Meredyth McKenzie

Saturday, 25 April 2009 20:00

Asset protection

In light of today’s uncertain economy, it’s really important to have a wealth plan in place. First, take stock of your wealth and assets. Then, set your goals and quantify them in terms of dollars and the time you have to achieve them. Finally, determine what you have to do to achieve your goals.

Bottom line, no matter how bad the economy gets, there are ways to preserve your wealth and plan for the future.

“It is important to have an adaptable wealth plan in place coupled with proper investment disciplines to capitalize on these value changes and achieve your desired lifestyle,” says Andy Gangadharan, vice president and private wealth management advisor for Fifth Third Bank, Tampa Bay. “It doesn’t mean that you will be absolutely market proof or will not be impacted by a negative economy. However the discipline of diligence will help protect your portfolio from taking a major loss.”

Smart Business spoke with Gangadharan about protecting your assets and the steps that you can take toward wealth preservation in a volatile market.

What can happen if a business owner is not proactive about preserving his/her wealth?

Clearly, wealth will deteriorate. But the reduction in asset value has a much more immediate impact on lifestyle deterioration. Such deterioration can have another cost. For many, the cost means having to postpone retirement for many years. It is a soft cost in the sense that the leisure you had hoped for would have to be sacrificed for the grueling nine to five routine.

Business owners have one of the most concentrated positions of any investor, because a major portion of their investments is tied to their businesses. Such times call for proper prioritization efforts. Do not overspend or live beyond your means. Real wealth is not about amassing material goods, but in leading a fulfilled lifestyle knowing full well that you can easily live a good life with the money that you earn. The truly wealthy don’t just create wealth to last their lifetimes, but also create a legacy that will last for generations.

What steps can you take toward wealth preservation in this market?

Be honest with yourself. Things aren’t going to get better overnight. During such challenging times, things rarely improve immediately, but they will improve eventually.

A lot of factors go into recovering from a harsh wealth destroying economy. However, keep in mind that certain investment truisms still remain. Stocks still and will always remain one of the few readily available investment vehicles that can keep pace and outperform the rate of inflation. Ensure that you adhere to the investment philosophies that you have put into place, no matter how tough things may seem.

For example, if investors would have followed a more disciplined asset allocation strategy, the periodic rebalancing of their portfolios would have mitigated the risk of overexposure to a particular sector, as opposed to letting the favorable market conditions from a year ago overweigh the equity sector within individual portfolios, resulting in larger losses when the market underperformed.

Instead of seeking the next big investment, it may be appropriate to seek an investment that is more stable. In this environment, it is more important that you protect the assets that you already have, rather than rolling the dice on your investments, hoping to score the next big idea. A key component of wealth preservation also requires an examination of overall risk reduction. It is important to realize that insurance is a key instrument that people tend to overlook. One does not realize the role good insurance can play in protecting and preserving one’s assets and estate. Be proactive and talk to your tax advisers, estate planners and insurance advisers to develop a comprehensive financial plan specific to your individual situation.

How can you be proactive with your planning?

It is easier than you can imagine. Make sure that you are fully aware of the investments you are holding. Don’t blindly follow your investment adviser’s advice. It is your responsibility to know where your money is being invested. If you don’t understand a certain philosophy, it is OK to go back and revisit it until you do. It’s your hard earned money, your investment and your retirement. Therefore, it is imperative that you are involved and continue to be involved in the wealth management process. I am not saying that you shouldn’t trust your adviser, but the critical element in this equation is: trust, but inspect.

What steps can someone who has run into problems take to get back on track?

It is not easy to bounce back. Not only is your portfolio jarred, but your self-confidence and psyche may be shaken as well. Remember that such economic conditions occur in cycles and eventually these challenging times too shall pass. Adhere to your investment disciplines and time horizons. Do not overlook the importance of periodic portfolio rebalancing as a key to a proper asset allocation strategy.

Don’t let the bleak economic outlook or negative news impact your investment decisions. Don’t be easily swayed by what the pundits say. Remember that the Jim Crammers and the Suzie Ormons of the world are talking to a wider audience. Their recommendations may have a general application, but a professional and trusted adviser that you partner with is charged with the fiduciary responsibility of providing specific recommendations. During times like these, it is important that you secure professional advice from your trusted professionals, so that the recommendations and investment advice that is provided is customized and tailored specifically with you in mind. You are their only audience.

Andy Gangadharan is a vice president and private wealth management advisor for Fifth Third Bank, Tampa Bay. Reach him at
(813) 306-2548 or andy.gangadharan@53.com.

Saturday, 25 April 2009 20:00

Financial advice

The recent subprime market meltdown, triggered by the rise in home mortgage delinquencies and foreclosures, has caused many banks to be more conservative with their lending practices. Banks that found themselves in financial trouble due to the crisis are scaling back on their lending, resulting in a smaller number of banks lending money to borrowers.

