The retirement plan marketplace is a buyer’s market right now. Plan sponsors that haven’t shopped around in the past couple years might not be getting the most value for their money.
“The retirement marketplace is constantly changing with the addition of new products and services and the compression of costs,” says John Adzema, Vice President of Sales and Consulting at Tegrit Group. “Plan sponsors need to be aware and take advantage of these enhancements.”
Smart Business spoke with Adzema about the necessity of reviewing and benchmarking your retirement plan.
How often should plan sponsors have retirement plans reviewed?
Have your plan reviewed every three years or as certain events dictate, such as company acquisitions/divestitures, workforce changes, etc. You also could look at your company and its demographics to see if it makes sense to add another plan type such as cash balance, employee stock ownership or non-qualified.
What should you discuss with your financial advisor during a review?
As the plan quarterback, the financial advisor typically is tasked with overseeing plan investments, taking some type of a fiduciary role and managing the involved service providers. So, you should ask:
- Are my plan costs reasonable?
- Are my plan’s service providers, including the financial advisor, meeting service standards and helping me meet my fiduciary requirements?
- Are the plan investments performing as expected?
- Is my plan receiving the best consulting and latest technology?
- Are my employees getting the investment help they need?
What could happen if plans aren’t reviewed?
Even though you might not change anything, you need to compare your plan to the marketplace. You may save on costs or be able to expand to another fund family. You could get more tools for participants, website capabilities and educational materials. If your company acquires another firm and the plan assets increase from $1.5 million to $8 million, not only do you need to review from an operational standpoint to ensure compliance, but as a bigger plan you’ll have more purchasing power.
There can be legal consequences as well. In March, a court ruled against the plan fiduciaries in Tibble v. Edison International because they selected retail mutual funds with higher fees when lower cost institutional funds were available. To protect against Tibble-type claims, fiduciary committees should:
- Follow written plan documents and procedures, including any investment policy statements and committee charters.
- Document committee meetings and decisions with respect to plan investments.
- Review 408(b)(2) fee disclosure information and benchmark fees to comparable plans based on the number of participants and plan assets.
What’s the value of benchmarking?
Retirement plan benchmarking is the act of comparing your own plan’s qualities to similar plans. People immediately think about the plan investments or costs, but benchmarking also extends to a plan’s operating provisions and comparing your plan to plans of the same demographics, industry and geography. Benchmarking this helps ensure you are getting the best value for the price paid.
It’s wise to benchmark certain plan items like investment rates of return on an annual basis, but the entire plan’s workings and its service providers should be reviewed at least every three years.
Any final words on benchmarking?
Your financial advisor or another trusted party should carry out the benchmarking process for a consistent and independent approach. Generally you will get better pricing if you’re a bigger plan with larger average account balances and your plan is easier to run.
While benchmarking is a good indicator of what the masses are experiencing, your plan may have unique provisions that work well for you and your employees. If you pay a little more for someone to administer a plan that’s outside of the norm, then that’s OK.
John Adzema, QPA, QKA, TGPC, AIF, is vice president of sales and consulting at Tegrit Group. Reach him at (330) 983-0525 or email@example.com.
Visit Tegrit’s Advisor Resource Center for additional retirement planning tips.
Insights Retirement Planning Services is brought to you by Tegrit Group
State and local governments and nonprofits that receive federal money often must complete Single Audits, also known as OMB A-133 audits. These ensure monies are spent properly according to the different program requirements, and that the relevant organizations only have to go through one consistent audit event.
However, the Office of Management and Budget (OMB) has proposed changes to the audit structure that could have direct and indirect impacts, including decreasing the number of organizations required to undertake a Single Audit.
“A lot of organizations may say, ‘this is great, I don’t have to pay for a Single Audit anymore,’” says Daniel L. Wander, CPA, director of assurance services at SS&G. “But if this does go through, they may need to react to it fairly early to determine what their funders are going to require in terms of any changes or additional procedures.”
Smart Business spoke with Wander about the proposed changes and their impact.
What are the proposed changes?
