How to prepare your next generation of leaders

Mary Ellen Harris, director, Human Resources, Kreischer Miller

Mary Ellen Harris, director, Human Resources, Kreischer Miller

Effective leadership essentially involves a leader’s ability to influence the behavior of followers in pursuit of goals and objectives. Therefore, those in leadership positions must possess the knowledge, skills and abilities that will allow them to influence the behavior of others.

“Organizational leaders must focus on developing the less experienced members of their organization if they hope to preserve the longevity and sustainability of their organization. Successful organizations typically include employee development as one of their strategic goals and have detailed plans for its execution,” says Mary Ellen Harris, director of Human Resources at Kreischer Miller.

Smart Business spoke with Harris about effective succession planning.

How do you bridge the generational gap?

What constitutes strong leadership characteristics and skills remain constant. In other words, leadership skills are universal and do not differ based on the age of the potential leader. However, in order to bridge the gap between generations, organizations need to be more focused on the communication methods and development vehicles employed in an effort to develop the members of the other generations, as opposed to focusing on the content of the development program itself. Don’t get caught up in the differences that people attribute between generations. Regardless of when a person was born, human beings possess similar core needs/desires such as being treated with respect, feeling valued by peers and having the chance to achieve goals. Bridging the gap is best approached by collaborating with the target group on the design of your leadership development program.

What are the keys to an effective program?

The best approach will include a combination of both formal and informal methods of developing employees. A useful informal approach is as simple as having successful veteran leaders within your organization spend time with aspiring leaders. The veteran leaders model appropriate leadership behavior and the aspiring leaders can observe how a successful leader performs.

You can also expose aspiring leaders to successful veteran leaders from outside of your organization, or provide recommended reading assignments such as books, journal articles and other respected resources to help them take responsibility for developing themselves.

From a more formalized standpoint, the inclusion of training classes and mentoring programs are effective techniques for developing leadership skills. In addition, incorporating leadership skills in your performance appraisal system and ensuring that employees are given specific leadership development targets, feedback and assessments is essential. Shadowing programs and short-term ‘leadership’ role assignments, such as leading a project team, are also effective.

Finally, formal education through college courses and internal training classes are effective leadership development strategies.

What role does context or environment play in the creation of an effective leadership development program for the next generation?

Context is a very important factor that influences the approach to developing your next generation of leaders. A not-for-profit organization will likely approach things differently than a for-profit organization, and similarly a large organization will likely approach development efforts differently than a small organization. The type of industry will also have an impact on the approach and options available for the development of aspiring leaders. For example, some contexts may not be conducive to the use of mentoring programs, but they may be extremely effective elsewhere. Similarly, shadowing programs work in some environments but might not be productive or feasible in other environments.

There is no one specific formula for preparing your next generation of leaders. It is imperative that organizations customize their approach and include such factors as the context, industry, size of the organization, and people involved in order to design a unique combination of methods and techniques that are best suited for the organization’s specific needs, goals and objectives.

Mary Ellen Harris is the director, Human Resources at Kreischer Miller. Reach her at (215) 441-4600 or [email protected]

 

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How remote deposit capture saves businesses time and money

Kerri Werschky, retail sales manager, First State Bank

Kerri Werschky, retail sales manager, First State Bank

Remote deposit capture is a treasury management service that allows your company to deposit checks immediately upon receipt by using an electronic scanner, without the need to visit a bank. It saves time, increases productivity and lets employees focus on areas that most benefit the business, using resources in the most cost-effective manner.

“Remote deposit capture reduces your transportation needs substantially. A courier may only need to travel to the bank once per week, as very few items need to go to the bank in paper form — an 80 percent reduction in transportation,” says Kerri Werschky, retail sales manager at First State Bank.

Smart Business spoke with Werschky about how remote deposit capture enhances your banking and business.

How can remote deposit capture improve your operations with time and cost savings? 

By using remote deposit capture, substantial savings come from reducing your transportation expenses and allowing employees to focus on other tasks. Most items can be captured, with just a few that must be deposited in paper form at a bank. According to remotedepositcapture.com, a business depositing 10 checks daily to a bank 5 miles away, could save $722 on mileage, $3,930 on recovered labor, $393 on increased productivity and improve cash flow acceleration annually by using remote deposit capture.