Due to this decrease, borrowers have to be more diligent during the loan process to make sure they are making wise investments.

“Borrowers need to do their due diligence before purchasing an investment property,” says Brad Pascarella, an assistant vice president and commercial loan officer at Brentwood Bank.

Smart Business spoke with Pascarella about what due diligence to do before purchasing an investment property, how the debt service coverage ratio can be useful when leasing property, what banks can offer borrowers during the loan process and what banks are looking for in a good borrower.

What type of due diligence should borrowers do before purchasing an investment property?

As a borrower, you want to make sure that the property covers expenses, including debt, and provides you with monthly cash flow. To determine this, you should ask for current leases along with expenses for the property you are purchasing. Once you have leases, calculate revenue to make sure that the property is able to support expenses along with bank debt and provide you with additional monthly cash flow. This gives the bank a comfort level and a willingness to lend on this property. Banks also look at the area the property is in, which will determine what type of renters they will get. Is it close to shops and businesses or public transportation? You need to make sure the property fits what you’re looking for.

How is debt service coverage ratio useful when leasing property?

Banks utilize the debt service coverage ratio (DSCR) as a tool to review real estate. To calculate debt service coverage, divide net operating income by total debt service for the subject property. A DSCR greater than one indicates a positive cash flow, while a DSCR less than one indicates negative cash flow. Ideally, lenders would want a DSCR of 1.2 or higher. This means that for every dollar of debt that’s out there, there’s $1.20 of coverage. So there’s actually coverage of an additional 20 cents for every dollar coming in to cover any shortages that may occur in the future with that property.

What do banks look for in a good borrower or project?

Banks look for projects with solid cash flow, which means a DSCR of 1.2 times or higher along with adequate collateral coverage to be supported by an appraisal. Banks continue to use DSCR as a measure of how financially solid a project may be. However, in the current market conditions banks are requiring borrowers to have an equity position of at least 20 percent into the project. If the borrower is a company, personal guarantees will also be required. One of the first things a lender will gauge when sitting down with investors is their experience. Is this their first or second property, or is this someone who’s been involved in real estate for 20 to 30 years and knows the ins and outs? Depending on that situation, a banker is going to address the borrower differently. With a borrower who is new to the process, the loan officer will walk the borrower through each step of the loan process. With a more seasoned borrower, since they already have an understanding of the transaction and how they would want to structure the deal, the loan process is faster.

What deals can banks offer borrowers?

Banks will lend up to 80 percent of the purchase price or appraised value — whichever is less. By lending only 80 percent, the customer has 20 percent of their money in the transaction. Hopefully by having some of their money in the transaction, they will be less likely to default on the loan. Banks will also finance investment properties for a period of 15 to 20 years, with interest rates fixed for a five-year period. A bank’s pricing on investment real estate is based on the risk to the bank. The less risky the transaction, the more favorable the interest rate will be. By fixing the rate for only five years, the borrower does receive a lower rate than if they would fix the rate for a longer period of time.

How can a commercial loan officer help during the financing process?

Loan officers are basically a sounding board for borrowers. They will run through the numbers with you and give you an idea of the property’s value. They also might work with appraisers in the process, to make sure the property is not over valued as well.

Brad Pascarella is assistant vice president and a commercial loan officer at Brentwood Bank. Reach him at (412) 409-9000 x239 or bpascarella@brentwoodbank.com.

Saturday, 25 April 2009 20:00

Step into action

The current economic conditions and unstable market may have you feeling like your financial value is dropping. Because of this, you may be sitting on the sidelines and not planning for your future.

“Since you’re feeling less wealthy, you’re not doing some of the family transfers like gifting or worrying about getting shares out of your estate,” says Brian Bornino, CPA/ABV, CFA, CBA, director of valuation services with GBQ Consulting LLC. “Now is a good time to do that, given the low values in the market. It’s a great time to transfer shares, and a lot of people are not doing that.”

Bornino recommends working with a financial planner or trusted adviser, because you need to diversify your wealth and start to think about succession planning. There are a lot of ways to transfer business ownership, so you need to have a plan. Also, a business valuation will help you estimate the economic value of your interest in your business.

Smart Business spoke with Bornino about how to begin planning for the future, how business valuation plays a role in planning and what unique succession planning tools you can use in the process.

How can a business valuation be a helpful planning tool?

A business valuation comes into play from a compliance standpoint, in terms of documenting the fair market value of the transferred shares for gift tax purposes. It’s also a good starting point for planning. A lot of times, the wealth transfer plan starts with a business valuation and knowing what’s there, how much the business is worth, what other assets the family has, and what the value of the company will be in the estate.

You have to think about wealth equalization plans and how to take care of active and nonactive family members. You probably want to transfer an equal amount of value to them, but maybe not in company stock, maybe in other assets you have. Or you might do a recapitalization with voting and nonvoting shares and make sure the voting shares end up with the active family members and the nonvoting shares go to the inactive members.