As of February, the OMB recommended that the annual spending threshold for federal funds that require an organization to have a Single Audit be raised from $500,000 to $750,000. This is partly because of inflation — the last threshold increase was in 2003 — and partly to increase efficiency. The American Institute of CPAs indicated last year that entities receiving less than $1 million in federal funds made up about 24 percent of the total Single Audits but only covered 1 percent of total expenditures. The audits for organizations receiving more than $3 million in federal funds, however, accounted for about 97 percent of total federal expenditures.
Once an organization determines it must undertake a Single Audit, major programs over a certain threshold undergo a compliance audit, at least on some kind of rotational basis, where the auditor renders an opinion. The OMB proposal also raises this threshold from $300,000 to $500,000.
Another change is the coverage rules for high risk and low risk auditees. Coverage means program dollars covered in the compliance audit as a major program. OMB is talking about reducing the coverage rules to 40 percent for high risk and 20 percent for low risk auditees, from 50 percent and 25 percent, respectively.
Finally, OMB wants to streamline the compliance testing areas from 14 to six, focusing on areas where money is going to be misspent, and putting a number of cost and administrative principle guides into one central document.
What’s the timeline on these changes?
The changes are still in proposal form, and the comment period has been extended to June 2. Therefore, the earliest the changes would be in effect would probably be beginning July 1, 2014, giving people a chance to plan.
What might be the impact of the changes?
The direct effect will be fewer entities required to have Single Audits. However, they will still need to follow federal rules and regulations, and could be subject to audits by either state or federal organizations that want to come in specifically.
A fallout may be more state or local entity involvement through audits or additional requirements in order to fulfill state or local monitoring responsibilities. Currently, these organizations get automatic easy oversight from receiving Single Audits each year.
What are some next steps for nonprofits?
First, if nonprofits have anything specific to say, use the extended comment period. Then, reach out at least to your major funders, usually state, local or county agencies, and open a dialog so there are no surprises. How do the funders think they will react? Will they be putting in additional requirements as part of their oversight?
A nonprofit’s costs may go down but it may need to reallocate. If a nonprofit is subject to a Single Audit, the cost can come from the federal portion of your budget. If somebody else is imposing certain audit costs, you’ll need to talk to that organization about where that’s going to be allowable. If Ohio is requiring something additional, it ought to be paid with state money.
Hopefully, no one begins to believe auditors won’t be looking at this anymore. You still have to comply with the federal regulations, and there’s a chance someone will look at your spending at some point.
Daniel L. Wander, CPA, is a director, Assurance Services, at SS&G. Reach him at (800) 869-1834 or DWander@SSandG.com.
Save the Date: You have until June 2, to provide comments on the proposed revisions to OMB Circular A-133 and related grant reforms. The OMB must receive comments electronically.
Insights Accounting & Consulting is brought to you by SS&G
A fully insured business will shop around with different health insurance companies for the best value, including a good network. However, self-funded health plans — which are growing in popularity — contract with a rental network that administers benefits with the help of a third-party administrator.
Smart network provider contracting will maintain lower costs and access to care for members. Many employers only look at the discounts for services in the contract, but there are other methods just as important when evaluating a network.
“There are always some things out of your control, but you try to manage the network and build in predictability to make sure you have control over it rather than the providers,” says Jamie Huether, regional vice president, Network Management, at HealthLink, which rents its network to self-funded entities.
Smart Business spoke with Huether about what to consider when evaluating a network contractor.
How can a network provider maintain lower costs?
A network provider employs a number of contracting methodologies to help health plan clients achieve the best rates. One is having as many fixed rates and as much charge master protection as possible, which limits exposure to provider changes. So, for instance, if a health care provider bills $3,000 for a procedure, and then increases it to $4,000, the network provider’s fixed charge of, say, $900 remains the same.
The alternative is reimbursement methodologies that pay a percentage of the billed charge, which rise as the bill increases. This fully exposes whoever is paying the claim to whatever the providers want to bill.
Why is the network with the highest discount not always the best option?
When evaluating networks, focus not only on the network discount but also the unit of cost, or what the service actually costs. Although the discount can look good, it doesn’t tell the whole story because providers don’t bill the same. Typically, hospitals owned by for-profit entities have a higher billed charge structure than not-for-profit hospitals. So, an appendectomy at a for-profit hospital may have a 75 percent discount for a final procedure cost of $15,000. However, the same appendectomy at a not-for-profit hospital might only have a 30 percent discount but just cost $9,000.