This banking service also provides quality control when your accounting system directly receives the data. With this, businesses can access copies of prior transactions, save time and paper because deposit tickets aren’t needed, and still print reports identifying the day’s deposit.

How does remote deposit capture accelerate the collection process?

As payment technology evolves, remote deposit capture has become a fundamental part of the collection process that businesses should be using. Checks sitting in a drawer don’t help cash flow and availability of funds, especially if you are unable to drive to the bank daily to make deposits. You need to quickly process checks through the system for collection.

Remote deposit capture allows extended deposit cutoff times for same-day ledger credit and more flexibility. With the convenience of scanning and depositing checks electronically from your office, employees can easily incorporate the service into your daily business processes. No more rushing to the bank at the end of the day to beat the closing time. In addition, a company with several locations can consolidate banking relationships, even if a bank is not in the same geographic area.

How are remote transfers tracked?

Just by handling transactions through remote capture banking at your own office, you increase accuracy and control. As transactions occur and are finalized, you can keep a close watch on them through online banking. This secure information is convenient, which gives flexibility when transferring money and making payments.

You can make deposits from multiple and/or remote locations, and then centrally track deposit reporting and reconciliation. This consolidation gives businesses a chance to vastly improve payment reconciliation management and the ability to research prior deposits.

What has been done to reduce fraud with remote deposit capture?

Banks work hard to mitigate and manage the fraud risks related to check processing. Remote deposit capture reduces this risk, though, as returned check deposits can be recognized earlier with accelerated clearing.

However, it is vital that businesses also take precautions on their end. Put strong, effective control measures in place around remote deposit capture and check processing to limit exposure. Have written policies and procedures for employees to regularly follow, as well as established security measures for handling checks after scanning.

By utilizing a cost-effective remote deposit capture service in your business, you stand to gain a wide-range of benefits — accelerated clearings, improved availability, enhanced cash flow with better cash management, reduced return item risk, transportation savings and convenience, and the ability to consolidate deposits from multiple and/or remote locations — that all translates to better operations and more profitability.

Kerri Werschky is a retail sales manager at First State Bank. Reach her at (586) 863-9485 or [email protected]

 

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How to create a happy workplace

Beth Thomas, executive vice president, managing director of Consulting Services, author of “Powered By Happy,” Sequent

Beth Thomas, executive vice president, managing director of Consulting Services, author of “Powered By Happy,”
Sequent

Business leaders understand the value of employee engagement, yet many have been slow to implement plans within their organizations.

“It’s interesting that 75 percent of leaders have no engagement strategy, even though 90 percent say it has a positive impact on business success. So while they think it’s important, they’re not actively engaged in affecting change. I think they don’t fully understand the impact it can make on the bottom line,” says Beth Thomas, executive vice president and managing director of consulting services at Sequent.

She says employee engagement is about creating an environment where employees understand the company’s values and what is expected of them, and are committed and dedicated to their work.

“Employee engagement is probably the biggest reason why companies are successful. Engaged employees generate 40 percent more revenues than disengaged ones and are 87 percent less likely to leave an organization,” says Thomas.

Smart Business spoke with Thomas about ways to boost employee engagement and the impact it can have on an organization.

What can companies do to foster employee engagement?

There are five keys to creating conditions for thriving, engaged employees:

  • Empowering employees. No one wants to be micro-managed; they want to feel that what they bring to the table is valued. They were hired for a reason — let them do that job.
  • Sharing information. People get anxious and disconnected when there are a lot of closed-door leadership meetings. Create a connection by bringing employees into the growth of the company with quarterly or town hall meetings.
  • Minimizing toxic behavior and negative feedback. Hire the right talent that will fit the culture and bring positivity. Then hold employees accountable to the values and expectations of the organization.
  • Offering performance feedback. Everyone wants to know how he or she is doing, and it shouldn’t be just once a year. Empower them and let them know they’re in charge of their careers, and can move forward if they are motivated and dedicated.
  • Appreciating employee value through reward and recognition. Have an employee of the month award and profile that person because people will want to emulate what they are doing. Make it very clear what is needed in order to be successful and profile those behaviors, characteristics and performance standards so everyone knows what is valued. That includes recognizing all the qualities that are valued; it doesn’t have to be based on the same performance. An employee might not be a high-powered salesperson bringing in six-figure deals every month, but might be the most positive person in the office and contributes to the organization’s culture.

Does employee engagement start with the hiring process?

