An effective safety program gives your company a competitive advantage over one with careless operations. Safety awareness lowers your workers’ compensation rates through premium rebates and discounts, and better rates from less frequent and less severe claims.
“I can walk into a manufacturing plant and sense whether the company has a strong focus on their operations and safety. And, nine out of 10 times, I’m correct,” says Cliff Baseler, vice president at Best Hoovler Insurance Services Inc., member of the SeibertKeck Group.
Smart Business spoke with Baseler about how safety programs and a safety culture factor into decreasing your workers’ compensation premiums.
How can you use safety to take advantage of workers’ compensation rebates and discounts?
As one of four states that don’t allow employers to buy workers’ compensation from private carriers, Ohio and its Bureau of Workers' Compensation (BWC) have a number safety programs (www.OhioBWC.com/employer/programs/safety). The three fundamental ways to get credits to your basic rates, depending on whether you have a basic or advanced safety program, are the:
- Drug-free safety program, a premium discount of 4 to 7 percent for implementing a program that promotes occupational safety and addresses the use and misuse of alcohol and drugs in the workplace.
- Safety council rebate program, a 2 percent rebate for active participation in a safety council, as well as another 2 percent possible based on the frequency and severity of your workers’ compensation claims.
- Destination excellence program, up to 3 percent refunded based on industry-specific safety discounts.
Additionally, based on your company’s total losses and their severity, you get experience modification — a credit, or debit if you’ve had claims — to your base rates. The BWC also administers workplace wellness grants, which by establishing a more healthy and aware workforce can reduce the frequency and severity of claims in the future.
Your property and casualty commercial insurance carrier is another source for safety assistance to help reduce claims. The national carriers already provide out-of-state workers’ compensation, so they have programs and information that your company may be able to take advantage of as a client.
How can you ensure employees actually follow your safety practices?
Many business owners examine their prior premiums and rates to see the total savings from BWC credits, rebates and discounts, and then share half with employees as a safety bonus. Employees know if they stay safe the employer will, for example, hand out gift cards. Also, if a department has no workers’ compensation claims for a certain quarter, the boss could buy everyone pizza.
Another incentive is posting accomplishments — the sign that says ‘We’ve had X consecutive days of no workers’ compensation losses.’ You might not think it works, but employees don’t want to be the one person to mess up, so they are more aware and take extra time.
Your safety committee should be helping with education and awareness. First, you train the trainers at monthly meetings, such as bringing in a loss control engineer or practical exercises like the proper way to lift a 100-pound object. Then, the committee members go down to the specific departments, which already should have safety resources for individual jobs.
How else can you institute a safety culture?
The written safety plan needs to be reviewed by employees, so make employees sign a statement that they read it. Post safety rules in relevant places — the BWC can provide posters. When new employees go through safety training, make sure you’re refreshing the memory of existing employees. Keep your job analyses current and match the right employees to the right tasks. An improperly trained employee who’s lifting and bending all day is an accident waiting to happen.
It’s only after you establish a strong safety culture to keep frequency and severity of claims down that you can think about the next level where you can get in a group or a retrospective rating program to earn your own rates.
Cliff Baseler is a vice president at Best Hoovler Insurance Services Inc., member of the SeibertKeck Group. Reach him at (614) 246-7475 or firstname.lastname@example.org.
Website: To keep up with the latest insurance news and how your company could be impacted, sign up to receive our newsletter at www.seibertkeck.com.
Insights Business Insurance is brought to you by SeibertKeck
When office equipment goes down or doesn’t work properly, it can disrupt the entire business. And as the industry consolidates functions into one device, it’s critical to have the correct equipment that meets your business’s needs.
“It truly is a lifeline in an office,” says Edward Kromar, director of service at Blue Technologies. “If it’s a small office, it can almost stop the processes internally, as opposed to 20 years go when it was just one facet of many. Understanding your vendor’s service protocol is absolutely vital.”
Smart Business spoke with Kromar about how to maximize your office equipment.
What should business owners know before investing in office equipment?
Take time to understand your business and processes. Knowing the volume you use ensures the equipment is big enough. But if printing is most important, you may need a multifunction device that allows you to categorize your priorities in the workflow, so all printing comes before copying or faxing.