In addition, facilities make charge master — the master list of what they bill for services — changes throughout the year, depending on financial goals. These increases aren’t across the board because some service lines are bigger revenue drivers.
How does the network contractor work with self-funded businesses?
A self-funded plan sponsor contracts with a rental network to help manage costs and plan ahead. For example, one rental network used multi-year contracts to limit uncertainty and keep costs low. By offering stability to the health care providers, who also are trying to budget, it could mean a cost break.
A network contractor shares management reports with self-funded entities to show what they are spending at each facility and the average cost per day. The rental network also can report upcoming negotiations and cost increases that are locked in, giving businesses greater control.
When looking for a health network, what should you ask?
Health plan sponsors need to look for stable, broad networks with good geographic coverage. You don’t want to contract with a network where providers are coming in or out, or that doesn’t include one of the area hospitals. Businesses should ask:
- How much turnover is there in your network?
- Do you anticipate any major provider terminations in the next 12 months?
- What is the network doing with respect to transparency around costs for certain procedures, as well as being able to provide answers about quality?
Another factor is size — a network provider that does a lot of business can use that to leverage better rates from health care providers. Ask about additional services, such as customized directories, and how much help the network will provide to resolve issues related to the pricing of claims. Finally, determine how flexible the network is in addressing issues important to you.
Jamie Huether is regional vice president, network management at HealthLink. Reach her at (314) 923-6756 or firstname.lastname@example.org.
Learn more about HealthLink's broad network of contracted physicians, hospitals and other health care professionals on their website.
Insights Health Care is brought to you by HealthLink
Middle market manufacturers often think workers’ compensation and disability are uncontrollable costs items. However, it’s more important than ever to change this way of thinking.
“Workers’ compensation is a significant variable cost element for manufacturers,” says Joe Galusha, managing director and leader for casualty risk consulting at Aon Risk Solutions. “It’s an area where controlling workplace injuries and their associated costs can actually become a competitive advantage.”
“We’re coaching our clients to take more responsibility over workers’ compensation and disability prevention, as well as claim management,” says Mike Stankard, managing director, Industrial Materials Practice, at Aon Risk Solutions. “If they do, there’s a significant opportunity to lower costs, and with that comes boosts in productivity, morale and many intangibles.”
Smart Business spoke with Galusha and Stankard about why workers’ compensation and disability management is crucial as well as cost containment and reduction strategies.
What’s the manufacturing landscape today?
Post-recession manufacturing activity is increasing, partially due to repatriation. But with that comes payroll growth, and then typically growth in workforce costs, which for manufacturing can largely be workers’ compensation and disability. There’s also negative trends related to the profile of the typical American worker that will compound the current challenges, so manufacturers that don’t put more effort into managing injuries and related costs may be at a disadvantage.
What workforce demographic trends make this management so essential?
About one-third of adults and almost 17 percent of youth are obese, according to the Centers for Disease Control and Prevention. Obesity drives comorbidity and complexities in an individual’s health, creating a link to the cost of care and recovery from injury.
At the same time, workers 55 and older are expected to be nearly 20 percent of the workforce within a year. A number of physical impacts — decreased strength, more body fat, poorer visual and auditory acuity, and slower cognitive speed and function — come with aging and affect a workers’ ability to recover from injury. People over 60 also are much more likely to be obese.
These trends not only affect employment-related injury costs, but also productivity and business continuity costs when workers are absent for non-occupational injuries.
How can big data be used as a tool here?
There’s never been as much data available for a nominal cost — the challenge is leveraging it. You need the right data at the right time to compare it to the right things. When benchmarking against other companies or applying data sets to your environment, jurisdictions, evaluation base and the age of the benchmarking sources are important to ensuring your data is pure.
Although there are external sources, many times third-party administrators (TPA) or insurance carriers have already done a tremendous amount of data mining and predictive modeling. Businesses just need to know it’s there and to start using it to drill deeper into the cause of loss and the cost drivers of workers’ compensation.
What are some best practices for managing workers’ compensation and disability?