Absolutely. When you are hiring people, it’s just as important to assess their ‘soft skills’ as their knowledge, skills and abilities. It’s more difficult to train people to be team players. Having the personality to go above and beyond to meet a customer’s needs or to be a trusted adviser is a soft skill that is largely innate and takes a lifetime to build. It’s important to evaluate those qualities to ensure they match the organization’s culture beyond the skills they bring.

Is it the workplace culture that promotes engagement?

Yes, it’s about the culture, but also all the employees and the leaders. It’s important for employees to ‘hang with the gang that gets it’ — those people at work who are successful — steal shamelessly and emulate what they do. Conversely, when employees hang with the people who are negative and contribute to toxic behavior, leadership sees them as being one of them, even if they’re not participating in those activities.

Engagement goes hand in hand with happiness. In a work context, happiness is about finding what in your career makes you happy. While it may sound trite, happiness leads to engagement in your work, which motivates you to give 110 percent or more discretionary effort. This is what contributes to business success, not only boosting your own career but at the same time increasing the company’s bottom line. Who wouldn’t want that?

Beth Thomas is an executive vice president, managing director of Consulting Services and author of “Powered By Happy” at Sequent. Reach her at [email protected].

 

Event: Get your company “Powered by Happy” with the employee engagement workshop.

 

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How to comply with new HIPAA regulations for business associates

Tony Munns, member, Risk Advisory Services, Brown Smith Wallace

Tony Munns, member, Risk Advisory Services, Brown Smith Wallace

Companies are being challenged to protect vast amounts of proprietary and confidential information. And now, many are being held to an even higher standard when it comes to protected health information (PHI).

“The Health Insurance Portability and Accountability Act (HIPAA) has existed since 1996. It’s well established that covered entities — health care providers, benefit plans and clearinghouses — have a responsibility to ensure the privacy and security of PHI. Recently, the rules have been tightened to also cover business associates — organizations with which a covered entity shares PHI. These changes mean that business associates now have to fully comply and be accountable under the HIPAA security rule,” says Tony Munns, member, Risk Advisory Services, at Brown Smith Wallace.

Smart Business spoke with Munns about the final omnibus rule and what actions businesses should take.

What prompted the new rule?

A significant number of data breaches were from business associates who were not as diligent as they should have been, and covered entities were not selecting business associates with the appropriate rigor. A notable example involved an insurance company that had a business associate who was responsible for off-site storage of sensitive data. The business associate was using a garage, which was left unlocked and wasn’t climate-controlled. That contracting choice has led to separate investigations by both California and federal regulators.

What action should companies be taking?

The Department of Health and Human Services said that it’s not sufficient to just have an agreement, there needs to be satisfactory assurance that the business associate can and does follow proper procedure. Entities covered by HIPAA have until Sept. 23, 2013, to update their business associate agreements. Current agreements do not have to be changed until they’re up for renewal, but in any case all agreements have to be updated by Sept. 22, 2014.

What steps should companies take to comply with the legislation?

  • Understand the new requirements and the impact on the business.
  • Update business associate agreements.
  • Apply the satisfactory assurance mandate.

Review existing agreements and perform due diligence to get comfortable with the practices of your business associates. This might involve requesting that audits be performed, such as Statement on Standards for Attestation Engagements No. 16 reports. In the insurance company example, no one examined whether the person contracted to provide off-site storage was capable of providing it to the level expected.

What are other requirements of the final omnibus rule?

The new rule requires that individuals be informed that their information has been breached. Managing breaches is no longer sufficient. Meanwhile, business associates are not required to provide a notice of privacy practices or designate a privacy official; they only need to comply with the general privacy requirements and all security measures, much like covered entities.

The definition of a breach was also changed from ‘a significant risk of financial, reputational or other harm to an individual’ to ‘an acquisition, use or disclosure of PHI in a manner not permitted.’ Under the old rule, companies that didn’t believe information was compromised didn’t need to classify it as a breach. Now they have to report the breach, but can apply mitigation to demonstrate there was a low probability of harm.

What are the penalties?

There are four categories:

  • Ordinary breaches, such as an error or lost equipment — $100 to $50,000 per violation.
  • If reasonable due diligence would have revealed the violation — $1,000 to $50,000 per violation.
  • Conscious, intentional failure or reckless indifference, but the breach was corrected — $10,000 to $50,000 per violation.
  • Conscious, intentional failure or reckless indifference and the breach was not corrected — $50,000 per violation.