If the function is mission critical, you may want a second unit. This is mechanical equipment — failures are going to happen — so you may need backup equipment and data storage. If scanning is imperative but you have an all-in-one device, then you need to consider having another unit to provide back-up scanning. Look for an alternative that doesn’t break the bank but gives the necessary insurance, which could be a desktop device. In trying to understand your needs and priorities, develop and use your relationship with your office technology salesperson, which also helps you get the right product(s).
How does the technology life cycle work?
Technology is changing monthly, so a best practice is having the flexibility to move into different products with your vendor. Look for a product line with options and versatility as well as a history of improvements. Not only are your business needs changing, but a feature that wasn’t out six months ago could add efficiency.
While there’s no rule about how often equipment needs to be upgraded, make sure the technology still meets your needs. The faster your business is growing, the faster you’ll need to update. And, if you come across a broken process, don’t forget to consider that your office hardware could be part of the solution.
What’s problematic about switching to digital phones?
Digital phone lines are very practical for businesses that want to save money. Unfortunately, fax technology has not kept up with digital phone technology, so they don’t fit reliability together, and the industry is not spending research and development funds on merging these two. So, if you are changing phone systems and your organization has a high demand for faxing, you need to keep an analog phone line for your immediate needs and begin converting your clients to email communication.
What’s important to know about color?
Color has helped businesses present, at a more affordable cost, their marketing message to customers. But some business owners have misconceptions about their device’s color and the difference between business and production color. Production color, which is often outsourced to print production facilities, handles high-end color, where a red will always print the exact same shade. Business color is an acceptable quality that can be used internally and sometimes for outside marketing pieces. You can buy devices of either type, but there’s a cost difference. With help from your salesperson, you can discover what color needs to be used and when, including whether the volume justifies the cost of bringing it in-house.
How can your company maximize use?
First, your equipment salesperson should understand your IT support. Additional services and training may be needed to help make the transition seamless. An established equipment dealer can even provide support for more than just your hardware needs, the dealer might also provide various network support before and after installation.
You also need to fully understand the capabilities of the equipment you’ve purchased and how it fits with your business. If you don’t know what your equipment can do, find out. Also, as your business changes, you could take advantage of a feature you never thought you would.
Edward Kromar is the director of service at Blue Technologies. Reach him at (216) 271-4800 or ekromar@BTOhio.com.
Blog: For useful tips on improving office efficiencies, visit our blog at www.btohio.com/news-resources.
Insights Technology is brought to you by Blue Technologies
Retirement plan sponsors, now more than ever, need to be diligent in carrying out their fiduciary responsibilities. The Department of Labor, IRS and other agencies have eyes on the industry, especially with new retirement planning fee disclosures and a soon to be proposed expanded definition of “fiduciary.”
“The business owner who says, ‘I’m hiring these service providers to run the plan and I don’t have to worry about it’ is nonetheless ultimately responsible if there are problems,” says Paula M. Lewis, Manager, Client and Advisor Experience, at Tegrit Group.
Smart Business spoke with Lewis about what business changes could signal that retirement plan adjustments are necessary.
Who do plan sponsors deal with?
Plan sponsor decision-makers depend on industry experts for assistance in managing their roles and responsibilities. Although some parties may serve multiple roles, the sponsor may engage an accountant, an investment advisor, an actuary, an ERISA attorney and a third-party administrator (TPA), with each having important and distinctive functions impacting the plan’s operation.
Despite having all these providers in place, the ultimate responsibility for the plan still lies with the plan sponsor. Employers sometimes put in a retirement plan and just let it ride, but then no one is ensuring the plan grows and changes with the company and its employees.
In this dynamic environment, it’s crucial that all parties communicate. It’s best if you know that your service providers work well together, which lessens the risk of something being missed, and the best course of action is being charted.
What changes need to be communicated?
Usually, over time there are changes to the employee demographics, financial standing and even the goals of a company. The company’s retirement plan should also change over time to reflect these changes in employees, finances and objectives. Certain changes always should be communicated to plan service providers, including:
- Changes in ownership.
- Acquisition or divestiture of another company.
- Family members becoming employees of the firm.
- Major compensation changes of key personnel.
- Retirement plan goal changes of key personnel.