The secret is preventing injuries and creating a healthy workforce. But injuries will occur, so focus on responding quickly with the right amount of effort at the right time on the right claim. Predictive modeling can help identify the types of claims likely to become more costly.
Understand what’s driving your costs by doing a baseline assessment of cost drivers and utilizing benchmarking to drill down. Then, align the incentives of all internal and external parties — TPA, carrier, broker, and vendors involved in loss control and claims management — to focus on the cost-driving elements, using a dashboard to monitor performance. This creates a sustainable loss control and claims management effort.
Many organizations need to align all stakeholders — human resources, finance, legal, operations, etc. Also, combine the efforts of health and wellness with workers’ compensation and safety. A streamlined approach creates a healthier workforce, reducing injuries and their costs.
Joe Galusha is a managing director, leader for casualty risk consulting at Aon Risk Solutions. Reach him at (248) 936-5215 or email@example.com.
Mike Stankard is a managing director, Industrial Materials Practice at Aon Risk Solutions. Reach him at (248) 936-5353 or firstname.lastname@example.org.
Hear more expert advice about workers' compensation and disability management in manufacturing by visiting our archived webinar.
Insights Risk Management is brought to you by Aon Risk Solutions
Health savings accounts (HSAs) are a savings vehicle increasingly being used to offset health care costs and improve awareness when utilizing health care simply because there is additional skin in the game. Further, HSAs provide potential savings and accumulation of assets that work well with long-term financial planning.
“HSAs encourage us to be better consumers, plan ahead and consider the ramifications of health care, as it applies to your long-term financial plan,” says Michael Bartolini, President and CEO of First Commonwealth Insurance Agency.
“It might be a very good opportunity to save more tax-deferred and tax-free money, depending on your situation,” says Nancy Kunz, Lead Financial Planner at First Commonwealth Financial Advisors.
Smart Business spoke with Bartolini and Kunz about how health savings accounts operate and where they fit in with your financial planning.
How does an HSA work in conjunction with your health insurance?
Many people are going to a high-deductible health care plan that has premium savings as a result of the larger upfront deductible. The idea is to shift those premium savings to an HSA, which can be used to pay for unreimbursed medical expenses on a pre-tax basis. The list of applicable expenses is long and includes dental, vision, long-term care insurance premiums, home improvements for medically necessary conditions, etc.
An HSA does not have to be provided by an employer; it can be set up on an individual basis. You also are able to accumulate funds year after year, with the idea of using those dollars against future medical expenses.
The current annual contribution limits, which tend to increase, are $6,450 for a family or $3,250 for an individual. If you are over the age of 50, you are able to contribute an additional $1,000.
How does this differ from a flexible spending account?
Typically provided by employers, a flexible spending account (FSA) works on a pre-tax basis for many of the same unreimbursed medical expenses, but the money does not roll over to the following year. If the monies that are in the FSA are not spent by the end of the calendar year, they are lost. Unlike an HSA, all monies you plan to contribute to the FSA throughout the year are available as soon as you sign up, whereas only the actual contributions are available in an HSA.
How does an HSA help you better manage health care expenses?
When something hits your pocket or you have a new cost, it causes you to be more responsible and a better consumer. If you have to pay $2,000 first with the high-deductible health plan, you’re going to be more mindful of where you go for health care expenses, including which hospital or provider you choose for a procedure.
The economics of health care don’t follow traditional economics where you choose wisely based on price points and/or quality. What one provider may charge for an MRI versus what another provider charges could be very different, but you’re not likely to care if it’s a $10 or $15 copay. We don’t have the mindset that even if insurance companies are paying, so are we — one way or another.
HSAs and high-deductible health plans with their greater level of upfront deductible pushes consumers to exert more energy to pick up the phone and find out what a procedure costs. In addition, many health insurance carrier websites are starting to populate this kind of transparent data to show provider price points.
How does an HSA fit into your overall financial plan?
An HSA can act as another retirement vehicle, especially if you start young enough to accumulate funds without having to — or choosing not to — use those dollars against medical expenses. Once you’ve reached age 65, HSA funds can be used without penalty for any purpose. An HSA also will follow you wherever you go; it’s not tied to an employer.
