reach him at (770) 559-2067 or firstname.lastname@example.org.
Many of the provisions of the new health care bill don’t take effect right away, but there are some compliance issues that business owners need to act on now. If you currently offer a health insurance plan, there are steps you need to take now to ensure that you can maintain that plan, says former U.S. Congresswoman Nancy L. Johnson, a senior public policy advisor with Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.
“In 2010, you will have to make sure your plan covers employees’ adult children up to age 26,” Johnson says. “You also have to make sure, with individual and group health plans, that your plan conforms with the new requirements in regard to lifetime limits and exclusion for pre-existing conditions.”
Smart Business spoke with Johnson about what you need to know to be in compliance with the new health care law and how to make sure your voice is heard when the administration is writing the rules to go with it.
What do business leaders need to do in the short term to comply with the new health care law?
Start by being aware of the new law and asking how you need to change your plan. Some companies won’t need to change much at all. But others will, as they will not be allowed to exclude children for pre-existing conditions and their plan will not be allowed to drop people. In addition, group health plans and individual plans will have to provide access to preventive services with no or very minimum cost sharing.
Those things, along with having to cover employees’ adult children up to age 26 and elimination of lifetime limits, will most likely result in increased costs in a business’s health plan as it meets the immediate requirements of the bill. If medical costs keep rising at the historic pace and the new health care requirements increase costs instead of decreasing them, there is going to be a lot of rethinking. That is one of the biggest dangers posed by the new law, that it might undermine the employer health benefit structure, making employers more likely to drop their plans and let their employees go into the state exchange with few tools to control costs.
Are there subsidies to encourage businesses to offer health insurance to their employees?
There is a program for early retirees who retired after age 55 and who are not eligible for Medicare. It is effective this year and available to employers who provide coverage for such early retirees because this coverage is very expensive. Under the new law, employers can get help through the new subsidy.
In addition, if a company is a small business, with fewer than 25 employees with an average annual wage of less than $50,000, it will be eligible for a tax credit to buy a plan or to apply to a plan that it is already providing.
In 2014, the amount of the credit increases to up to 50 percent of an employer’s contribution and remains available for two years. The subsidy may not encourage businesses to offer insurance because it is modest and time-limited.
What steps can employers take now to have a say in how the regulations shape up?
First, they need to learn about the law and how it’s going to affect them. They need to focus their questions, and write to their congressman with ideas and examples of the impact of the new requirements. It’s also a good idea to work with a lawyer or other representative to get their voice heard before the regulations are written. For the agencies who are writing the regulations, there is no way to understand the complexities of these things without working with people on the front line. Employers need to be part of the input from which the initial proposed regulations are going to emerge.
What can employers do to protect their current health plans?
If a company has a plan it likes, it needs to take a good look at it. If you already have a plan, you are grandfathered in, so it keeps you out from under the bureaucracy. That’s a very desirable position, and if you have it, you should do everything you can to maintain it. But if you make changes to your plan, you can’t maintain that grandfathered status. There are certain things you’ll have to change to comply with the new law. So does that count as a change? You will certainly want to argue that the regulation answers that question with a clear ‘no.’ Many companies may not want to change the content of their plan, but they may want to change their carrier. Will that be perceived as no change to the plan? That is unknown. These are areas on which you should raise your voice to the Secretary of Health and Human Services, and thereafter consult a professional who can advise you when the proposed rules are available for comment.
Employers should be very conscious of what they have now and make sure they don’t get caught in a plan change that could cost them grandfathered status. That could mean higher premiums. The more you know, the more you can make minor adjustments without triggering out of grandfathered status into the highly regulated plan status that’s going to be characteristic of the exchange plans.
Nancy L. Johnson is a former U.S. Congresswoman and now a senior public policy advisor at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC in Washington, D.C. Reach her at (202) 508-3432 or email@example.com.
Every patient wants to receive the best medical care possible and make the most informed decisions. But too many fail to do so because they are unable to communicate all of the relevant information regarding their medical history.
With medical records residing in multiple institutions, people often don’t remember the details of their health history, especially in an emergency, and may overlook information that could prove critical to their care.