It’s confusing to know who to tell what, but generally, the investment advisor and TPA should be made aware of all of these changes, as they may impact fiduciary considerations and compliance. The investment advisor, along with the TPA, should be able to analyze any changes, determine which parties need to be informed, and make any plan changes to avoid any problems or penalties and ensure the plan is designed to maximize the benefits and goals of the company.
What can happen if changes aren’t reflected in the plan?
There are various penalties that are imposed if a plan falls out of compliance because of changes at the plan sponsor level. Late amendments and failed compliance testing are but two. For instance, if the spouse of the owner of one company purchases a separate company, the two companies can be considered a ‘control group,’ and for plan purposes are ‘one.’ Upon an IRS audit, the less generous company may have to increase its plan contributions, which could be an expensive correction avoidable with advance planning and appropriate plan designs.
When acquiring a company with a pension plan, you acquire its liability, especially if it’s underfunded — unless the acquisition agreements are carefully worded. Without advance planning, closing a division could produce a costly surprise as it could be considered a partial plan termination, requiring that the terminated employees be 100 percent vested.
Another area that can cause compliance issues is how certain family members of owners becoming an employee impacts the retirement plan. According to the IRS, he or she is considered highly compensated regardless of their salary. That could cause a plan to require corrective contributions. It is crucial to keep the lines of communication open with your advisors and TPA.
Paula M. Lewis, QPA, QKA, manager, Client and Advisor Experience, at Tegrit Group. Reach her at (330) 983-0485 or email@example.com.
Website: Visit Tegrit’s Advisor Resource Center at www.tegritgroup.com/arc for additional retirement planning tips.
Insights Retirement Planning Services is brought to you by Tegrit Group
Until the middle of 2011, northeast Ohio was a tenant’s market. However, with real estate growth, free rent incentives and large price drops going away, the market is starting to lean more toward landlords, says Eliot Kijewski, SIOR, senior vice president at CRESCO Real Estate.
“I can’t tell you how many times we get a phone call saying, ‘I need to be in something in 30 to 60 days,’” Kijewski says. “That’s not enough time when you’ve still got to negotiate a lease and the landlord generally has work to do in the space.
“You need to be in front of it. You can make your best deal that way,” he says.
Smart Business spoke with Kijewski about how business owners can maximize the value of their renewal or relocation.
What should you consider when deciding whether to renew your lease or relocate?
First, reread your lease to find out what your timing should be. You need to know the option date, if one exists, in your existing lease. It’s most likely six months, but in some cases it could be 60 or 120 days. For instance, if you’re coming to the end of a five-year lease and you have to notify the landlord whether you’re going to stay six months from the lease-end date, you’d better see what else is out there — check out pricing and deals, the size and efficiency of available space, etc. You want to be in the market at least four months ahead of your option date.
Ninety percent of landlords are still going to do whatever they can to keep a tenant, such as throw in tenant improvements or be flexible on the rate. The difference is that, as the market tightens up, landlords are starting to look at the option date because they may have been giving deals away a few years ago, but now they could get another tenant in for more money.
How should you weigh your existing space against the available space?
With the help of your broker, there are a number of questions to ask that take into account your long-term goals. Is your existing space too big, too small, not heated properly or not meeting your technology needs? Did your business model change? Are you comfortable here?
It’s imperative to actually check out the market. For example, if you move one city over, your taxes could be dramatically less.
A tenant representative can generate data to help you feel confident about staying or leaving by looking at employees, governmental incentives, etc. Employees really care about where their workplace is located; so if you move to the best deal, you might lose employees.
How can business owners account for the costs?
Remember that it costs a lot of money to move — no matter what business it is. You have to pay a mover, or do it yourself, which doesn’t allow you to do your work. Then, you’ll need new stationary printed, websites and phones updated, etc. Based on what type of tenant you are — industrial, office or retail — your broker can assist with estimating these types of costs.
At the same time, it costs the landlord as well, which gives tenants leverage. If the space goes ‘dark’ or vacant, the landlord has to prepare the space with cleaning and/or renovations, promote the space and hire a broker.
What’s important to know about the negotiations?