For all violations, the cap is $1.5 million. And there will be more enforcement.

Tony Munns is a member, Risk Advisory Services at Brown Smith Wallace. Reach him at (314) 983-1297 or [email protected]

 

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How big data is changing the way business decisions are made

Satyendra Rana, Ph.D., vice president, HTC Global

Satyendra Rana, Ph.D., vice president, HTC Global

More information leads to better decisions, and big data is providing companies with enough background to take much of the guesswork out of decision making.

“The larger the data set, the greater the context. Big data promises the tools to make observations much sharper and guide decisions based on facts or highly likely predictions, as opposed to intuition or sheer courage,” says Satyendra Rana, vice president at HTC Global.

Smart Business spoke with Rana about how companies can take advantage of big data and its potential for improvement and innovation.

What is big data?

Big data is a paradigm shift in the way businesses view and use data. For a long time, businesses focused on people, process and technology; data was considered a pain rather than an asset or an opportunity. Companies need to innovate and can no longer do so with the old approach. The new triangle is people, process and data, with technology as a substratum enabling all of those.

The first step to using big data is to look at what business outcomes are desired, then work backward and determine what data needs to be captured to glean those insights. A lot of that data might be internal, but business is not conducted in a vacuum — it needs to be understood in the context of markets, customers and suppliers. So there may be a need to gather external data to be correlated with the internal data. People have conceptions that big data initiatives have to necessarily use outside data, or that it’s only about outside data such as social media. It’s really more about what is done with the data than the source.

There are opportunities to collect data through various applications and sensors. Historically, it was a problem to collect data because it wasn’t readily available. For example, surveys were the main mechanism for collecting market data; you would need to approach 100 people to get 10 to respond. Now, people are volunteering information through mobile platforms and social media. Data is also being collected through instruments such as sensors on cars. Technology has made it cheaper to collect and store data, but businesses still have to take another step and leverage that data.

What are some of the applications?

The applications are everywhere, even though the most frequent uses are seen in marketing. Understanding customers better leads to improved relationships and more cross-selling and upselling. But big data insights can also improve operational efficiencies. For example, supply chain decisions about what products to stock in the warehouse can be influenced by big data. Insights could also lead to entering into new lines of business that weren’t considered. Further, a consumer using his or her credit card at a large retailer might be sent an alert offering a coupon for lunch at a partnering restaurant. The credit card company knows from its data that the customer eats lunch at this time and one of its restaurant partners is nearby, so it tries to predict behavior in real time. When the person uses the coupon, the credit card company gets a share. That’s a new line of business based on information the company had and was not utilizing.

How can companies get started on big data initiatives?

That’s an issue companies are struggling with. A data governance strategy is needed to deal with the amount of data that is received. You have to understand what is coming in and how it can be used. The most important step is to realize that big data is not just a technology issue, which can be a difficult task internally. Big data requires the business and IT sides to work together more closely than in the past. If big data is approached as an IT issue, its full benefit will not be realized. If it’s a business process and IT is involved only in terms of what storage to buy or application to install, companies may not quite understand what is possible.

Big data is changing the way businesses approach the fundamental need to innovate and create differentiation. For the past 20 years, innovation was about streamlining processes such as supply chains. Big data provides a new field for innovation by providing insights quickly and in more creative ways. Eventually, businesses will not have a choice; they will have to deal with big data in order to innovate and survive.

Satyendra Rana, Ph.D. is vice president at HTC Global. Reach him at (512) 773-0357 or [email protected]

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How low availability, limited coverage impedes insuring against terrorism

Shelley C. White, Assistant Vice President, SeibertKeck

Shelley C. White, Assistant Vice President, SeibertKeck

In 2002, President George W. Bush signed the Terrorism Risk Insurance Act (TRIA) requiring insurance carriers and the federal government to establish a risk-sharing partnership for future losses. It was created as a result of 9/11 as a temporary measure to allow time for insurance carriers to develop their own solutions. Originally set to expire in 2005, the act has been extended twice, and will now expire in 2014.

“The private markets alone cannot and will not provide the level of terrorism insurance our economy demands,” says Shelley White, assistant vice president at SeibertKeck. “The threat of terrorism has become a greater concern for businesses in today’s uncertain and rapidly evolving global climate. It should continue to be part of a comprehensive risk management program.”