At the end of the day, a business valuation is the cornerstone of the transfer, because you have to know the amount of money you’re dealing with to adequately plan.

What are some unique succession planning tools to use in the process?

There are a lot of great tools, but probably the most underutilized tool is the employee stock ownership plan (ESOP). It allows selling shareholders to sell the company to their employees. If the business doesn’t have active family members and is not going to remain a family business, an ESOP is a way to sell to your employees and still get fair market value for the shares.

It starts with talking to an ESOP consultant to make sure the ESOP meets your business objectives. For example, there has to be a strong management team or else the ESOP, which has similar characteristics to a management buyout, wouldn’t work.

The next step is an analysis to see if an ESOP is financially feasible. The consultant could determine the value of the company, what the ESOP would be willing to pay for those shares and decide if the price makes sense from the seller’s standpoint. They can also make sure the ESOP is properly structured to take advantage of the financial and business benefits that ESOPs offer.

You then assemble a team of advisers and complete the transaction. Usually the employees don’t find out until right before the transaction is about to happen, because you don’t want to disappoint them if it doesn’t go through.

What types of companies would be best for ESOPs?

Companies that have good cultures and open-book management styles are usually a good fit for employee ownership. Hopefully, companies that form ESOPs already have some of those characteristics, and hopefully, their employees are already taking active roles in the business.

Many owners are concerned about employees running their company, but from a corporate governance standpoint, the ESOP doesn’t necessarily change the management structure. The ESOP is the shareholder, but there’s still a board of directors that appoints management, and management still runs the company.

Why is it important to plan ahead?

Knowing the value of your business can help you decide if you want to sell to a third party or your employees or transfer to your children. It’s hard to plan if you don’t know the value. If succession planning isn’t done, the business might not transfer to the next generation or employees. If the business deteriorates, it’s not worth anything to your family, employees or a selling shareholder.

ESOPs are an opportunity to keep the business an independent entity, rather than selling to a competitor, where employees could potentially lose their jobs if the business relocates to another state or country. It’s a way to reward the employees who helped build the business, as well as a way to take advantage of many tax, financial and business advantages.

Brian Bornino, CPA/ABV, CFA, CBA, is director of valuation services at GBQ Consulting LLC. Reach him at (614) 947-5212 or bbornino@gbq.com.

Saturday, 25 April 2009 20:00

All in the family

Determining who will succeed you when you retire can be a challenge, especially if you own a family business. You may want to hand the reins over to your child, but will he or she be a capable successor? Will he or she even be interested in the business and, if not, who will become the next leader? If you have more than one child, how do you choose between them?

“They have to know about the company,” says Gaia Marchisio, assistant professor of management and faculty associate at Kennesaw State University’s Coles College Cox Family Business Enterprise Center. “Many families decide not to tell the children anything about the company because they want to leave them free to choose and not feel pressured to enter. But they are not able to make a good decision if they do not know about the business.”

Smart Business spoke with Marchisio about how to deal with succession, how to prepare the next generation and the company for the transition, and how planning early can help to avoid conflict.

What steps should you take to begin succession planning?

Start when your children are born. Share your passion for the business and teach values and responsibility. Do not pressure your children, but educate them about the family business, giving them positive and authentic messages. Plan out over a longer period of time not only to pass from the first to second generation but beyond. Proper planning and open communication will reduce the risk of bigger conflicts in the future.

How can you prepare the next generation to enter the company?

Children who enter the company must have passion and enjoyment for the job; however, their respective talent must determine how far they go in the business. Some next generation enter the company because there is a need for them, not because they have a passion for the business. Then they find out they like the job and being part of the business’s history and tradition inspires them. This gives them energy to stay and deal with the inherent family business challenges. They can have all the passion in the world, but if they don’t have talent they cannot do the job properly.

The next generation must have clear roles and responsibility, which might mean involving them in the strategic planning process. Such involvement will give them a better knowledge about the industry and company and help them gain the respect and credibility of other family and nonfamily employees. Avoid appointing next generation as your assistant, with no clear responsibilities. This hampers their learning and undermines their future credibility and self-confidence.

How do you prepare the company for the succession?

Preparing the successor is not enough! The family member needs to gain the respect of the management team and other employees. If the next generation has the position because of their talents, it’s easier for the nonfamily members to understand their achievement. If you hire a family member who is not good at their job, you can lose the motivation of the nonfamily members and damage the culture created by prior generations.

Succession is a matter of relationships and actions coupled with communication in the company and in the family. Tell staff members what you’re going to do, listen to them, and reaffirm the organizational chart as it is changing. Try to avoid position competition and reinforce collaboration among family members. It’s important for the next generation to bring value to the company and not have a job created simply for them.

What problems can you run into with succession planning?

It might happen that children don’t want to have anything to do with the business, so you have a succession opportunity with no capable successors. Or you have too many successors, so you have to choose from among them who will be the best for the company.