Creating a personal health record (PHR) can remedy that problem and allow patients to receive better care. A PHR documents all of the information about a person’s health, providing a detailed look at that person’s medical history, even if care was received across a number of medical institutions.
“With today’s technology, individuals can manage and take personal responsibility for their health care decisions,” says Marty Hauser, president of SummaCare, Inc. “A PHR creates a convenient, centralized tool, which can be continuously updated to create a complete picture of an individual’s critical health care information. This info, when shared by the individual, can be an invaluable resource not only for the individual, but also for caregivers and/or family members.”
Smart Business spoke with Hauser about how PHRs can result in better care for patients and how employers can encourage employees to create their own PHRs.
What information should be in a PHR?
Anything that is relevant to a person’s health should be included in a PHR. It should contain basic information such as your birth date, height and weight, emergency contact information and insurance information.
All medical conditions should be recorded in your PHR, along with the dates, treatment and the outcome. Any birth defects or mental health problems should also be noted, as should racial and ethnic background, immunization records, allergy information, any surgeries complete with dates and outcomes, and the names and contact information of any doctors whose care you are under.
X-rays, tests and lab reports should also be included, both for purposes of future comparison and to avoid the time and expense of repeating tests that have already been done.
How can having a PHR help create better health care for patients?
Most people have their health information stored across various locations, from their primary care doctor’s office to the offices of specialists and mental health professionals to anywhere they’ve been hospitalized.
Having information in multiple locations makes it difficult and time-consuming to access those records, especially when an office is closed or when those records are on paper, which can prove especially dangerous in an emergency situation when seconds can count. Because PHRs are electronically stored, they can be accessed 24 hours a day, providing a complete record of a patient’s health information in a single, secure location.
Since records can be updated by both patients and their physicians, a PHR gives health care providers a more detailed and accurate picture of the patient’s health history than he or she may be able to provide through simple recollection, or, in case of an emergency, in a situation in which the patient is unresponsive. Having all of the information in one place cuts down on the possibility of errors, saves money on unnecessary tests and gives physicians immediate access to information that may be critical to providing proper patient care.
A PHR also creates a greater investment for patients in their own health care, allowing them to take an active role in maintaining wellness and treating illnesses. With more knowledge and understanding, people are more likely to take actions to protect and improve their health. Individuals can knowledgeably discuss their health with their doctors, ask questions, make informed decisions about their health and provide accurate information to new health care providers.
How can employers encourage employee participation in a PHR?
Employers can offer employees access to PHR programs directly, and many have begun doing so. Some companies present it as a benefit administered by a third party, while others use internally developed programs.
Employer involvement in PHRs is still a new area, and some employers are wary about jumping in due to concerns about privacy and security. As a result, if employers choose to offer this benefit, they should be transparent about why they are offering the program and how it will benefit the employees.
Employers can also help overcome privacy concerns by establishing policies that clarify how the program works, who has access to the information and how it will be safeguarded, lessening employee worries that their private medical information may become known to their employer. Employers should also reassure employees that only the employee controls access to the information and can choose with whom to share it.
In addition, employers should look for programs that are not housed directly on their IT platforms to help assure that no one in the company will be able to access private health information. By developing policies that cover the use of the information contained in the employee PHR and making employees aware of the laws that cover access to and use of private medical information, an employer can help gain the employees’ trust and dispel apprehensions. To further create an incentive for employees to buy into a PHR program, an employer should create internal standards that address the privacy and security of information and let employees know which information is shared with providers and insurers.
Employers interested in implementing a PHR program for their employees can do so through products such as Microsoft Health Vault or Google Health, or they can contact their insurance plan service representative or health benefits consultant for additional resources.
MARTY HAUSER is the president of SummaCare, Inc., a provider-owned health plan located in Akron, Ohio. SummaCare offers a full line of health plans and ancillary products. Through its extensive network of more than 7,000 providers and more than 50 hospitals, SummaCare offers coverage to more than 115,000 members throughout northern Ohio. Reach him at firstname.lastname@example.org.
If your company makes trademarked products, chances are high that someone is considering counterfeiting those goods, if they’re not already doing so.
Counterfeited items include everything from batteries and light bulbs to shoes and baby food, and the list doesn’t stop there, says Sam Watkins, a senior attorney at Theodora Oringher Miller & Richman PC.