Smart Business spoke with White about terrorism coverage today and where problems still occur.

Why was the TRIA created and how does it work?

For property and casualty insurers, 9/11 losses paid out a reported $40 billion from property, business interruption, aviation, workers’ compensation, liability and life insurance lines. As the largest disaster in the industry’s history, carriers were reluctant to continue providing coverage. State regulators agreed to allow carriers to exclude terrorism from policies, and coverage was soon unavailable or extremely expensive.

The TRIA was created as a temporary federal program of shared public and private compensation for insured losses to allow the private market to stabilize, protect consumers by ensuring the availability and affordability of insurance for terrorism risks, and preserve state regulation of insurance. Carriers set the price of coverage within the limits imposed by regulations.

With the federal backstop in place, commercial lines policyholders could choose to purchase or reject terrorism coverage from existing insurance programs; the program doesn’t extend to personal lines policyholders. This offer continues today with most coverage lines, except workers’ compensation policies where insurers and qualified self-insured employers cannot exclude terrorism coverage because of lifetime medical care for on-the-job duties.

What changes were made when the program was extended?

In 2007, the government modified and extended the act through Dec. 31, 2014. Several provisions changed, including:

  • Revising the definition of a certified act of terrorism to eliminate the requirement that the individual(s) is acting on behalf of a foreign person or interest. Some property insurers add exclusionary language related to non-certified terrorism coverage.
  • Updating the payout cap to $100 billion per year for insured losses.
  • Requiring the Treasury Department to establish a procedure for allocation of pro-rata payments in the event that a terrorism loss exceeds the cap.

When purchasing terrorism coverage, how much do premiums increase?

The cost for the TRIA on an average risk is usually a single-digit percentage of the policy premium. Higher risk businesses such as financial institutions, real estate, health care and utility companies tend to be in the double-digit percentages.

Many policyholders, regardless of size, continue to decline terrorism coverage — not considering themselves targets. Larger risks often feel the coverage doesn’t provide enough to protect their exposures.

What are some of the continuing problems with terrorism coverage?

It is the insurance industry’s goal to work with Congress on creating terrorism insurance renewal past 2014. Terrorism coverage provides market stability.

There will be a significant effect on real estate lending if this backstop disappears.  Mortgage-backed securities, for example, will be in default. Private markets aren’t able to offer coverage without the federal backstop and cannot offer the level of insurance our economy demands.

The Government Accountability Office is working to assess options and review proposals, and Congress is encouraging greater private market participation. We’re optimistic that a long-term solution will be reached.

Shelley White is an assistant vice president at SeibertKeck. Reach her at (330) 865-6582 or [email protected]

 

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How the right on-site facility lowers costs, improves health management

Leonard Eisenbeis, director, Clinical Health Operations, UPMC WorkPartners

Leonard Eisenbeis, director, Clinical Health Operations, UPMC WorkPartners

On-site workplace centers have grown in recent years from being traditional in-house occupational health clinics where someone who was injured on the job could get basic care, to more extensive total health management centers that offer acute care treatment, health and wellness programs, health coaching, behavioral health assistance and chronic disease management.

Not all on-site facilities are right for all employers, but many different-sized companies are finding models that make sense for them.

“Studies have shown that only about 25 percent of large, self-insured firms offer some type of workplace center,” said Leonard Eisenbeis, director of Clinical Health Operations for UPMC WorkPartners, an affiliated company of UPMC Health Plan. “But, studies have also shown that the number of companies planning to open a worksite center doubled between 2007 and 2011 because employers are looking for a way to lower health care costs and support their bottom line.”

Smart Business talked with Eisenbeis about on-site services and why they can make sense for some employers.

What are some of the benefits that employees receive in on-site centers? 

An on-site health management center is attractive to employees because it provides convenient and timely treatment for a set of acute conditions. It also replaces what, for the employee, would be a more costly visit to an emergency room or urgent care facility. Additionally, the center can monitor employees’ chronic conditions, which can easily be relayed to their primary care provider or medical home, improving overall total health management.

What are some of the benefits employers see with on-site centers?

Employers like the fact that on-site centers reduce employees’ lost time from work, which increases productivity. In addition, a good on-site center can help generate employee awareness through physician referrals by engaging at-risk employees in a comprehensive management of lifestyle behavior and disease management. Also, directly avoidable health care costs — such as physician visits, urgent care and emergency room use — can be diminished through on-site centers.