Many people have reached their maximum on 401(k) or IRA contributions, so depending on your age and health needs, this may be an option to look at seriously for tax benefits and long-range financial planning.
Michael Bartolini is president and CEO at First Commonwealth Insurance Agency. Reach him at (724) 349-6028 or email@example.com.
Nancy Kunz, CFP®, ChFC®, CLU®, is lead financial planner at First Commonwealth Financial Advisors. Reach her at (412) 562-3232 or firstname.lastname@example.org.
Insights Wealth Management is brought to you by First Commonwealth Bank
Virtually every business and individual borrows money at some point. Although there are many different loan types available, some universal concerns apply to every loan. Borrowers need to understand these issues and know that they may be able to limit their risk through negotiating their loan documents.
“Borrowers don’t always fully appreciate the risks they are taking when borrowing,” says Catherine A. Marriott, a member at Semanoff Ormsby Greenberg & Torchia, LLC. “Often, a default which could have been avoided can result in acceleration of a loan, putting personal and business assets at risk.”
Smart Business spoke with Marriott about what provisions counsel should review, whether or not he or she participates in the negotiations.
What are issues borrowers should consider?
Often, borrowers extend lines of credit via a simple modification document, without reviewing the documents signed when the loan was first obtained. In doing so, they run the risk of violating representations and warranties that were true when the loan was first made, but are not necessarily true when the loan is modified. Further, borrowers may not be aware of operating and financial covenants that apply to their business, and often think that because they have not had any issues in the past, there is no need for concern now. While that may be true, reviewing the initial documents is critical in avoiding defaults going forward, as circumstances and goals may have changed.
For new and existing loans, borrowers must be sure that they understand:
- All business terms, such as the monthly payment obligation, interest rate, amortization term, prepayment penalty, and operating and financial covenants.
- What collateral is pledged for the loan, including security interests in equipment, inventory and accounts receivable, and, most importantly, personal guarantees.
- The remedies that the lender has upon a default, including confession of judgment for money or possession of real property, and what effect enforcement of these remedies could have on business and personal assets.
What should be considered regarding personal guarantees?
Many borrowers form entities to keep business and personal assets and liabilities separate. Notwithstanding this goal, principals of small and midsize businesses are almost always required to personally guarantee business loans, resulting in risk to personal assets. Although these individuals are aware of their personal liability, the extent of their exposure may not truly be appreciated.
How does confession of judgment work to increase borrower risk?
Confession of judgment is a powerful remedy available to commercial lenders in Pennsylvania. It allows a lender to immediately obtain a judgment against a borrower or guarantor (or both) for money or possession of mortgaged property. The money judgment will include the accelerated amount of the balance of the loan, plus interest, late fees, attorney’s fees and costs of collection. A borrower or guarantor will have the opportunity to open the judgment only after it is entered, rather than defend the matter before it becomes a judgment. An attorney can advise of the risks and consequences of confession of judgment.
When should counsel be reviewing the loan documents?
Certain loan provisions are legal in nature, so borrowers should consult with an attorney to understand the legal risks. By doing so at the outset, counsel can advise not only on whether borrowers are receiving market terms, but also can assist with modifying or eliminating provisions that are negotiable. Counsel can make sure that borrowers understand their obligations, and that the loan terms adequately address the borrowers’ needs and business goals. The later counsel gets involved, the more difficult it becomes to improve the loan terms.
Even if a borrower has never had problems with its loans or lender, things can happen. Considering what is at stake, all borrowers should strive to minimize their risk. Spending a little time and money now to protect business and personal assets in the future is invaluable.
Catherine A. Marriott is a member at Semanoff Ormsby Greenberg & Torchia, LLC. Reach her at (215) 887-0200 or email@example.com.
Insights Legal Affairs is brought to you by Semanoff Ormsby Greenberg & Torchia, LLC
A data center is the infrastructure a business uses to house its IT assets — space, power, cooling, network connectivity, wiring, etc. Depending on the business’ size, it may be a spare closet, a dedicated building or space leased at a public data center.
“The data center itself is infrastructure and doesn’t generate revenue or create differentiated business value,” says Mike Tighe, executive director, Data Products at Comcast Business. “So, the CFO frequently says, ‘Rather than utilize precious capital to build or expand a data center, there are other options including great public data centers where we can lease space.’”