You might have conflicts between generations. Often you have the next generation coming in with energy and new ideas, but those who are toward the ends of their careers don’t want to risk losing what they have built. There is also a chance that you pick the wrong successor. All of these things have a negative effect on the company’s performance and future. To reduce those risks you can equip the company with powerful tools: a strategic plan and a functioning board of directors. With them in place, a mistake can be corrected with the support of the family.

What are the benefits of proactive succession planning?

You try to anticipate possible problems and figure out possible solutions, fostering communication in the family. Sometimes I have people telling me, ‘But my children are not even 6 years old.’ But that is the right moment to start — not necessarily teaching them how to manage a company but teaching them how to work together in harmony, to work hard, to make decisions, be accountable and to earn what you deserve. Because one day they might not join the company, but they may be owners, and in both cases, you want them to be responsible and passionate.

Gaia Marchisio is an assistant professor of management at the Coles College of Business and faculty associate at the Cox Family Enterprise Center, both at Kennesaw State University. Reach her at (770) 423-6324 or gmarchis@kennesaw.edu. Joseph H. Astrachan, executive director of the Cox Family Enterprise Center, and Pietro Mazzola, full professor of management at IULM, Italy, contributed to some of the research quoted in this article.

Thursday, 26 March 2009 20:00

Planning for the future

The value of retirement plans for many Americans has been dropping due to the falling stock market. People, especially those who were and are planning to retire within the next several years, are worried about what this means to their retirement plans.

As important as the decline has been, there has been greater concern for those looking to retire within the next few years. Those people are concerned with how they’ll be able to replace the income lost due to retirement.

The landscape of retirement planning changed in 1986 when congress acted to establish Defined Contribution Plans. The Defined Contribution Plan, including 401(k) and 403(b) plans, replaced the Defined Benefit Plan, traditional pensions for many workers.

This was the most significant change in retirement planning since 1875, when the first U.S. corporate pension plan was established. This change also shifted the retirement income responsibility from the employer to the employee, meaning that the employees select the investments that will eventually fund their retirement.

Because of this shift, many in the “baby boomer” generation (those born between 1946 and 1964) will be among the first to retire and not receive traditional pension checks since the late 19th century. People are concerned due to the -38.5 percent return of the S&P 500 in 2008.

“The main concern for all investors is the substantial drop in their account values,” says James C. Kaiser, an insurance and financial advisor with Brentwood Advisors.

Smart Business spoke with Kaiser about how to work with your bank and financial adviser on what to do if you are looking to retire within the next few years.

How can retirees and soon-to-be-retirees work with their banks and financial advisers to make the best of these changes?

Banks and financial advisers can be great resources. Because the retiree already has an established relationship with his or her bank or financial adviser, there is a comfort level. This relationship should lead the retiree to ask if and when he or she can retire and what approach should be taken. There must be a close relationship between the client and his or her financial adviser. The more the financial adviser knows about the client’s needs, goals, desires and fears, the greater the client can be served. Communication is the key ingredient in the financial planning process.

How can you make up for the income lost to retirement?

By working closely with your financial adviser. Because each client is individual and unique, each solution must be tailor-made for each client. The adviser must understand the client’s investment needs, goals, risk tolerance and time horizon. For some retirees, the need may be current income for themselves. Others may need to protect the income for their spouses, children and grandchildren. Solutions may include investments, long-term care, disability insurance and life insurance.

What advice would you give those looking to retire this year to make sure they get the most out of their retirement plan?

The approach should be holistic and multifaceted. There are six key areas to focus on:

No. 1, because the needs in retirement will be the same as past generations, work closely with your financial adviser to establish a budget so essential needs (housing, transportation, utilities, insurance, health care, personal care, food/meals and taxes) will be met.

No. 2, budget for discretionary needs (vacations, travel, family/friends, education and charities).

No. 3, have emergency funds available for unforeseen expenses.

No. 4, invest for growth as a hedge against inflation. Take this statistic, for example: If a married couple retires when both people are age 65, there is a 90 percent probability that one of them will live to the age of 80, and a 50 percent chance that one of them will live to the age of 90. Therefore, you need to plan long term.

No. 5, it is important to monitor and review all aspects of the plan on a regular basis, especially in these volatile markets. Meet or speak with your financial adviser accordingly.

No. 6, your plan should be flexible. This allows for changes as your needs and goals change.

What are the benefits of working with a financial adviser to deal with retirement planning and market changes?

Your financial adviser is your financial doctor, and it is his or her job to to help replace the income lost due to retirement. The more information and communication between the client and financial adviser, the better he or she is able to help with your short-term, intermediate-term and long-term goals. Remember, retirement is a stage of life, not the end of life.

JAMES C. KAISER is an insurance and financial advisor with Brentwood Advisors. Reach him at jkaiser@brentwoodadvisors.com or (412) 409-9100.