What are some features you can expect at an on-site center?

On-site center staff provide primary care support and on-site care for acute health care services, such as headaches, minor injuries, sore throats, sprains and strains.

You can expect the center to be a front door to occupational health services, where occupational injuries can be reviewed quickly and triaged, and occupational health exams, drug testing and OSHA reporting could take place. Good on-site total health management centers provide health and wellness education and referrals. Employers may include prescription medication services by providing a courier service to deliver prescriptions to employees.

Is there one model for on-site centers?

No. Employers can choose from several delivery methods to find the one that works best for their individual companies. For instance, they can have on-site health centers, or they can have a ‘near-site’ center within several miles of the employer’s campus to be used by employees who work at different sites. Another form of on-site services is mobile medical units, which are a cost-effective option for targeted medical services or testing.

Employers also may take advantage of telehealth technology within an on-site center to effectively service a number of worksite campuses. Telehealth is a remote health management application that links employees from an on-site health center to a physician or provider using interactive videoconferencing, voice and data systems, and embedded peripheral devices.

Telehealth is becoming more popular because this technology could allow an employer to install telehealth equipment with a nurse or medical assistant and transmit a patient encounter to a provider, greatly increasing the affordability of on-site care and financial return on investment. There are many options in the deployment of telehealth that make providing total health management care very scalable to companies of all sizes.

Leonard Eisenbeis is a director, Clinical Health Operations at UPMC WorkPartners. Reach him at (412) 454-4960 or [email protected]

 

Save the date: Join UPMC WorkPartners for an upcoming webinar, “The Next Generation Worksite Health Center,” at 10 a.m. April 24. To register, contact Lauren Formato at (412) 454-8838 or [email protected]

 

Insights Health Care is brought to you by UPMC Health Plan

 

How retirement planning needs to change with your company

Paula M. Lewis, QPA, QKA, Manager, Client and Advisor Experience, Tegrit Group

Paula M. Lewis, QPA, QKA, Manager, Client and Advisor Experience, Tegrit Group

Retirement plan sponsors, now more than ever, need to be diligent in carrying out their fiduciary responsibilities. The Department of Labor, IRS and other agencies have eyes on the industry, especially with new retirement planning fee disclosures and a soon to be proposed expanded definition of “fiduciary.”

“The business owner who says, ‘I’m hiring these service providers to run the plan and I don’t have to worry about it’ is nonetheless ultimately responsible if there are problems,” says Paula M. Lewis, Manager, Client and Advisor Experience, at Tegrit Group.

Smart Business spoke with Lewis about what business changes could signal that retirement plan adjustments are necessary.

Who do plan sponsors deal with?

Plan sponsor decision-makers depend on industry experts for assistance in managing their roles and responsibilities. Although some parties may serve multiple roles, the sponsor may engage an accountant, an investment advisor, an actuary, an ERISA attorney and a third-party administrator (TPA), with each having important and distinctive functions impacting the plan’s operation.

Despite having all these providers in place, the ultimate responsibility for the plan still lies with the plan sponsor. Employers sometimes put in a retirement plan and just let it ride, but then no one is ensuring the plan grows and changes with the company and its employees.

In this dynamic environment, it’s crucial that all parties communicate. It’s best if you know that your service providers work well together, which lessens the risk of something being missed, and the best course of action is being charted.

What changes need to be communicated?

Usually, over time there are changes to the employee demographics, financial standing and even the goals of a company. The company’s retirement plan should also change over time to reflect these changes in employees, finances and objectives. Certain changes always should be communicated to plan service providers, including:

  • Changes in ownership.
  • Acquisition or divestiture of another company.
  • Family members becoming employees of the firm.
  • Major compensation changes of key personnel.
  • Retirement plan goal changes of key personnel.

It’s confusing to know who to tell what, but generally, the investment advisor and TPA should be made aware of all of these changes, as they may impact fiduciary considerations and compliance. The investment advisor, along with the TPA, should be able to analyze any changes, determine which parties need to be informed, and make any plan changes to avoid any problems or penalties and ensure the plan is designed to maximize the benefits and goals of the company.

What can happen if changes aren’t reflected in the plan?