A lease is a huge commitment. For example, if you’re coming to the end of your term, you may have a clause that says you have to renew for a certain amount of time. But, if you’re uncomfortable, don’t let your company become a captive tenant. This can be negotiated with your landlord with the help of your broker.
Your broker is critical to informing you of the various circumstances with the existing landlord and the surrounding market. He or she also can help with timing the negotiations correctly. You want to start that conversation with the landlord close to the option date, but not close enough that it jeopardizes your leverage.
Eliot Kijewski, SIOR, is senior vice president at CRESCO Real Estate. Reach him at (216) 525-1487 or firstname.lastname@example.org.
Insights Real Estate is brought to you by CRESCO
Often management is in day-to-day operations mode, dealing with crisis after crisis. No one steps back, looks at the big picture and says, “This is my biggest asset and investment, so I need to increase the value.” However, especially if you’re planning to sell or pass your company to the next generation, you need to evaluate the drivers for creating value in your organization.
“The real value drivers that most people think about are growth and profitability. And those truly are important factors when you talk about a driver for value, but really the one area that companies will often overlook is the whole notion of risk — if you’re able to reduce or eliminate risk, you’re increasing value,” says Lewis Baum, director at SS&G Parkland Consulting.
Smart Business spoke with Baum about risk assessment and a strategic plan that will generate business value.
What are some value drivers?
Although value is driven by growth and profitability, a third attribute, which is often overlooked, is risk. The riskier something is, from the marketplace perspective, there’s less value attributed to it. All companies face risk, so it’s good to go through a valuation strategy and identify the various drivers affecting the business. Some factors are:
• Macroeconomic, such as interest rates, inflation, construction trends, etc.
• Microeconomic, such as supply and demand, how individuals make decisions and their impact, and what’s happening with competitors.
• The barriers to entry in your industry that impact the competition level.
• Substitutions, as in what other products or services could threaten your product or service.
• Suppliers and customers who have bargaining power and could affect price and quality.
• Technological, social and demographic changes.
It is also important to understand what the value drivers are for the industry. Certain industries measure value in different ways — a certain multiple or perhaps the number of subscribers might drive it. Intellectual property and trade secrets are becoming a larger component of value. Efforts should be made to document and safeguard such assets.
Other ways to reduce risk, and thus increase value, are ensuring your financials are in good shape and that you have well-documented systems in place.
How do you set up your strategic plan?
Once you’ve identified trends, often with the help of an outside service, you can set a course as part of an overall strategic plan. As part of the plan, management will essentially have a list of things to watch for and goals to meet, which can be broken down into smaller steps. Then, you’d need to set up a mechanism to monitor your progress. It’s something that should be revisited often and should be considered a ‘living and breathing’ plan. You need to be able to incorporate unforeseen changes in order for you to achieve your goal(s).
The ideal time for this kind of planning is when you have enough time to implement changes and create a track record. You want to make your company as effective, efficient and valuable as you can before leaving. Otherwise, your buyer will likely take the same steps to get that added value. Even if you’re not planning to sell, risk assessment and strategic planning may help assess which product lines are more valuable, where growth is really coming from and how to help your business in the future.
Do business owners need outside help?
Yes. Outside consultants can take an active role, or management can utilize the consultant as a coach to help direct the assessment. It’s difficult for business owners to see some of the economic factors and value drivers with fresh eyes. However, owners and management have valuable information as far as identifying their competitors, marketplace trends, etc.
How important are regular employees?
Ultimately, the entire organization needs to accept a value-driven strategic plan and understand their role(s). Employees have valuable insight and are often knowledgeable about inefficiencies and waste. Their involvement allows for ‘buy-in’ and can reduce turnover and frustration. Employees should have a voice in the process.
Lewis Baum, CPA/ABV/CFF, CVA, CFE, is director at SS&G Parkland Consulting. Reach him at (440) 394-6150 or LBaum@SSandG.com.
Insights Accounting & Consulting is brought to you by SS&G
As accountable care programs are implemented, health care providers are going through significant financial, clinical, operational and strategic transformation. This has profound effects not only on health care providers, but also on those touched by health care delivery.
Payment transformation, re-admission penalties and demographic shifts are creating a perfect storm where health care providers have to be very skilled, says Ron Calhoun, managing director, national health care practice leader, at Aon Risk Solutions.