“If you make or distribute popular trademarked goods in this country and you’re paying U.S. taxes, employing U.S. citizens at U.S. wages, complying with U.S. laws and safety regulations and still making money even with all these costs, counterfeiters in another country are going to rip you off by making and selling fake versions of your goods cheaper than you can,” says Watkins.
Smart Business spoke with Watkins about how to determine if your company has a counterfeiting problem and the steps you can take to combat it.
How can counterfeit products hurt a brand?
People don’t appreciate the harm they do buying counterfeits. They look at the price of a pair of brand-name shoes that they really want but can’t afford, and then they buy the counterfeit version instead for a quarter of the cost. But counterfeit goods erode brand value. That pair of counterfeit shoes is not manufactured to the same high quality as the genuine article. Then when people see the quality of the product, they think, ‘I thought that brand was good, but it looks so shabby.’ So even if a company didn’t lose a sale because the person couldn’t afford the real McCoy, it is still victimized because the shoddy quality of the goods is going to erode the company’s good will.
There also are safety and moral issues. For example, a counterfeit drug may or may not contain the correct active ingredients and may, in fact, contain harmful chemicals. You stand a great chance of being harmed by ingesting dangerous chemicals or by failing to get the proper dosage of medicine. Also, many counterfeit goods are made by children under horrible conditions. People really should think twice about these victims before they buy.
How can companies determine whether they have a counterfeiting problem?
Some companies train employees to be their eyes and ears, and if they suspect something in the marketplace, internal security will investigate. Also, pay close attention to consumer complaints. Companies may be able to detect a pattern in the type of complaints they are receiving or in the region of the country the complaints are coming from. If the complaints are all of one type or from one area, that’s a good indicator that counterfeits are in that region, and consumers have been disappointed with the quality.
Another indicator is a serious and unanticipated drop-off in sales in a region. That often means a company is no longer in competition with its normal competitors but is instead in competition with counterfeits.
Finally, companies often become aware of counterfeiting when law enforcement contacts them to determine if goods they have detained are counterfeit or genuine.
How can companies cost-effectively combat counterfeiting?
At the federal level, the Trademark Act of 1946, also known as the Lanham Act, is a useful litigation tool for combating counterfeiters. It provides for statutory damages of up to $2 million per counterfeited trademark as well as subpoena power for collecting valuable information about the counterfeiters.
Companies can also record their trademarks with the U.S. Bureau of Customs and Border Protection and share with Customs what they know about the counterfeiting of their goods and where they are coming from.
Recording a trademark with Customs authorizes the seizure of counterfeit goods at the border. Seizures often lead to the identification of other counterfeit shipments that got through and the people who imported them. Once companies identify suspects, they can hold them accountable through civil litigation and, potentially, criminal prosecution.
Counterfeiters are businesspeople, and they invest hundreds of thousands of dollars or more in their businesses. If a brand owner makes its trademarks even just a little too hot to handle, counterfeiters will make the rational business decision to invest in someone else’s trademark. All companies need to do is ramp up the pressure just enough to push counterfeiters into someone else’s space.
Also, publicizing the problem can be an effective strategy. Some companies don’t want to do that, believing publicity will steer customers away from their brands and erode their value. But others believe if they alert the public to the existence of counterfeits and warn potential victims about what to look for, people will choose to avoid counterfeits and seek out the genuine item.
What advice would you give companies that say they don’t have the resources to worry about counterfeits?
It’s tempting for a growing company to use its limited resources on needs other than brand protection. But two considerations counsel otherwise. First, that company will likely fail to grow as it effectively surrenders market share to the counterfeiters. Second, counterfeit products typically are inferior to genuine goods. Fake goods often injure consumers, prompting costly investigations of genuine goods by the Consumer Product Safety Commission. In some cases, product liability lawsuits may be filed against the genuine brand owner.
Even if a company can prove at trial that the product was counterfeit, the plaintiff could badly damage the company’s reputation by claiming that the company knew that counterfeits were out in the market, knew of the dangers to the consuming public, but took no action to warn or protect the public from fake and dangerous products. Companies can and should avoid these risks by having and implementing a brand protection strategy.