There are various penalties that are imposed if a plan falls out of compliance because of changes at the plan sponsor level. Late amendments and failed compliance testing are but two. For instance, if the spouse of the owner of one company purchases a separate company, the two companies can be considered a ‘control group,’ and for plan purposes are ‘one.’ Upon an IRS audit, the less generous company may have to increase its plan contributions, which could be an expensive correction avoidable with advance planning and appropriate plan designs.

When acquiring a company with a pension plan, you acquire its liability, especially if it’s underfunded — unless the acquisition agreements are carefully worded. Without advance planning, closing a division could produce a costly surprise as it could be considered a partial plan termination, requiring that the terminated employees be 100 percent vested.

Another area that can cause compliance issues is how certain family members of owners becoming an employee impacts the retirement plan. According to the IRS, he or she is considered highly compensated regardless of their salary. That could cause a plan to require corrective contributions. It is crucial to keep the lines of communication open with your advisors and TPA.

Paula M. Lewis, QPA, QKA, manager, Client and Advisor Experience, at Tegrit Group. Reach her at (330) 983-0485 or [email protected]

 

Website: Visit Tegrit’s Advisor Resource Center at www.tegritgroup.com/arc for additional retirement planning tips.

 

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What current and future health care reform laws mean for you

Marty Hauser, CEO, SummaCare, Inc.

Marty Hauser, CEO, SummaCare, Inc.

The new year means we are closer to the 2014 changes under the Patient Protection and Affordable Care Act (PPACA), the health care reform bill.

While we’re approaching the implementation of major changes to the way care is delivered in this country, some provisions are pending guidance and structure, so many employers are in a holding pattern until things are clearer.

“The best thing an employer can do is become familiar with upcoming changes and talk to their insurer and financial planners now,” says Marty Hauser, CEO of SummaCare, Inc. “Though they might not have all the answers to your questions, it’s a good time to begin the conversation.”

Smart Business spoke to Hauser about what provisions have gone into effect and what we can look forward to this year and into 2014.

What provisions exist now?

In 2010, early provisions included coverage of children with pre-existing conditions; coverage of dependents up to age 26 and 28 under federal and Ohio law, respectively; elimination of lifetime limits of coverage; regulation of annual limits of coverage; prohibiting rescinding of coverage; and 100 percent coverage of certain preventive services.

In 2011, more provisions were implemented, including extending 100 percent coverage of certain preventive services to Medicare members; medical loss ratio requirements; and changes to Federal Savings Accounts (FSAs).

Last year, women’s preventive health services were added to services covered at 100 percent, when received in-network, and insurers were required to distribute Summary of Benefits and Coverage (SBC) documents to potential enrollees upon application and renewal. Employers were also required to include aggregate costs of employer-sponsored health coverage for the 2012 tax year on W-2 documents provided to employees earlier this year.

This year, employers will be required to notify employees of the availability of state exchanges, now referred to as ‘marketplaces.’ There is also a $2,500 cap on FSA contributions.

What provisions are next?

In 2014, one provision impacting consumers will be guaranteed issue of health insurance policies. Guaranteed issue will provide access to affordable coverage to hundreds of thousands of individuals who may have previously been denied coverage because of pre-existing conditions.

Another provision impacting consumers is the implementation of state, federal and partnership marketplaces. A marketplace, in essence, is a state-based transparent and competitive insurance shopping and buying website administered by a governmental agency or nonprofit organization, where individuals and small businesses with up to 99 employees can buy health insurance plans. On Jan. 1, 2014, marketplaces will open to individuals and small employers, and some consumers will qualify for a subsidy from the federal government, helping to offset the cost of coverage purchased through the marketplace.

Additionally, on June 28, 2012, the U.S. Supreme Court ruled the individual mandate constitutional. It’s considered a tax that will be reported and paid when filing income taxes. The individual mandate takes effect Jan. 1, 2014, meaning all persons will be required to have health insurance or pay a tax penalty.

At the same time, the employer mandate also goes into effect, meaning employers who employed an average of at least 50 full-time employees, with full-time equaling an average of 30 hours per week, are required to offer employees and their dependents an employer-sponsored plan or the employer pays a penalty. Penalties don’t apply to employers with fewer than 50 full-time equivalent employees and there is no penalty if affordable coverage is offered. Employers with 25 or fewer employees may be eligible for a health insurance tax credit if they offer insurance, but the credit is only available on the marketplace in 2014.