Smart Business spoke with Tighe about data center best practices, including network and bandwidth considerations.
Why are data centers so important today, and what’s in store for the future?
The function of a data center is to ensure availability of IT applications and data. If employees don’t have access, they can’t be as productive and in some cases, the business can’t run. The trend to place IT assets -—applications, servers and storage — in public data centers is rapidly evolving for businesses of all sizes, either as a main data center or as part of business continuity strategy.
Over the next five years the trend of renting rather than owning IT infrastructure will accelerate as businesses utilize cloud-based infrastructure and applications. This is not just because of better economics, the ‘cloud’ enables rapid deployment and the ability to scale applications that drive better productivity.
When should you look at outsourcing a data center?
When IT becomes an important component of how you run your business, you have to ensure high availability. If, for example, you install specialized applications used for resource planning and creation of content, but the server starts going down because of power or network connectivity loss, it impacts your business’s ability to run.
Another factor is economic. As businesses make IT decisions, they may not have the capital to build or upgrade data centers, so they’ll look at alternatives.
What are some options to consider with public data centers?
By their very nature, there are more capabilities in a public data center because everyone is sharing the cost of the generator, the physical security monitoring, having multiple network providers, etc. However, some things to consider are:
- Physical security procedures.
- Redundancy of critical components.
- The ability to expand as your IT infrastructure requirements increase.
- Network for primary and backup connections. What providers have extended their network into the data center to provide connectivity and ensure access?
- Location. Regional events including loss of power and natural disasters dictate that the backup site be located far enough from the main data center so as not to be affected by a single incident. Hurricane Sandy certainly brought home the point that a redundant data center far enough inland on a separate power grid helps ensure application availability.
How can companies build the right network?
Strong network connectivity becomes more important as IT assets are put into public data centers. Know how much your company’s bandwidth requirements are growing, and your network’s ability to scale for future requirements. On average, over the past decade, a business’s bandwidth requirements have grown around 50 percent per year. Look at network technologies that can cost-effectively scale — from 10 megabytes, an average site requirement, to one gigabyte, for example. Ethernet technology, which local-area networks are built on, is one solution that businesses are leveraging for their networks.
How do data center solutions impact a business’s bottom line?
With the economic downturn, use of company capital became a focus. Executives decided that the data center, while important, doesn’t produce any intrinsic value. And you can lease the space and preserve capital for projects that improve the bottom line. Companies can rent space by the square foot, rather than having to build another data center as IT needs expand.
Mike Tighe is a executive director, Data Products at Comcast Business. Reach him at (215) 286-5276 or firstname.lastname@example.org.
Insights Telecommunications is brought to you by Comcast Business
You are insured and sustained a fire loss. The township has now told you to demolish the damaged and undamaged portions of your building, and when you re-build make sure the building is fully sprinklered. How will you pay for these additional costs?
“The additional costs to comply with an ordinance due to the loss can be substantial, such as the loss of value of an undamaged portion of the building, demolition costs and the additional costs to reconstruct a building to comply with the ordinance,” says Phil Coyne, vice president at ECBM.
Smart Business spoke with Coyne about how building ordinance or law coverage would fill this gap in your standard property insurance policy.
What is ordinance or law coverage?
Standard property ‘cause of loss’ forms have a coverage exclusion for loss or damages that occur as a direct result of enforcement of any law or ordinance regarding construction, use or repair of the property, which includes demolition. Three coverages are available to address this exclusion under the ordinance or law coverage of your property loss form:
- Coverage A — Loss to the undamaged portion of the building. The limit should be included in the building limit.
- Coverage B — Demolition coverage, the cost to demolish and clear the building. The amount of coverage should be determined.
- Coverage C — Increased cost of construction, which covers the additional costs to comply with the ordinance or law. Limits should be determined.
In some cases, Coverage B and C are combined under one limit.
Why is ordinance coverage necessary?
Each state, county, township and municipality chooses to adopt and amend national codes, such as the National Fire Protection Association’s Fire Code, according to their needs and concerns. It can be an ever-changing landscape, and many times older buildings are grandfathered or exempt from these codes until a loss occurs.