Sam Watkins is a senior attorney at Theodora Oringher Miller & Richman PC. Reach him at email@example.com or (310) 557-2009.
When a property is condemned through the process of eminent domain, banks often have a vested interest in that property through a deed to secure debt, but rarely do they get involved in the financial negotiations for that property, even though doing so would be in their best interest, says Carl Varnedoe, an attorney in the eminent domain practice group at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.
“Banks have demonstrated a great reluctance to be principally involved in the protection of their secured interest,” Varnedoe says. “Instead, they’ve left it up to the property owner, even though security agreements give the secured party the lending institution the right to collect all condemnation proceeds. Lending institutions have a huge stake in the game, and they have a legal right to participate in the proceedings, but, for some reason, they don’t get principally involved in the determination of what their security the condemned property is worth. Even though they’re entitled to the proceeds, they just allow the property owner to fight the fight.”
Smart Business spoke with Varnedoe about property owners’ rights in eminent domain and how banks could benefit by being involved in the process.
Who can condemn property?
Any governmental agency or quasi-governmental agency that has been granted the power of eminent domain can take private property and convert it to public use. Because of the tremendous growth in the Atlanta area and the need to expand existing infrastructure as well as create new infrastructure such as roads and bridges, the state of Georgia and other entities have been extremely active in the condemnation arena in the last 15 years.
What is the first thing a business owner should do when notified of condemnation proceedings?
If a condemning authority knocked on my door, the first thing I would do is seek out competent counsel to review what is being proposed to assess from an economic standpoint whether the interest being acquired and the potential impact to the remaining property justifies retaining counsel to pursue the matter.
As a general rule, particularly when public money is being spent, condemning authorities feel an obligation to purchase whatever interest they need for as little as possible. The role of an attorney is to assess, with the help of expert witnesses, whether the compensation offered is adequate to compensate for the loss of the property and to ensure that the condemning authority accounts for all compensable interest in the property.
There is almost always more money available to the property owner than the initial offer from a condemning authority. Market value exists within a range, which lends itself to negotiation. That is where an attorney with knowledge of applicable law becomes invaluable.
Who must be notified of the condemnation proceedings, and who has the right to participate in negotiations?
The Georgia Department of Transportation, for example, has to run a 50-year chain of title, and if it gets as far as a condemnation lawsuit, it has to provide notice to anyone who appears in that 50-year chain, including secured parties.
Whether it’s a private equity agreement or a traditional lending institution that has provided financing for the purchase and development of the property, almost every security agreement assigns the right to collect all condemnation proceeds to the secured party. This is true even when proceeds are paid in lieu of condemnation as the result of the property owner’s agreement to ‘voluntarily’ transfer the requisite property interest and avoid formal litigation. The secured party is entitled to share in the condemnation award to the extent its security is impaired by the taking. In an overly simplistic example, if 10 percent of a $100,000 property is condemned, the value of the land taken is $10,000. If the bank is holding a $50,000 note, the bank is entitled to the $10,000 award, which is applied to the outstanding principal indebtedness.
Keep in mind that market value of a property can vary widely. For example, there was a vacant tract of land that the condemning authority thought was worth about $24,000. After getting involved, at the end of the day, the property owner was paid close to $1 million.
If I’m the bank holding the security deed and there is a potential million-dollar swing in value, I would definitely want to participate in the process and have a say in the outcome. Secured parties are well versed in the adverse economic impact that foreclosures have but may not fully appreciate the equally devastating adverse impact a condemnation may entail.
The bank is ultimately the beneficiary of the condemnation award and should be more principally involved in the process. Selecting the proper counsel who can put together a team of experts to comprehensively and aggressively value the interest being impacted is critical.
A condemnation is really a government-initiated foreclosure, whether it’s a partial foreclosure or a total one, and banks haven’t appreciated the wonderful opportunity this presents. Banks should pay closer attention to condemnation actions and the impact it has on their security and take on a test case or two on a substantial property to determine if there’s a need to be more systematically involved in protecting their security when a condemning authority comes knocking.
Carl Varnedoe is an attorney in the eminent domain practice group at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC. Reach him at (404) 589-0009 or firstname.lastname@example.org.
No company is immune from fraud, and it’s more than likely that your business is losing revenue to fraudulent activity.