Lastly, in 2014 employers will be allowed to offer wellness incentives of up to 30 percent of the cost of coverage.

What can be done to prepare for 2014?

Talk to your health insurer and financial adviser to find the best health insurance option for your employees next year.

Marty Hauser is the CEO of SummaCare, Inc. Reach him at [email protected]

 

Website: To learn more about health care reform, visit www.summacare.com/healthcarereform.

 

Insights Health Care is brought to you by SummaCare, Inc.

 

How to decide what business loan rate of interest works best

Gabe Makhoulf, First Vice President, Commercial Lending, First State Bank

Gabe Makhlouf, First Vice President, Commercial Lending, First State Bank

Alfred DeFlaviis, Chief Lending Officer, Senior Vice President, First State Bank

Alfred DeFlaviis, Chief Lending Officer, Senior Vice President, First State Bank

When business owners decide to borrow funds from a bank, one of their major decisions is whether to take a fixed rate or a variable rate of interest.

“There really is no correct answer, whether to choose a fixed rate or a variable rate when borrowing,” says Alfred DeFlaviis, chief lending officer and senior vice president and Gabe Makhlouf, first vice president of commercial lending, both at First State Bank.

Studies have found the borrower is likely to pay less interest overall with a variable rate loan versus a fixed rate loan. But, that doesn’t take into account that the longer the amortization period of a loan, the greater the impact a change in interest rates will have on payments. However, by asking a few questions, borrowers can make their final decision easier.

Smart Business spoke with DeFlaviis and Makhlouf about what you should take into account when deciding on a fixed or variable rate of interest.

What is the purpose of the loan?

Companies borrow for many different reasons, but the funds can be classified into two categories — short-term or long-term financing.

Short-term loans can be for, but are not limited to, payroll and accounts payables. Borrowers typically use a line of credit and repay the funds advanced as they collect their accounts receivable. Because you borrow the funds short term, borrowers typically elect a variable rate of interest. The variable rate is less than a fixed rate. Borrowers also repay the funds quickly so there’s a lower risk of interest rate fluctuations.

Examples of long-term borrowing could include equipment purchases, plant/office expansions, real estate purchases and business acquisitions. Borrowers typically need a loan term of three to 10 years or a real estate mortgage loan, usually amortized over 15 to 20 years. In this scenario, the funds are based on a longer repayment program, so you usually choose a fixed rate of interest. The repayment comes from cash flow generated from business operations. So, a fixed principal and interest payment amount factors into your company’s budget, and therefore is not subject to interest rate variations.

What is the current and projected interest rate environment?

When deciding between fixed and variable interest rates, you should take the current and projected interest rate environment into consideration.

For example, if interest rates are currently low and projected to stay that way for 12 to 24 months and you are considering a three- to five-year loan, a variable rate of interest could work. In this case, the fixed rate of interest offered will be higher initially so the variable rate option would be better. And should rates rise, if your cash flow allows, you can always accelerate the repayment by making additional principal payments to reduce the risk and the principal outstanding.

However, if interest rates are projected to rise, you might want to borrow on a fixed rate because you will have the security of a fixed monthly payment, whether rates rise or not.

Keep in mind that virtually all fixed rate loans come with a ‘prepayment penalty,’ which is enforced if the loan is paid off early.

What is your current financial position?

As with any obligation, borrowers must consider their ability to repay loans should interest rates rise dramatically, or even slightly.

If you have the financial ability to weather a spike in interest rates over the course of the loan, a variable rate might be the best option. Again, the initial rate of a variable interest rate will be less than a fixed rate and, therefore, the borrower will incur less interest cost.

If you have projected the repayment of the loan based on future revenues, rather than current, a fixed rate loan would be a better option. This reduces the risk of rates rising, which allows business owners to always know exactly what they will be billed monthly.

There really is no correct answer whether to choose a fixed rate or a variable rate when borrowing. The decision is based on so many variables that there is no fixed solution.

Alfred DeFlaviis is a chief lending officer and senior vice president at First State Bank. Reach him at (586) 775-5000 or [email protected]

Gabe Makhlouf is a first vice president, commercial lending, at First State Bank. Reach him at (586) 445-4856 or [email protected]

 

Website: To compare business loans at First State Bank, visit www.thefsb.com/businessloans.

 

Insights Banking & Finance is brought to you by First State Bank