“Providers are going to have to get it right,” he says. “They’ve got to be clinically integrated, and a majority of them are not.”
Smart Business spoke with Calhoun about the risks health care providers are facing in this new environment.
What are the impacts of payment transformation and re-admission initiatives?
Numerous payment reform programs are moving providers toward payment for value and outcomes, as opposed to volume or service. The Patient Protection and Affordable Care Act has increased emphasis on Medicare/Medicaid outcomes, which has in turn led to more commercial sector payment transformation. The fundamental question is how are health care providers going to clinically manage a population in a non-clinical environment with all of the quality measures by which they’re assessed?
In 2012, Medicare’s Hospital Re-admission Reduction Program started penalizing hospitals for re-admission of certain acute myocardial infarction (heart attack), heart failure and pneumonia patients. Reimbursement penalties are expected to be $280 million in year one, and to increase as penalties go up and the program expands.
With financial risks tied to reducing re-admissions, there is de-emphasis on acute care — short-term medical treatment — and emphasis on post-acute care. This puts more demand on non-physician clinicians like registered nurses. Hospitals also are managing discharged patients to reduce exposure by either pushing a patient into a post-acute setting earlier or managing that patient more aggressively. However, this has direct and vicarious liability implications.
How are demographic changes creating risk?
As Medicare and Medicaid grow, payment transformation models will proliferate, placing more emphasis on outcomes and value. Roughly 44.3 million Americans are on Medicaid, which will increase by 10 to 20 million, depending on how many state Medicaid programs expand. Michigan Gov. Rick Snyder included an expansion of about 320,000 residents in his budget proposal. Also, 60 percent of the 169 million with employer-sponsored health care are ages 40 to 65, so the Medicare population will double to 88.6 million by 2035.
The Centers for Medicare and Medicaid Services is bundling reimbursements with outcomes, which shifts liability to the provider. Health care providers need to adhere to established clinical protocols, narrow physician practice pattern variation, be highly communicative between specialties and with patient hand-offs, and have sophisticated clinical decision support capabilities within electronic medical record platforms. The tighter the clinical integration, the more confident the health care provider will be in participating in bundled or value-based reimbursement.
Why are family caregivers so important?
About 45 million Americans are unpaid, informal caregivers for those with dementia and/or the top 15 chronic conditions. In the next three to five years, care will systematically go into the home, increasing the demands on home health. Health care providers must connect to caregivers to drive outcomes, such as decreasing re-admissions or increasing medication compliance.
What’s the impact for consumers?
As health care providers move toward value-based or bundled reimbursement, health care networks may become narrower and include only the highly effective providers in a given geography. Consumers with higher deductible, more consumer-driven plans will demand that all providers demonstrate an ability to comply with quality measures. Group health plan providers are certainly going to demand quality, as well. Population management will only become more critical. Consumers and employers will want relevant medical data pushed beyond the hospital’s four walls and into their hands.
Ron Calhoun is a managing director, national health care practice leader, at Aon Risk Solutions. Reach him at (704) 343-4128 or email@example.com.
Insights Risk Management is brought to you by Aon Risk Solutions
The Financial Accounting Standards Board (FASB) has not-for-profit financial reporting on its horizon. The board is expected to propose new guidance on non-profit financial reporting standards in the second half of 2013.
“It’s exciting because the FASB is actively working to make the financial statements more understandable for the user and more comparable across the varying types of not-for-profit organizations, which will allow these organizations to better tell their story to donors.” says Liz Dollar, a partner in the Not-For-Profit and Government group at Moss Adams LLP.
Smart Business spoke with Dollar about how these changes originated and what they could mean for the not-for-profit world.
What is the FASB’s Not-For-Profit Advisory Committee?
This 17-member committee was established in 2009 to act as a standing resource for the FASB. The various users and preparers of not-for-profit financial statements now have a formal process to give input that guides the FASB on the impact of the current standards, and provides feedback on proposed updates. The committee also can assist in outreach activities to the sector.
How is the committee filling a need in the not-for-profit world?