“The difficulty is that there is fraud happening at most companies,” says Lewis Baum, CPA/ABV/CFF, CVA, CFE, associate director in business valuation and litigation consulting at SS&G Financial Services, Inc. “The question is, to what extent is it happening? There are steps you can take to limit your exposure, but you’re not going to prevent it from happening.”
The average business loses 7 percent of its revenue to fraud, says Baum, adding that smaller businesses are especially susceptible to becoming victims.
Smart Business spoke with Baum about the simple steps you can take to help minimize your company’s exposure to fraud.
Why are smaller companies at a disadvantage when it comes to deterring fraud?
Companies with fewer than 100 employees make up about 38 percent of the fraud cases, partly because they don’t have the same capability for segregation of duties and controls. Smaller companies have smaller numbers of accounting staff and management and, as a result, those people are doing multiple tasks, which may compromise some of the controls.
What can a business do to limit its exposure to fraud?
The first thing is to set the tone at the top. Make it clear that management is aware of the possibility of fraud and frowns on inappropriate behavior. As part of its policies and procedures, a company needs to institute an anti-fraud policy that clearly says fraud will not be tolerated.
There should also be a code of conduct, which outlines the proper practices for an organization. This contains what behavior is expected and also requires employees to disclose any conflict of interest with relationships with a vendor, customer or key account. It’s important to know if your purchasing manager’s wife is one of the key suppliers to your company so you can determine if he’s acting in the best interest of your company or that of his wife.
The behavior of management can also be a big deterrent or an invitation to fraud. Although they may try to hide it, it is often very clear to employees when owners or managers are fleecing the company. That’s when animosity grows. Employees feel they’re working harder than the boss, that they’re the ones contributing the most to the company and that they should be entitled to more. Then the behavior of management serves as justification for the employee’s fraud.
Managers who are there with employees, who are part of the team, who are working hand in hand with employees and giving their best efforts to further the best interests of the company are much less likely to generate that animosity.
How can behavioral profiling help identify fraud?
Profiling is very helpful in that if you see someone’s behavior dramatically change, or if their lifestyle does not match their apparent income, you should question why. If you have someone making $30,000 a year and they’re driving a Ferrari, there is a mismatch between income and lifestyle. There may be a very good reason why he’s driving a Ferrari, but it should at least raise your antenna to look into whether anything may be going on.
How can audits help deter fraud?
Audits aren’t really designed to deter fraud, but just the fact that the books and records are being looked at could deter someone from committing fraud. Also, it’s a good idea to do surprise audits internally, for example, a surprise inventory count or checking the cash in the register to make sure that it reconciles with the tape.
What other things can a business do to deter fraud?
Make employees take mandatory vacation time. If people are doing something inappropriate, moving money around and hiding that activity, it’s good to get them out of the office for a week or two every year to see if anything surfaces while they’re gone. When someone is stealing cash from receivables, it becomes a shell game. And if they’re not there for a week to play that game, that may become apparent.
Also, if at all possible, implement a system of job rotations, which also helps limit exposure and disclose any fraud that may be occurring, and has the added benefit of cross-trained employees.
Even if it’s not apparent to you, one of your employees may be witnessing fraud. Holding fraud training for employees, managers and executives is very important. Teach employees what to look for, which should include some of the indicators of fraud. Depending on the fraud scheme, there are often red flags to indicate that fraud is occurring.
Employees need to understand what they should do if they suspect fraud and what the procedure is to address it. One way to get information you might not otherwise get is with a fraud hot line, ideally an external one, because employees are more likely to report their suspicions to someone they don’t work with. Employees can anonymously call the hot line, which then notifies management of the potential problem.
Finally, make sure you have adequate controls over cash. The person who is preparing the checks should be different from the person authorized to sign checks. Have controls over the stock of blank checks, and once checks are signed, do not give them back to the person who prepared them. The bank reconciliation should be preformed by a different person, who should also be going through the cleared checks to make sure the payees and the amounts are correct.
Lewis Baum, CPA/ABV/CFF, CVA, CFE, is associate director in business valuation and litigation consulting at SS&G Financial Services, Inc. Reach him at LBaum@SSandG.com or (800) 869-1834.