The coverage should be on every insured’s wish list. It’s probably most critical for buildings that are older, or have older portions, and may have grandfathered codes or regulations for square footage and density. Many lenders have a requirement for this coverage in mortgage agreements.
What triggers the coverage?
There has to be a covered cause of loss that results in the application of a building ordinance. For instance, in 1990 a city ordinance said every new building in excess of three stories had to be sprinklered. Your building is four stories and built in 1985, so the ordinance doesn’t apply. However, the ordinance also might say if 50 percent of an older building is damaged, the entire building has to be demolished and rebuilt. If, after a large fire, you must demolish the building and put in a sprinkler system, this triggers your ordinance or law coverage.
Where might this coverage not apply?
The ordinance or law coverage will not apply if an insured was required to comply with an ordinance and chose not to. Let’s say, a township requires buildings with four or more apartment units to have hardwired smoke detectors and you decided not to install them. If you chose not to install them and then the building sustains a covered loss, the coverage won’t apply.
The three ordinance coverages all have to do with direct loss to the building or property. There’s no provision for the loss of business income. Standard business income policies exclude coverage for the increased period of restoration due to the enforcement of laws or ordinances. Therefore, you would need to endorse your policy to pick up coverage for this increased time.
Also, anything excluded from the policy would not be covered, such as flood loss. Every building ordinance and business income policy excludes any costs regarding pollution or mold and fungi.
What should you consider when buying this coverage?
Look at the current value on your building(s) and what coverage you get under your policy form because each insurance company adapts it differently. Have a thorough discussion with your broker regarding what coverage you think you need and what you can actually get. The insurance company may limit the amount of coverage, based on your premium and portfolio size.
Phil Coyne is a vice president at ECBM. Reach him at (610) 668-7100 or email@example.com.
For more information about risk management, visit ECBM's blog.
Insights Risk Management is brought to you by ECBM
Has your succession planning come to a standstill and you don’t know why or how to fix it? Fear, confusion, uncertainty, an undefined action plan and/or dysfunction within the family or business can all be contributors.
“Not every business struggles with all five of these challenges, but I usually see a number of them in almost every situation when succession efforts have stalled,” says Ricci M. Victorio, CSP, CPCC, managing partner at Mosaic Family Business Center.
Smart Business spoke with Victorio about five reasons succession plans stall and ways to overcome them.
What causes succession planning to stall?
Succession is about transforming the entire organization, not just transitioning a business from one person to the next. Shareholders, family members and key managers need to buy-in to the transition plan or they may undermine your efforts.
Business owners dealing with multiple issues stalling a succession plan shouldn’t feel doomed. You are not alone and there are professionals who can help you get unstuck. A succession coach or adviser can help guide your company through the emotional issues of this transition and identify early warning signs to prevent a smoldering fire from becoming a five-alarm blaze.
What are the common hang-ups and how can they be overcome?
Fear appears in many forms. In a family business it can encompass the fear of failing your family’s expectations or uncertainty about sufficient leadership skills. Such fears can transform into overwhelming doubts. Parents may fear sharing financial information with their children because of worries over perceptions of inequality in their estate plan. When talking about money and careers, familial bickering and artificial harmony replace understanding and trust. A coach can provide guidance in discussing emotional topics without confrontation, how to stay open, asking questions and considering differing opinions without blowing up.
Confusion often comes from being afraid to communicate or commit to action. Without clear communication or an execution plan, key personnel and family will become anxious worrying what is going to happen, who is actually in charge and how it will affect their security, which creates the added stress of business productivity going flat. By creating a timetable, sharing it with family, employees, your vendors and clients, and working with them to make sure it is clearly understood, you can sidestep this challenge.
Uncertainty over the economy and the business’ success has hindered many plans. You may be worried about the business value or if your successor can manage a significant bank loan. For family members, consider using a stock redemption program rather than a straight buyout, lock in key managers with a vested retirement plan, make sure you have a successor development plan and hire the best talent possible for the transition.
An undefined action plan can lead to skipped steps or no follow-through. The succession plan should be integrated into your strategic plan with specific and documented expectations, a timeline, ways to measure success and regular checkups.