The most impactful financial reporting standards for not-for-profits were statements on Financial Accounting Standards 116 and 117, but these standards were written almost two decades ago in the mid-90s. The committee has focused on determining whether these standards still make sense in the current financial environment. The committee also considers overall financial trends such as the convergence of international and U.S. standards as well as increased emphasis on reporting and transparency of financial information.
What has the committee recommended to FASB?
The committee and its three subcommittees, Reporting Financial Performance, Liquidity and Financial Health, and Telling a Story, recommended:
- Focusing transparency on operating and non-operating activities in the statement of activities.
- Suggestions for improving the cash flow statement, better linking it to the operating measures.
- Reducing the net asset classes from three to two — unrestricted and restricted — in an effort to make financial statements easier to prepare and use, while adding some subcategories into the new net asset classes. Streamlining and improving the footnote disclosures, which have gotten long and can be unclear to many users.
- Requiring some sort of management discussion and analysis in the financial statement that tells a story of what happened during the year. This could enhance the understanding of donors about the financial health and performance of the organization.
What is the FASB doing with these recommendations?
The FASB is currently working on a project entitled Not-for-Profit Financial Reporting: Financial Statements, which is focused on net asset classifications and the information provided in the footnotes about liquidity, financial performance and cash flow. An exposure draft is expected in the second half of 2013. After the comment period, changes likely would be implemented around 2015.
The FASB also added a research project looking at other financial communications, which could include requiring a management discussion and analysis in the financial statements.
Why should not-for-profit organizations be excited about these potential changes?
Not-for-profit organizations often need an audited financial statement because of a donor, statutory or lender requirement. However, they will tell you that most people don’t look at or understand these financial statements. When using a document to tell a story and solicit funds, the 990-tax form is often a more useful tool and something that is comparable among all not-for-profit organizations. The hope is that with the current project the FASB changes will simplify the financial statements, making them in turn more user friendly and useful to the reader.
What does this mean for business owners?
Not-for-profit financial statements typically are very different from for-profit financial statements. So, someone from a public company who serves on a not-for-profit board or who is a potential donor could have trouble reading the statement. With potential changes to the net asset classifications, focus on liquidity and streamlined disclosures, the not-for-profit financial statements should more clearly reflect an organization’s financial position and be more usable to those with a for-profit background.
Liz Dollar is a partner, Not-For-Profit and Government group, at Moss Adams LLP. Reach her at (415) 677-8247 or firstname.lastname@example.org.
Upcoming live webcast: Register now for “Legislation with Social Purpose: Examining Regulations on International Activities and Social Purpose Corporations in the Context of Today’s Economy.” The webcast will be held from 10 to 11 a.m. PST Tuesday, March 12.
Insights Accounting & Consulting is brought to you by Moss Adams
Estate planning is important for everyone. But in the case of a business owner, not giving serious consideration to what could happen to your business could potentially shut it down entirely, thereby eliminating your family’s income at a time when it is critical.
“It’s important that business owners understand that their plan only works the way it’s set up to work if the circumstances that originally determined the nature of the plan remain the same,” says Carly Fagan Neals, J.D., senior trust officer and vice president at First Commonwealth Advisors. “So if there are changes in the business structure, goals or family structure, they have to be communicated to the adviser — the accountant, the lawyer, whoever put the plan in place.
“A business owner has to take an active role in making sure the plan still works because only he or she knows the facts as they are today,” she says.
Smart Business spoke with Neals about how a succession plan is thoughtfully created in conjunction with your estate plan and what factors need to be coordinated and reviewed.
Is there a good time to begin planning?
Every individual should have a will, a financial power of attorney and a health care power of attorney/living will. As soon as you have assets or children it’s imperative to plan because otherwise your assets don’t get to where they need to go and your heirs don’t necessarily get cared for the way you’d want. For many, this can occur at an early age.
What’s involved with establishing long-term goals and determining succession risks?
Every person’s long-term goals are different, and they often evolve and change. So continually question how you can accomplish what you need to, such as passing the business on when you retire or providing for your family in the event of your death or incapacitation.
If your long-term goals involve transferring the business to some specific person, constantly re-evaluate whether that person is able and willing. What training and education might be necessary? When do you start transferring the business, and is it in a monetary sense or just voting stock? And if you’re retiring, how and when do you phase yourself out?
What are some strategies for success?