Thursday, 26 March 2009 20:00

All in the family

Jim Kaufman likes to have fun at work. So he’s established a culture at Kaufman, Rossin Cos. where his 265 employees work hard but also have fun and enjoy what they’re doing. And they know that management enjoys the work, as well.

Establishing a culture like this requires you to set the tone at the top for employees to follow and to be consistent in your values.

“Tone at the top is all about walking the walk,” says the accounting firm’s co-founder and managing principal. “Employees see me and other members of management demonstrating honesty, integrity and social responsibility. That model behavior rubs off.”

Establishing a culture, living it and then reinforcing it for employees has helped Kaufman grow the firm that he co-founded in 1962 with Jay Rossin to 2007 revenue of $49 million.

Smart Business spoke with Kaufman about how to develop and model a culture that promotes fun and recognize and reward employees who live the culture.

Establish a strong culture. It’s leading by example. It’s rewarding those who embrace the culture, provide and perpetuate it, and ultimately, counseling and coaching those who do not. Setting the tone at the top, articulating the culture and then repeating and reinforcing that culture is how we try to ensure that it’s propagated and it prospers.

Accessibility is one of the keys to leading by example. It’s important that employees at all levels have access to management, feel comfortable talking to us and have opportunities to see the values in action. Coming to work is a good way to do that, if you do it long enough.

We have an active social program, and we promote activities that we find are extremely bonding. What we discourage is a mentality of just a job to go through the motions and earn a paycheck.

Leaders need to recognize what ‘joy at work’ means to different people. The diversity in today’s workplace, including generational diversity, means it’s essential to hear input from a variety of employees about the activities, which make the atmosphere fun.

A strong culture evolves as a company grows. Establishing core values and making sure to lead by example is essential. Developing young leaders through training and mentoring is how a culture survives and thrives.

[The benefit is the] stability of employees. It’s the profitability of the business, and it certainly makes it a lot more fun for me to come to work.

Be consistent and treat people fairly. Consistency in your beliefs and actions is an essential element of leadership. We call that integrity. You do what you say you’re going to do.

Our culture starts with integrity, which we define as a consistency in words and action. That’s everything from being consistent with your vision and message, being on time, and when you say you’re going to do something, you do it. Those are small things every day that, which observed, give credibility to leadership or impair its effectiveness.

If you always try to tell the truth and do what you say, it gets to be habit after awhile. I know people have a great deal of trouble in trying to stay consistent in doing what they think and act. One of these management consultants used to say, ‘Habits feel good.’ Getting in good habits is the best way to maintain consistency.

We believe in fairness. Treating people fairly means treating people differently, because fairness is recognizing each individual as an individual and considering their needs and personal issues, and trying to resolve the questions that come up in business.

Reward those who follow the culture. Money helps. It’s recognition. Embracing the culture usually means higher income, more responsibility and more levels of recognition professionally. Plus, the rewards of being effective and making a meaningful contribution it makes for a rewarding experience.

Performance reviews twice a year allow employees to see how well they are performing, not just against the technical competencies needed to succeed as professionals but also in the behavioral areas. Using anonymous upward and peer reviews, we get well-rounded feedback at every level. This helps us see and reward behavior that represents the culture and values.

Keep communication open. It’s so easy to be misunderstood through imperfect communication. It’s a continuing challenge.

Try to establish habits of regular communication, maybe noting and recording efforts, especially until you establish a strong habit and custom. Use a more structured effort, document the effort and schedule the communications.

Set a path for employees to follow. Clarity of thought is the most essential element, the ability to think clearly when the objectives aren’t easily read because of the distractions of life, the marketplace and media. It’s to rise above the noise of contemporary life and see what your objective is and articulate it.

Management makes so many decisions, but they’re not all right. The success of leadership is making more right decisions. It comes back to the integrity and consistency. If you’re going to make a message and indicate its importance and make an intellectual and emotional investment in it, you sure better stay on course.

It gives people a sense of security and focus so they understand they’re part of a greater unit. It reinforces that sense of family, which is important to culture. It’s enriching to know that you’re with an organization that has an understanding of where it’s going to go and what’s expected.

How to reach: Kaufman, Rossin Cos., (305) 858-5600 or www.kaufmanrossin.com

Monday, 23 February 2009 19:00

Lowering your costs

The cost of health care for employees and employers has been going up for the past few years and is expected to continue to rise. Total spending on health care in 2007 was $2.4 trillion, or $7,900 per person, and is expected to increase over the next decade to $4.3 trillion. Employer premiums also increased by 5 percent in 2008, with the annual premium for a family of four at nearly $12,700 and for singles at $4,700. These increasing costs can cause additional strains on employers and employees in an already tight economy.

“Alternative funding, such as a health reimbursement arrangement, is a way to lower your total health care spending,” says Julie Salem, manager of new business sales at Priority Health.

Smart Business spoke with Salem about the types of alternative funding available, how you can implement those into your company and how they can improve your bottom line while still meeting employees’ health care needs.