Dysfunction — infighting, jealousy, sibling rivalry, secrecy and entitlement will stall family business succession. When relationships are out of alignment, people need to be heard, acknowledged and feel like they are making a contribution in dealing with important issues. Afterward, it’s possible the succession plan may look different than parents originally intended, but you will most likely have everyone on board, moving together. Even in a non-family business, not addressing existing dysfunction could lead to a failed succession effort.
There is a plan for every situation, but there is no standard solution. When your plan stalls, don’t be embarrassed to get help. Succession requires a great team, which includes the transactional assistance from your attorney and CPA, advice from your financial planner and a succession coach who focuses on the transformational goal of achieving a successful business transition while preserving family harmony.
Ricci M. Victorio, CSP, CPCC, is managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952 or firstname.lastname@example.org.
Website: More tips on how to have a successful succession transition.
Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.
All employers face a potential loss because of the hiring, employment and potential firing of employees. Therefore, employers should purchase employment practices liability (EPL) insurance to protect themselves against damages from workplace events and allegations of wrongdoing by employees.
Today, claims are increasing, the market is hardening and premiums are going up for this type of coverage, says Stephen Stromsborg, assistant vice president at Momentous Insurance Brokerage, Inc.
“It’s important for businesses and homeowners with domestic staff to partner with a broker who can represent them well to insurance companies and get them as many options as possible,” he says.
Smart Business spoke with Stromsborg about how EPL policies work and the market trends that make this type of coverage advantageous.
What claims does EPL insurance cover?
It covers such things as wrongful termination, harassment, discrimination, defamation, unfair hiring and firing practices, failure to promote, emotional distress, retaliation and invasion of privacy.
Who should consider EPL coverage?
Both businesses and households that employ domestic staff should strongly consider purchasing the coverage.
Businesses’ general liability policies either specifically exclude employment-related claims or are very restrictive and not adequate enough to respond to EPL matters. In particular, companies with large employee headcounts and high turnover are more susceptible.
As for households employing domestic staff, a homeowner’s policy won’t protect against allegations of wrongful termination or sexual harassment by domestic employees like nannies, gardeners and estate managers.
Any employee can allege he or she was wrongly terminated or harassed while employed, and an employer has a legal duty to respond, regardless of the claim’s merit. Even if it’s dismissed, not litigated or doesn’t go to trial, the high-cost of defense and/or settlement can have a significant impact on a company’s or family’s financial stability and reputation, especially without insurance.
What is impacting this coverage today?
Employment-related charges in 2012 were 20 percent higher than in 2007, according to the Equal Employment Opportunity Commission (EEOC). Many employment practices claims go straight to lawsuits and are not reported to the EEOC, so this number could be even higher. Unemployment rates are one contributing factor; California is tied now for the highest unemployment rate at 9.8 percent. With rising unemployment comes the decision to layoff employees or risk being put out of business. Unfortunately, workforce cuts can lead to disgruntled former employees suing for allegations of wrongful termination.
With the increased claim volume, insurance companies have been paying out more for both defense and settlements in the EPL arena. This results in most insurance companies transferring additional renewal and new business premium costs to employers. Companies are also increasing EPL policyholders’ retentions and deductibles. Several EPL coverages have been restricted, so it’s important to have an open dialog. The broker needs to articulate what is and is not covered in these policies for clear understanding on both ends.
What can be done to mitigate EPL losses?
Important preventative measures are:
• Maintaining adequate compliance with employment laws in the workplace.
• Establishing formal harassment training with employees.
Employers also can reduce turnover, which has a direct impact on claims.
Implementing compliance and harassment training will convey a proactive risk management work environment to underwriters, and working with a broker who can articulate those measures can lead to insurance companies being more comfortable in providing coverage.
Who can help with coverage decisions?
EPL is a very tough market. With premium increases on the rise, employers should partner with a broker who has the expertise and marketplace relationships to place the appropriate coverage.
Stephen Stromsborg is assistant vice president at Momentous Insurance Brokerage, Inc. Reach him at (818) 933-2722 or email@example.com.
Blog: Insurance strategies are constantly changing as the market evolves. To keep up, subscribe to our blog.
Insights Business Insurance is brought to you by Momentous Insurance Brokerage, Inc.