Ensure there’s sufficient insurance on the owner’s life or the necessary liquidity for all situations, and hands-on training and education for whoever is taking over the business. Also, is a spouse with power of attorney making business decisions? Do you want it to work that way? Be aware of the capabilities and willingness of those you name to have this authority.
Estate and succession plans need to work in tandem. For example, company stock may be a very large asset of the estate, but you need to know how that stock will be used to provide the surviving spouse with the necessary cash flow. Does your business successor need a life insurance policy on you to buy the stock so the resulting cash can go into a trust for your spouse?
Regularly work with your advisers to analyze the possible tax consequences of any transfer or proposed transfer. You don’t want to trigger a big gain or loss as a result of a transfer without planning for it.
Finally, a business succession plan needs to take into account the business’s operating structure. Whether it’s a corporation, LLC or partnership, how will the business run during the period when the transfer is taking place? It can be a matter of signatory authority on bank accounts, being able to order inventory, or having someone authorized to sign for accounts payable or receivable to keep daily operations going.
How should you monitor these plans?
Any time there’s a change — in business operations, key employees, family dynamics, goals, etc. — communicate it with the people who helped put the plans in place. Even without changes, it doesn’t hurt to talk to your advisers annually, or at minimum every few years. Even though you may not meet with your accountant or lawyer every year, if you’re working with an investment manager or wealth adviser doing regular performance reviews, a good adviser will ask the questions necessary to help determine whether it’s time to go back and get in front of your other advisers including your accountant and/or lawyer.
Carly Fagan Neals, J.D., is a senior trust officer and vice president at First Commonwealth Advisors. Reach her at (412) 690-2131 or email@example.com.
WEBSITE: To learn more about succession planning, visit ask4fca.com.
Insights Wealth Management is brought to you by First Commonwealth Bank
Michael J. Torchia, a managing member at Semanoff Ormsby Greenberg & Torchia, LLC, gave a seminar to executive clients on individual liability several months ago. “Even if some supervisors knew they had liability under a statute or two,” he says, “seeing their actual exposure to 12 or 14 statutes shocked them.”
“I don’t think business owners have any clue how vulnerable they are to being sued under various employment statutes,” Torchia says.
This exposure is prevalent in areas like discrimination cases, and wage and hour claims which include unpaid overtime, exempt and non-exempt employees, and independent contractor status.
Smart Business spoke with Torchia about individual liability and strategies for protection and avoidance.
How are executives vulnerable to individual liability?
Many state and federal statutes explicitly state an employee has a right to relief against the employer and an individual. Some simply define ‘employer’ to include certain individuals. Examples include the Pennsylvania Wage Payment and Collection Law; Fair Labor Standards Act; Family and Medical Leave Act; Pennsylvania Human Relations Act; Pennsylvania Whistleblower Act; Immigration Reform and Control Act; and COBRA. There are also common law court cases allowing an individual to be sued under a variety of claims such as intentional infliction of emotional distress and defamation. Although incorporation helps shield individual assets — as opposed to, for example, a sole proprietor — the corporate veil does not protect individuals here because the statutes specifically allow action against them.
How far into management is the risk?
Generally, if an executive, manager or supervisor is considered a decision maker when it comes to employee issues, especially with regard to compensation, benefits or termination, there could be individual liability. In some organizations, that could be those at the ‘C’ level, president or vice president, but in others a secondary or middle manager could be individually liable.
What about executives who say, ‘I was following orders’ or ‘It was unintentional’?
‘Just following orders’ or ‘company policy’ may help, but is not an absolute defense. And whether the improper act was or wasn’t intentional is only relevant if the statute requires proving intent, bad faith or a knowing violation.
So, how can executives protect themselves?
At a minimum, managers, supervisors and executives should make certain they have adequate insurance. There are a variety of policies for individual exposure, such as employment practices liability, directors and officers, fiduciary liability, and errors and omissions. There are also lesser known policies that cover, for example, inadvertent disclosure of private information.
Another factor is asset protection. In Pennsylvania, assuming the executive is not already named in a lawsuit or under imminent threat of a claim, which could result in a fraudulent transfer claim, assets can be protected by putting a house, cars and bank accounts in joint names with a spouse. If not married, executives may consider increasing contributions to retirement accounts, which are not usually subject to collection.