What types of alternative funding or nontraditional health care benefits are available for employers?

Priority Health offers an HRA, which is a flexible, fully integrated health plan solution. It adds a health reimbursement arrangement (HRA) to a Priority Health medical coverage plan. This can be used with either a PPO, POS or HMO plan design.

The employer controls the level of HRA funding it wants to provide for its employees. Employers can customize it to suit the needs of their company as well as their employees.

The base premium is lowered due to utilizing a high deductible plan design. For example, if an employer selects a deductible plan of $5,000/$10,000, it chose to set the employee’s deductible at $250/$500, the employer is then ‘self-funding’ the balance of the deductible.

A new option for employers with at least 100 contracts enrolled, Shared Funding, could also be a money-saving option. Like other funding options, it’s backed by cost-containment measures, extensive network and great customer service. Basically, how it works is instead of paying premiums that are calculated according to the health of an entire community, the premiums align with the group’s claims history. The group pays for its actual experience. After 12 months, we compare the group’s actual experience to the total premiums it has paid. If claims are less than projected, the group receives money back, a full refund of the amount it paid but didn’t use.

If the claims are more than projected, the group owes the difference, but only up to a ceiling amount that is agreed upon in the beginning of the year. The Shared Funding alternative has reinsurance (stop-loss) protection built in.

How can employers implement an HRA and incorporate it with traditional benefits?

An employer will determine the amount to contribute to the HRA and their contributions are tax deductible. There is no need to prefund this HRA; we allow funding on a pay as you go basis. So if employees are not using benefits that go toward their deductible, there is no funding required. The administration is simplified and, because of our integrated system, we take care of all claims processing and the tracking of HRA balances.

We have a feature we can add to our benefit plans we refer to as co-pay alignment. For several benefits, rather than be subject to deductible and coinsurance, we apply a flat-dollar co-pay that is aligned based on cost of service. For example, an office visit, which is one of the lowest cost benefits, would have a flat-dollar co-pay of $10. A specialist visit would have a flat-dollar co-pay of $25, urgent care would be $40, etc. This option will remove these benefits from the deductible and, therefore, remove them from the liability of the employer if the employer is self-funding the deductible with an HRA plan design.

Does changing to an HRA affect employee benefits?

It allows employees to keep their benefits just as they are. For example, if they have a $250/$500 PPO plan, they can keep the same plan design, but the employer self-funds the higher deductibles down to the current level, therefore, allowing the employees to maintain the same benefit design. These plans are also referred to as ‘wrap programs.’

What benefits will employers see from putting an HRA in place?

They’re lowering their premium. And again, the contributions toward the HRA are tax deductible. The employer retains ownership of the HRA funds if the employee leaves the company.

JULIE SALEM is manager of new business sales at Priority Health. Reach her at (248) 324-2856 or Julie.Salem@priorityhealth.com.

Monday, 23 February 2009 19:00

In case of emergency

No matter how hard you try to perfectly plan your trip, somethingmight go wrong. Your plane couldget delayed, you could lose your luggageor something worse could happen, suchas an emergency landing or hotel fire. Being prepared for any type of emergency can make all the difference in howyou handle it and the eventual outcome.

“People in emergency situations whoget out first are usually the ones whohave a plan of attack,” says KathleenFrance, director of international reservations and services at Professional Travel Inc. “Those who are struggling to figureout what they’re doing are the ones whomay not have as great a success.”

Smart Business spoke with Franceabout what to do in a travel emergencyand how a travel management companycan help you if an emergency situationarises.

What should travelers remember when anemergency happens?

If you’re on a plane, where’s your passport or driver’s license or some kind ofidentification? You want one credit card,and passport or driver’s license on you,in a pocket someplace. If you have yourcell phone available, put it on yourselfsomewhere. Look around — how far areyou from the exits? Breathe; don’t panic.Keep a cool head, and think about howfar away you are — should you go forward or backward? Pay attention towhat’s going on. If you are sitting in theexit row, look at the pamphlet to see howto open up the door. Is the exit behindyou closer than the exit in front of you? Ifthe exit in front of you is blocked, do youhave an alternative? It’s being aware ofyour surroundings.

If you’re in a situation in a hotel, howfar are you from the exit? How manyfloors up are you? Walk down to the exitone time to know where it is, where itcomes out, and that the doors open andclose. Travel with a flashlight. Knowwhere your clothes are when you go to leave a hotel in the middle of the night.Always leave something out that you canput on.

Know where your insurance is and whoyour provider is. If it’s a medical emergency and you’re overseas, does yourcorporation provide you with medicalevacuation insurance? Does your insurance cover you when you’re injured orsick overseas? Does your car insurancecover you when you’re driving overseas?Know the emergency numbers.

Always make sure your travel arrangerhas up-to-date personal information. Inan emergency when they are trying to geta hold of you, that information is critical.

How can a managed travel program help inan emergency?