How can executives and their companies avoid problems in the first place?
Training and education for managers, supervisors and executives — especially your decision makers — is key. They need to know how to handle all aspects of their supervisory duties, such as hiring, discipline, firings and employee complaints.
The company’s written policies should be consistent with the manager training and what is actually done day to day. Policy review and training should occur at least every three years, and sooner if there is turnover or changes in the law. Seminars and in-person training for middle managers is routinely overlooked or disregarded as unnecessary, but that it is one of the most important steps a company can take.
Most often decision-making executives, managers and supervisors are not trying to violate the law. However, with authority to bind the company, they can unknowingly cause liability to themselves or the business.
Michael J. Torchia, Esq. is a managing member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach him at (215) 887-0200 or firstname.lastname@example.org.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
To avoid elements of the Patient Protection and Affordable Care Act (PPACA) adversely affecting fully insured health plans, growing numbers of employers — especially smaller ones — are self-funding their plans.
“The problem is that everybody has been in a wait-and-see mode for two years, but now we’re starting to see the impact,” says Mark Haegele, director, sales and account management, at HealthLink. “I expect a lot of fully insured employers to make a change this year, mid-year. There are just so many compelling reasons to entertain it because self-funding policies still protect small employers and allow them to avoid many forthcoming taxes and rules.”
Smart Business spoke with Haegele about why the PPACA has prompted more employers to explore self-funding or partial self-funding.
How does medical loss ratio (MLR) reporting drive employers to self-funding?
MLR reporting requires insurance companies to spend 80 or 85 percent — depending on their size — of premiums received on health care claims. Plan administration, such as overhead, payroll, sales efforts, network contracting, etc., comes from the remaining 15 to 20 percent.
MLR gives insurance companies an incentive to squeeze administrative services to make more profit. Some insurance companies have changed staffing and service models. One company had service people out to help with claim issues and problems for different segments — health insurance groups with two to 40 members, and 40 to 100 members. They recently bundled the segments into one, cutting staff and decreasing field service.
What will community rating rules do to health care costs?
Effective Jan. 1, 2014, insurers must comply with community rating factors based on geography, age, family composition and tobacco use. This means all fully insured small employers in an area or industry will pay the same for premiums. The idea is to get everybody to an affordable and stable price point, but many fully insured groups will be hit with big increases.
Here’s an example: in Missouri and Illinois, groups of fewer than 50 employees will be underwritten based on community rating rather than the specific group’s risk. A small, healthy employee group in Chicago can expect a 173 percent increase in 2014, according to the American Action Forum Survey of Insurance Companies. At the same time, a small Chicago group with older, less healthy members could have its premium decrease by 21 percent.
Under self-funding, healthy small groups are able to maintain rate stability based on the health of their own population.
How will the insurance tax affect health premiums for fully insured employers?
Starting in 2014, insurance carriers will be assessed a tax, projected to be $8 billion to $12 billion. The federal government will use this money to subsidize poor uninsured. However, insurance is a cost-plus business, so carriers will pass this on to employers. It’s still unclear how much the fully insured’s premium will increase as the tax is shared across the industry; it depends on your insurance company’s market share.
How will minimum essential benefits make self-funding more attractive?
Fully-insured plans sold in the small group market — fewer than 50 employees for Missouri and Illinois — will be required to limit annual deductibles to $2,000 for single coverage and $4,000 for family coverage, as of Jan. 1, 2014. This places upward pressure on premiums. If your current deductible is greater than $2,000, in order to decrease it premiums will go up because the insurance company faces more risk.
Also, for the past five years, many small employers’ deductibles have increased, which keeps premiums down, but employers haven’t passed it on. For example, because most members don’t use their deductibles, the employer could give employees a $1,000 deductible and use self-funding to cover the gap for the remaining $4,000 when the insurance company requires a $5,000 deductible to keep premium increases low.
Small employers could consider a self-funded platform in order to maintain their current deductible and keep rates stabilized.
Mark Haegele is a director, sales and account management, at HealthLink. Reach him at (314) 753-2100 or email@example.com.
VIDEO: Watch our videos, “Saving Money Through Self-Funding Parts 1 & 2.”
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