Find a good travel management company that is available to assist you 24-7. Notonly are travel management companiesopen during their normal business hours,but also have a good support systemafter hours. This extended service gives you connectivity to your agency andsomebody who’s familiar with your corporation and interests.

When an emergency happens, have aplan in place, whether it is your corporate or personal plan. It’s taking a minuteand making sure you have all the information you need in case somethingshould occur, no matter where you are inthe world. If my flight is delayed, whatam I going to do? Where am I going togo? Who am I going to call? It’s all aboutbeing aware of your surroundings.

A good travel management company isgoing to walk through all those steps ifyou have any questions before you leave,as well as while you’re en route. Doesyour cell phone work out of the U.S.?Does your phone work in that country?Does your Internet work in that country?Are you going to rely on the hotel to provide you with Internet capability, or areyou going to rely on your own phonecard and computer? If you don’t have theproper information, whom do you call?

What is the benefit of preparing for emergencies upfront?

Having a sense of, ‘I’m OK, I’ll be OK,no matter what happens, I’ll get throughthis. I have a plan and know what’s goingon.’ With a plan, you can resolve anykind of situation. Do you have to haveplan A and B? More than likely, yes. So ifplan A isn’t working, you go to plan B.Without a plan, you’re going to spendmore time trying to figure things out andmaybe waste precious minutes, ratherthan getting something accomplishedright away. The benefit is success, andsuccess in an emergency is always great,even if it’s small. If you’ve lost everythingand have nothing except what you haveon you, you’re OK. You’re alive and ableto function.

KATHLEEN FRANCE is the director of international reservations and services for Professional Travel. Reach her at (440) 734-8800x4015 or kathleenf@protrav.com.

Monday, 23 February 2009 19:00

Fifth Third Bank protects the future

Banking in the current economy can be

scary. But the passage of the

Emergency Economic Stabilization

Act in October provided some relief to businesses and consumers worried about their

bank accounts. This act increased the

amount for Federal Deposit Insurance Corp.

insurance in certain types of bank accounts.

“The modifications enacted in 2008 were a

result of the economic crisis that involved

subprime mortgages and mortgage-backed

securities issues,” says Terri L. Crane, vice

president of corporate treasury management at Fifth Third Bank. “These recent

changes and improvements should help

continue the confidence of both the consumer and financial communities.”

Smart Business spoke with Crane about

what changes were made to FDIC insurance, the benefits of these changes and how

the Certificate of Deposit Account Registry

Service plays a role with FDIC insurance.

What changes were made to FDIC insurance,

and why were they made?

  • All balances in transaction or checking

    accounts, either personal or business, that

    do not earn interest are insured in full,

    regardless of the balance. Those accounts

    that are interest bearing are still covered

    under the standard and new regulations for

    bank accounts. Should you have one or

    more typical checking accounts that earn

    no interest, you are now insured for all

    funds, regardless of the size of your balance. 

  • All interest-bearing accounts are now

    insured up to $250,000, instead of the usual

    $100,000. This increase is a major positive

    development, both from a psychological

    and financial perspective. It shows that the

    federal government has a strong belief and

    commitment in the U.S. banking system,

    even in a period of economic crisis. 

    How long will these changes last?

    These changes are not permanent. They

    apply to all insured banking institutions

    until Dec. 31. After that date, insurance limits will revert to their former levels. Your

    regular accounts will again be insured up to

    $100,000 and retirement accounts will be

    insured up to $250,000.

    On Jan. 1, 2010, the standard coverage limit

    will return to $100,000 for all deposit categories except IRAs and certain retirement

    accounts, which will continue to be insured

    up to $250,000 per owner.

    The issue surrounding the increased FDIC

    coverage that has yet to be resolved is how

    the financial organizations will pass along

    increased insurance premiums imposed

    upon them to depository customers at large.

    What are the benefits of these changes?

    This action will provide the FDIC with

    flexibility to provide a 100 percent guarantee for newly issued senior unsecured debt

    and noninterest bearing transaction deposit

    accounts at FDIC insured institutions.

    Along with the benefits of higher insurance limits, the commitment of the federal

    government and the FDIC should instill consumer confidence in the continuing stability

    of U.S. banks.

    What is CDARS?

    CDARS is an alternative way to enjoy full

    FDIC insurance on deposits of up to $50 million. With CDARS, you sign one agreement

    with a participating local bank or other

    financial institution of your choice. They in

    turn place CDs at other institutions up to

    FDIC maximums but maintain that for you

    by earning one interest rate and receiving

    one regular statement. CDARS is a great

    solution for depositors like nonprofits, public funds and businesses; advisers, including

    trustees, certified public accountants, financial planners and lawyers; and individuals as

    well as motivated investors.

    How can CDARS be useful to businesses?

  • Full insurance. Using the CDARS service, you can access up to $50 million in FDIC

    protection on CD investments. 

  • One bank. You work with a local

    CDARS network member to secure large

    deposits, from $10,000 to $50 million. 

  • One rate. You earn one interest rate on

    CD investments placed through CDARS.

    With CDARS, there is no need to negotiate

    multiple rates or manually tally disbursements for each CD. 

  • One statement. You receive one regular

    statement detailing your CD investments.

    You no longer need to consolidate statements at the end of each month, quarter or

    year. 

  • No hidden fees. There are no hidden

    fees of any kind. You will not be charged

    annual subscription or transaction fees for

    using the CDARS service. The rate you see

    is the rate you get. 

  • No collateralization. Because CDARS

    deposits are eligible for full FDIC protection, you may not need to collateralize your

    deposits. This eliminates the time-consuming task of tracking collateral values. 

  • A wide variety of maturities. You can

    select from various maturities — ranging

    from four weeks to five years (260 weeks) and choose the terms that best suit your

    investment needs. 

  • Community involvement. Your funds

    can support lending initiatives, including

    special development projects that strengthen the local community. 

    TERRI L. CRANE is vice president of corporate treasury management at Fifth Third Bank. Reach her at (513) 534-0677 or

    terri.crane@53.com.

  • Monday, 23 February 2009 19:00

    Identity check

    Some employees at your company may be hiding a big secret from you: They’re legally not allowed to work for you or even in this country. Over the past several years, there has been an increase in people using sophisticated fraudulent information to secure employment, whether through false documents, false benefit applications or even identity theft.

    “Unfortunately, that sophistication has made it next to impossible for employers to be sure they’re not employing illegal aliens,” says Jessica Ford, director of sales and operations at Ashton Staffing. “Even companies with the best of intentions often find themselves open to fines and civil penalties if they’re audited.”

    Smart Business spoke with Ford about how employers can use the E-Verify and IMAGE certification programs and what to do if you find a problem with a new hire.

    What is E-Verify?

    E-Verify is an online system operated jointly between the Department of Homeland Security and the Social Security Administration. Participating employers can check the work status of their new hires by comparing information from an employee’s I-9 form against what the SSA and DHS have on their databases. E-Verify is free, and currently, in Georgia, it’s voluntary unless you are a state agency or provide services to a state agency.

    After registering, companies sign documents stating that they will post written notice in their hiring facilities; this allows applicants to know you’re currently enrolled in E-Verify. E-Verify can only be used on new hires. If a company wants to verify its current employees, it must electronically submit its payroll to the SSA via the Social Security Number Verification Service.

    What is IMAGE certification?

    IMAGE is short for ICE (Immigration and Customs Enforcement) Mutual Agreement between Government Employers. It is a joint initiative between the government and businesses to strengthen hiring practices in the private industry by reducing the size of the illegal work force. IMAGE certification is a free service.

    How can companies implement these programs into their business practices?

    Companies who are interested in E-Verify can log on to DHS’s Web site (www.dhs.gov/index.shtm) and register, print off a few forms and mail them in. After you’ve registered, DHS will contact you and provide online training. Once you’ve completed the training, your employees must pass an exam before utilizing the Web site.

    Enrolling in IMAGE is a bit more extensive. Companies must currently use E-Verify and agree to an audit of their I-9s by ICE. Companies also must agree to submit their current payroll to the SSA and implement a few ICE-suggested programs. Interested companies may log on to ICE’s Web site (www.ice.gov) and register for information. You may then request an in-person meeting with an IMAGE coordinator.

    What should an employer do if it finds an employee mismatch?

    The beauty of E-Verify is that it not only alerts you to a nonconfirmation of eligibility but it also guides you through the process. If a nonconfirmation comes back, you print a letter to the employee that lets him or her know that there has been a mismatch. The employee either chooses not to contest the results and self-terminates or goes to the local Social Security office and speaks with someone there. If the employee chooses to contest, he or she has eight days to return with proper paperwork. During the eight days, you must continue to employ that person. If he or she does not return, you may terminate the individual.

    What makes a fraudulent document stand out?

    Check Social Security cards carefully. Many times fraudulent documents have misspelled words, the font is different or is an irregular color. If the back of the card is blank, it is fraudulent.

    What are the benefits of using E-Verify and IMAGE certification?

    E-Verify almost completely eliminated our Social Security mismatch letters. It has also improved the accuracy of wage and tax reporting and ensures companies are maintaining a legal work force. E-Verify has recently implemented a photo-screening tool, so when you are verifying your employee’s right to work in the U.S., it has a photo of what the person should look like, which eliminates identity fraud, as well.

    With IMAGE certification, there are several benefits, one of which is free training to your staff. You also receive a two-year respite from any I-9 audits after you enroll. If for any reason your company faces civil penalties for employing illegal workers, the good faith participation in IMAGE is considered when fines are assessed.

    JESSICA FORD is director of sales and operations at Ashton Staffing. Reach her at (770) 419-1776 or jford@ashtonstaffing.com.